International Trade

MR. MOONEY was introduced by the President, MAJOR W. JAMES BAXTER.

MR. JAMES D. MOONEY: Major Baxter, Honoured Guests and Gentlemen: I think that we are rather accustomed to having our grandmothers have a kind opinion, of us, and to having the Chairmen who introduce us say nice things about us,, but your Doctor Hughes here, who I understand is one of your oldest members and previously very active in the work of the Club, has paid me such a nice compliment that I can't help but repeat it and thank him, and express my supplementary thanks for being awfully kindly treated by your Club. Dr. Hughes must have a bit of Irish in him; he must have kissed the Blarney Stone at some time as will be evidenced by what he said. The old gentleman just said to me, "It wasn't your father who made you so nice looking, it was your mother". That is one that went right into the heart.

I am not at all surprised at Major Baxter's surprise that I am here. I am rather surprised myself! We got into one of those situations, where it had brewed along for about ten days and one day I was phoning to Major Baxter that I would be here and the next day that x wouldn't. I am quite sure that his associates in the Club probably said, "I thought this chap was going to speak on Economics. It looks to us as though he was an opera singer".

Now, your Chairman and I have agreed that I should discuss here today, "International Trade". I don't have to remind you that is a very broad, and at least, superficially, a very complicated subject, but I would like to make one thread run through my remarks today and the thread is this: that international trade, like a lot of other things that have obscure complexions, after all, is very simple in principle, and as we go along, I would like to try and reduce a few of these things in international trade that concern themselves with tariffs and rates of exchange and many other things that have superficial complexions, if I possibly can, to certain central terms.

I do not have to remind you that this subject "International Trade", has been a very cold one during the past several years, principally since the inception of the thing called "economic nationalism" that got under way, perhaps eight or ten years ago, quite vigorously, and reached its climax during the depression, of course.

And, a propos of this coldness of international trade, I would like to interrupt just a moment to tell a story. This yarn is about several men who were seated around a club lounge room one cold winter evening, with the logs blazing in the fireplace and all that sort of thing and as they sat there and observed the various club members as they came in and hung up their hats and coats and entered the lounge room, they observed that each and every man walked over to the fireplace and invariably turned his back against the fireplace with his hands behind his back. They began speculating why men do this and one of the members volunteered this explanation. He said, "Well, it really comes from very old times. At the time that Noah's ark shoved off, very shortly after they were out, the ark sprung a very bad leak and they were all frightfully concerned that the old tub might go down with everybody on board. Just in the midst of the excitement, one of the dogs on board stepped out and volunteered to shove his nose into the knot hole and stop the leak which he did. But after awhile, his nose became very cold and it looked as though he would have to withdraw and then one of the women--perhaps Noah's daughter--came along and volunteered to stop the leak and she put her hand over the leak and quite successfully stopped it. After a bit, her hand became awfully chilly and just about that time Noah came along and volunteered to stop it and he sat on the leak".

One of the members said, "O, yes, but what has that to do with the reason that a man backs himself to a fireplace?" "Well", was the answer, "it explains for the ages, why a dog's nose is always cold; why a lady's hands are always chilly; and why a man's-hmm-well, why a man always backs up to a fireplace".

Now, I think in view of the fact that your country and mine are piling up huge surpluses, constantly, that it is about time for all of us to take this economic body up to the fireplace and give a bit of warmth to the part of the economic body that has had a remarkable resemblance in the past few years to economic trade.

