The Current Business Situation

PRESIDENT STAPELLS introduced the speaker. Professor Clark, who was received with loud applause, said: In these days one accepts with certain misgivings an invitation to speak on current business conditions-lest one add unduly to the prevailing atmosphere of gloom. You will recall Eddie Cantor's recent predicament. He had just joined a society dedicated to the noble task of eliminating the word depression from everyman's vocabulary. The next time he had occasion to speak he said

"Gentlemen, this is not a depression but candor compels me to admit that it is the smallest boom I have seen in several years". Candor compels me to go even farther than Mr. Cantor did and my sense of sound public policy drives me in the same direction. The ostrich habit of hiding one's head in the sand avails but little. What we need is scientific assembling of the facts-all the factsand frank, courageous facing of those facts. I have sufficient faith in my fellowmen to believe that they will not be frightened by mere words nor yet by tasks to be performed, however stupendous they may seem to be. I am convinced that we all desire to know the problem in all its magnitude, so that we may devise commensurate remedies and. buckle down to the task of getting the "business" over with as promptly and effectively as possible.

The problem before Canada and the world has been continuously underestimated in these last two years-and with disastrous results, as you know. It has also been exaggerated in some quarters. When I think of this exaggeration I am reminded of the story of the colored candidate for the ministry who on his appearance before the Examining Board of his Church was told to pick out some Biblical character and tell what he knew about him or her. "Ah thinks Ah'll take Jezebel", says he. "Jezebel, she was a hussy, a-setting up at a winder when David came down along thu Jerusalem. An' she hollered at 'im. An' he said 'Ef I got a frien' up there, let him th'ow 'er down'. And David had a frien' up there and' 'e th'ow'd 'er down'. An' David said, 'Let 'im th'ow 'er down again. An' 'e th'ow'd 'er down again. An' David said 'Let 'im th'ow 'er down seventy times seven.' An' 'e th'ow'd 'er down seventy times seven. An' she busted into a thousand pieces. An' they gathered up the fragments that nothin' be lost. An' de question am : Whose wife am she at de Resurrecschun?" (Applause and laughter.) In these troubled times there are many who seem to think that Jezebel's fate has been visited upon our economic system which only two short years ago was carrying those of us who live in Canada and the United States at breakneck speed through "New Era" of prosperity, such as no other country had experienced in the history of the world. To such people our economic machine has been broken into a thousand pieces and there is no one to claim the fragments. Surely that is an exaggerated, if not a wholly false, view. True it is that the machine is in trouble, that four or five of the sixteen cylinders are missing fire, that two or three of the tires are flat, that the speed has been slowed down to a snail's pace and that a good many of the passengers have had to get out and walk. But-if I may state a conclusion dogmatically without attempting proof at this time-the machine, in my opinion, is not incapable of repair. The engine needs to be overhauled, the battery recharged, the tires renewed, nuts tightened and moving parts re-lubricated. The brakes need relining and a powerful system of headlights needs to be installed if were to drive again at the pace of 1929. Back-seat driving must be eliminated and more responsible intelligent direction at the wheel is required. With such a thorough overhauling and such improvement in controls, it will probably be found that the "old bus" is still without an equal, superior to the only competitive model which has yet appeared, and capable of carrying us at record speed on to new peaks of prosperity.

I have not the time to give a comprehensive analysis of the causes which have led to the present recession. However, to obtain a modicum of background, I would like to make brief reference to three or four special aspects of the depression which are important for an understanding of its nature and for the consideration of possible remedies. In the first place, we should be careful to note its world-wide character. Never before has the world witnessed a depression so comprehensive in its economic character and so extensive in its geographic scope. Every important aspect of the economic system, and every important country of the world have been affected. Moreover the process of influence has been cumulative. As each country came to be affected, it, in its own turn, exercised a depressing influence upon other countries, thus continually extending and intensifying the process of economic decline. President Hoover has recently summarized the measure of this international deterioration as follows :-"Within two years there have been revolutions or acute social disorders in nineteen countries, embracing more than half the population of the world. Ten countries have been unable to meet their external obligations. In fourteen countries, embracing a quarter of the world's population, former monetary standards have been temporarily abandoned. In a number of countries there have been acute financial panics or compulsory restraints upon banking."