The first thing that we have to confront is this thing (called, "economic nationalism", the thing that really got started as you probably know, and I happen to be accutely aware or sensitive to the thing, because it began drying up the ordinary trade routes, perhaps as far back as eight or ten years ago. Everybody became quite conscious of certain of the consequences of it along about 1928 or 1929, and later through the early thirties. But the thing started, as I say, about ten years ago. The most important characteristic of this form of economic insanity was the fallacious belief that there was a great advantage in shipping everything out of our country and getting nothing back in return for it. As we look back on the experience and here try to translate the thing into simple terms, it is amazing that we could have actually harboured this point of view, that there is any kind of real advantage that you can translate into terms of standards of living in a country, that can arise out of shipping all your commodities and manufactured goods, or whatever you work at, out of the country and in stopping everything from coming back in. I submit, in terms of a simple analogy, that it would undoubtedly be rather bad economics as far as the standard of living is concerned, if you suggested in a village that you should ship whatever you are employed in making or producing to some other town or village and get nothing back in return. You would be ready, quite easily, to convict yourselves of some kind of insanity., The whole thesis of economic nationalism, unfortunately, has been put up as the keystone of a peculiar kind of reasoning. The more you examine it, the more you decide that there is a flaw in the whole thing-in presuming that there is a theoretical advantage in shipping the stuff out and get nothing back in return.

There are all sorts of beautiful technicalities introduced to support that kind of thing, but, ordinarily, they fall down. I had a man come into my office and -suggest that we take part in helping him to sell our Government at Washington on a scheme for creating foreign credits on raw cotton and this was the gist of his scheme. He thought he could make an arrangement with some European country whereby they would liquidate the credit with some kind of percentage taken on their exports of cotton textiles. He happened to have some experience in international finance, the papers said, and he was rather facile in presenting the scheme. The scheme sounded very beautiful, very technical and all that. He would take a percentage, he said. He had the technicalities in quite good order but I was interested in trying to get at the bottom of the thing, it was perhaps something that nobody had thought of before and I appreciated the enquiry and I asked him to go on with the thing. I asked him to take a special example of a European country and he said, "Take Germany". I said, "Now, where does Germany ship the cotton textiles she makes out of our raw cotton?" He hadn't thought of what country but out of the bag he pulled Abyssinia. I said, "What does Abyssinia ship to America to liquidate or close the circle ion the thing?" Obviously, he was stuck because Abyssinia happens to have no products of any kind in any amount that would interest America or that we could buy usefully.

So the scheme, like so many of those schemes that are projected and discussed theoretically, in international trade fall down. When you insist on the projectors completing the circuit, the reasoning fails. And the thing, as I have learned in my own experience is to put in simple terms on am available basis and your answer, in principle, will be very accurate.

Now, I consider that this economic nationalism had more to do with causing the depression in the first place, and in the second place, in continuing it, with its uncertainty and misery and suffering, than any other cause and the sub-causes under which I would like to catalogue in this way, because there are a few principle ones that are subs rising out of the same disease.

In the first place, the economic nationalism stopped the flow of trade from one country to another and because it was not possible accordingly to discharge credits and debits in gold, of course it stopped debt payments everywhere in the world, crosswise and up and down and back and forward. That left the so-called debt structure high and dry. I mean, principally, the international one with the consequent repercussions on the international structure. Obviously, it was the cause of taking us off the gold standard because all that being on the gold standard really means is that you are able as a country to pay gold on the demand of whatever paper, internally or externally, you are confronted with for demand of payment in gold. If you can pay it, you are on the gold standard; if you can't you are off it. It isn't a theoretical thing as some people assume.

The point there, of course, you go back to the same thing all the time-is that ordinarily under reasonably normal conditions, trade flows from one country to another and these international balances are being settled with goods, or a great part of them. When you suddenly pass a rule that goods are no longer acceptable for those payments, you throw the strain on gold. It can't be met and everything topples off the gold standard.

The next point in the logical sequence with that terrific demand for gold to meet gold payments is that of course the prices of commodities in terms of gold go down. If you believe in the law of supply and demand, you know that the gold prices of commodities depend on the supply and demand for those commodities and the supply and the demand for gold, and as the demand for gold goes up, the price of the commodities goes down. According to the way it actually works by experience, as we have found countless times, the two things confront each other in the relationship that establishes the price of the commodity in terms of gold.

As I say, we have suffered very badly from a collapse in gold prices of commodities and that, in turn, can be traced very definitely to this economic nationalist thing.

And the final point in that particular series is that when you force gold prices of commodities away down, you leave manufactured and consumer goods, high and dry in price. The equilibrium within the two things is destroyed. There is a serious gap introduced and the goods don't exchange. You don't get farm products exchanged for consumer and manufactured goods because the prices are entirely out of harmony, not just because people feel they are out of harmony. You have the very practical point that after a farmer markets a certain number of bushels of wheat at whatever the prevailing gold price is, if that price is low, the total amount of income is very low and there is nothing left over for surplus requirements. All the farmer can do is just buy the ordinary necessities and a great variety of consumer and manufactured goods are left high and dry, entirely without market.

I think that the interesting thing about the whole international trade situation, as far as your country and mine are concerned, is that some people think that we can play around with it and deal with it as we wish and be quite happy about it. That is rather a ridiculous position to take in the face of certain figures that exist, as a matter of record for your country and mine. Your country has certain percentages of available exports--I mean surpluses for export--and so has mine, that you simply can't laugh off.

I am not going to bore you with the statistics, but I shave just a few on Canada that I got recently from your Government officials at Ottawa and I must say that I got a great kick out of them because, although I knew that you were inherently an export nation and inherently interested in international trade, these figures have a certain kind of kick that I wasn't quite prepared for.

For instance, in 1929, Canada supplied more thaw, ninety per cent of the world's requirements of nickel; Canada supplied more than fifty per cent of the world requirements of cobalt; Canada ranked third in the world production of silver and gold; Canada ranked fourth in the world production of lead and copper; Canada ranked sixth in the world production of zinc; Canada led the world in the export of printing paper and asbestos; Canada occupied second place in the export of wheat, flour and automobiles; Canada occupied third place in the export of woodpulp; Canada occupied fifth position among the leading commercial nations of the world in imports" exports and total trade; and, finally, your Government officials gave some statistics on your railway freight that I thought were awfully significant. Approximately thirty-three percent of the total railroad freight loaded in Canada was to foreign connections--approximately thirty percent of the freight unloaded was from foreign connections.

After an array of just cold figures like that, I maintain that the summary really lies in the freight figures. I think when you consider that a third of your total trade, roughly, is shipped abroad-I mean in and out as it was in 1929 when you were moving along without much un employment and getting along quite prosperously here, I think it answers the question, automatically, as to 'whether or not your country has to consider this thing.

The statistics in the United States have about the same general character to them, although they are not quite so extreme. As I recollect, our exports are something around twenty percent--I mean twenty percent of our crop is available for export. We have the high spot in cotton of which about fifty percent is available for export. The other statistics range themselves, accordingly.

It is quite remarkable that your country and mine have this rather close similarity as economic institutions and foreign trade projects itself into the economics of our own situation in a way which makes it quite futile to discuss seriously shutting ourselves up inside our own borders. In other words, you have a lot of surpluses of farms and factories and mines and mills and forests and so have we. In the second place, there are a lot of things you have to have from abroad-rubber, tin and cotton and a long list of certain types of material that are absolutely necessary to carry on the industrial and commercial scene today, and on top of that, all sorts of things made abroad.

I happen to spend about half my time abroad and I travel rather extensively in certain countries around the world and I am constantly amazed at the variety of things that they have available in their shops and places that the American housewife or the Canadian housewife would be perfectly happy to have available. Now, there must be some means of our using some sense in this interpreting of foreign trade in terms of a standard of living and what is available for the average housewife to keep house with and make the family comfortable, and that is what it is finding out, of course.

There is another way that our countries are rather similar in this economic situation and that is in the economic status of certain attitudes about these things in international trade. You have the same variety of fallacies going the rounds, quite generally and popularly believed in, that we have. The first that is quite popularly believed is that there is some way of controlling the world production and the world price of wheat. Now, if you will examine the records, I think you will find it quite interesting to find that in spite of all the different kinds of manoeuvring around with exchange and money, if you look at the price of wheat today in terms of gold, you will find that it was just about the same early in 1933. A year has gone by and the price of a bushel of wheat in terms of grains of gold hasn't paid much respect to our various international manoeuvres. The second fallacy, generally believed, is that you can protect a commodity inside your own borders by putting tariffs on that particular commodity.

Now, that is an old mirage or illusion. The way the thing actually works is this: If you have an export surplus on a commodity like wheat, when you ship that abroad you will take the world price for it, the Liverpool price, if you want to ship abroad and if you decide to go the other way and keep the wheat, your stock will increase and as long as stocks increase, the price goes down and that price will go down to the world level or slightly below it, at which point the wheat will start moving abroad again.

And the third lovely one, the prize of the whole business, is that there is a great economic advantage in shipping all your wheat, your cotton and this, that and the other thing, without getting anything back for it. That is quite popularly believed.

The fourth and the last one that I want to catalogue at the moment is the belief that there is a great advantage in depreciating your currency as a means of putting you in the export business or strengthening your international business and exports. If you analyze very carefully, you will find at the bottom it is just an ostrich-like way of cutting the gold price on the commodity or manufactured product or whatever it is.

Now, the danger in the thing, I mean, ironically, that the principal danger in that lies in the direction of the country that does it rather than in the countries that seem to be harmed by the competition. Getting that back to village terms and terms of industrial competition and all that, in, a simple way it amounts to this: If you buy business from your competition at prices below your real cost, you won't last in business very long. I mean that you must be sure you are getting your cost out of the thing and if depreciated currency keeps up the illusion for you, as expressed in whatever paper money you are getting per bushel of wheat, or motor car, or other manufactured article, if that illusion of paper money drives down the price you get below your real cost on a gold basis, your are just giving part of the country away.

Now, I can't discuss the international situation without jumping into the problem of international exchange and here I go--off the deep end. Somebody said in New York the other day that there were only two fellows left in the world who understood money. I am not going to make any pretence at being one of those, but I have quite a lot of experience during the past several years in the foreign exchanges and have been responsible for converting quite a few hundreds of millions of dollars worth of exchange back and forth in one way and another and I would like to tell in a few moments what we have learned about it.

In the first place, great discussions have been going on during conferences-international conferences-in the newspapers, day in and day out about the same thing. We have to get together and stabilize the cross rate of exchange. In other words, we need an international agreement on this thing. To crisp the thing up a bit, if you don't mind my using the terms X and Y, which we used in Algebra in High School, I would like to explain it this way: The cross rate in exchange, I mean the value of a pound sterling in paper and the value of a paper dollar are an X over Y relation--for this reason--that the pound sterling is X in terms of gold-a rather unknown quantity. I am not saying that with any implication of sarcasm or anything of that sort. T am only saying that the best actuaries and statisticians are employed by the Canadian government, the American government or the British government, in trying to arrive at the proper point for evaluating the pound sterling or the dollar and it is a very risky business because until you pick the right point, you only have to do the job over later. During all this discussion, you have a situation where you have an unknown in X. It isn't possible yet to tell what X exactly is; in other words, how many shillings a pound sterling is worth today; and in the same way what an ounce of gold is actually worth, not by decree but according to the law of supply and demand of paper in gold, in terms of dollars.

So, you see we are in an economic situation where it is very difficult to evaluate the value of X and accordingly, the value of Y; obviously for two reasons--it is rather academic itself to try to agree on X over Y--because you actually have a very different statistical job to do; in the second place, if you look over the records, we haven't been able to agree on much simpler things than that.

I would like to make just a simple suggestion of how the thing must be approached and it isn't very original; in fact it is not original at all. If you have an X over Y, you want to get straightened out, the first thing to do is to get busy with X and straighten that out, and then you get busy with Y and straighten that out, and, fundamentally, we won't get the thing X over Y arranged until we do that because both of the currencies have to finally harmonize themselves in terms of gold, because it is an economic fact, in spite of all the yarns in the newspapers and the long discussions, that international balances are possible of settlement only in terms of gold. There is no nation that has given any indication of really accepting any other nation's currency for credit instruments in settlement of debt. So, accordingly, the thing must be settled in, terms of gold in order to establish the cross rate sufficient to decide and get it fixed by balancing budgets and, perhaps, revaluing if necessary, and balancing each country's foreign payment; in other words, it amounts to the old story: You have to put each country's house in order. And when they come to stability, so that paper money can be evaluated in terms of gold, when you bring the two together, they are equal to the same thing--they are equal to each other.

This prophetic business is awfully dangerous but I would like to take a chance on just one. I have this feeling: that England will be one of the first countries actually to stabilize its currency--I mean to set a definite value on a pound sterling and my guess is that when England does that, we will start leading the way out of this currency chaos, because it will clear up the atmosphere a lot to have one of the great countries say, "Well, from now on our paper money is worth so much in gold and if when you bring so much gold in, for it we will give you so much back".

From this on, my further guess is that London will be firmly entrenched again as the financial centre of the world. That is one I would like to deduce this way: If you were operating a bank in a town and several other banks were there and at the banks it was the rather prominent practice to take gold in and get a receipt and have the cashier say to you, "Well, now, yes, a thousand ounces of gold. Maybe we will only give you back eight hundred. I am very uncertain about this situation. It may be nine hundred but we will do the best we can." Now, if all the banks were doing that in the village, and if a certain smart banker would put out a shingle and say, "If you bring a thousand ounces of gold in here you will get it back", I don't have to tell you that he would corral the banking business for that town.

Now, just a few minutes and I will finish this up. I think as you sort of review the whole international situation particularly, from the economic side, I think one of the fundamentals that stick out quite simply and obviously in your country and in mine is that we need our foreign trade back very badly. I was looking over some figures the other day and some of them showed me that in 1928 and 1929, trade between Canada and the United States alone, just between our two countries, amounted roughly to about eighteen hundred million dollars, and it has since dissipated away to something in the area of a hundred or two hundred million. It is a remarkable shrinkage in that trade. I challenge any one to say that that shrinkage has not had a remarkable effect on our business conditions and on yours, and a further remarkable effect on our standard of living. So, I think we are just about due to take a good fresh look at this whole situation. I think we have done rather badly with our economic nationalism; so far, it has caused us a lot of suffering and misery and I think it is about time for us to have a good look around and for both of our countries to have some more foreign trade.

My suggestion is, while we are looking around, why not have a good look at each other? At the time you were having your conferences at Ottawa here, before the British Imperial pacts, some of my friends in New York brought up the question-they seemed to be rather disturbed in some ways about the thing; "wasn't that going to be inimical to American trade with Canada and, perhaps, American trade with the British Empire?" My answer was, "For Heaven's sake--NO. It is so pleasing and gratifying to see certain areas in the world, certain, countries get together to discuss how to get the old pump primed up again, that I, personally, was quite happy about it.

But I would like to introduce this point: that whatever you do in Canada, within the Empire, whatever you are inclined. to do in the way of giving Empire advantages and so on, I think it will be very useful for you to keep in mind a lot of the other countries and, particularly, the United States, because in some way or another, if the two positions can be handled properly and you can remarkably increase your trade within the Empire, the added other trade to that would give the most happy results and I think I can say most sincerely in discussing the thing, and I have discussed it a lot with my British friends in England and Australia and various parts of the Empire, that after all the British Empire depends for its strength, its economic strength, particularly, on the strength of each unit. If you keep in mind that, if the Canadian unit as part of the Empire is remarkably strengthened, obviously, that strengthens the Empire. It is the old story, that the whole is equal to the sum of all its parts.

Well, Mr. Chairman, this is about the end of my yarn on "International Trade." In conclusion, I would like very much to express my thanks and appreciation of the honour that Major Baxter and his fellow officers and the members of The Empire Club have paid me in asking me up here. I have known quite a few of your members for several years and I have come to have some appreciation and understanding of the ideals and schemes of the Empire Club of Canada and I am very happy that I have been given the opportunity to express my respect and admiration for those aims and ideals. (Hearty Applause.)