The basic cause of this characteristic of the present recession is obvious. In an economic sense the world has become one. What affects one member must affect all, this despite the fact that on the political side we have seen steadily increasing manifestations of separatism, of rampant nationalism.- Much of our current trouble comes from our inability to reconcile this stubborn nationalism with the economic forces that tend to make the world a single entity. If the ramifications of the recession are so world-wide, and its causes, in part, based on international relationships, then it would seem obvious that recovery will call for international as well as intra-national remedies and that no single nation can expect to come out of the trouble alone, of and by itself.

The second, and most significant feature of the present depression is the persistent and calamitous fall in the general level of wholesale prices. That fall, though somewhat less precipitous than the drop in 1920-21, has been unique in many respects. In particular, it followed a period of price stability, not of great inflation as in the years prior to 1920, and while starting slowly in striking contrast to the sharp decline in common stock prices, it gradually acquired momentum as it penetrated throughout the world's markets and it has now become the outstanding feature of the recession. In scope and in severity-in most countries the decline has exceeded 30 %it has few counterparts in modern economic history. It is now clear that its causes are not only cyclical but secular. In other words, we have had superimposed upon the ordinary price decline, which invariably characterizes the oncoming of business depression, the downward thrust of a long run tendency to declining prices. Examining the record at this late date, we can now see that the general tendency of gold prices has been downward since 1920 and that the cyclical fluctuations in the meantime have been playing above and below this downward trend. Unfortunately we still know too little about the subtle chains of causation in the movements of gold, credit, trade and prices, but we are probably justified in selecting the following factors as primarly responsible for this declining trend:

1. The increasing volume of world production of goods, due to the improvement in equipment, processes and managerial technique,, also the development of rationalization, etc.

2. The declining annual output of gold and the failure of the world's monetary stock of gold to increase at a rate commensurate with the rate of increase in the physical volume of trade, say 3% a year. World gold production, as you recall, reached its peak in 1915, declined for about ten years and latterly has been increasing somewhat. The world's gold stock has increased in the last thirty years but at a steadily decreasing rate.

3. The substantial increase in the demand for gold for monetary uses which has come with the resumption of the gold standard since the war. Though certain modifications of this monetary standard which were adopted by some countries, particularly the so-called gold exchange standard, served to economise gold, these economies were offset by the establishment of new definite legal reserve ratios, a larger physical volume of trade, a higher general price level and the widening of the area within which the gold standard was operative.

4. The so-called maldistribution of gold, the fact that an undue proportion of the world's stock gravitated to

France and the United States where it was not allowed to work out its full effect upon commodity prices. As you know, a cardinal principle of the gold standard is that gold movements shall be allowed to exert their full influence on prices. Only in this way are countervailing forces set in motion which will restore international price equilibrium and secure an efficient distribution of the world's gold supply. The normal sequence of events is roughly as follows. Gold flows into a country, credit expands, prices rise in the importing country, imports are encouraged, exports discouraged, and a counterflow of gold is set in motion. But in the last few years; this normal sequence of forces was impeded by various factors, including the positive measures taken by certain countries to prevent domestic inflation as a result of gold inflow, the necessity under the gold exchange standard for some markets to maintain excessive stocks of gold to meet possible heavy demands on the part of foreign governments, and the desire of several governments to accumulate huge gold stocks for political reasons, without reference to the immediate economic effects of their ,action. While, in my opinion, the undue concentration of gold in France and the United States was itself primarily dine to fundamental economic factors such as reparations, allied debts and high tariff walls on the part of the great creditor countries, and while the gold stock of the United States was not as effectively sterilized as many people seem to think, yet it does seem clear that maldistribution did occur and that its net effect was to increase the burdens imposed upon an already doubtfully adequate world stock of monetary gold.

5. Finally we have the perverse effect of gold movements upon the security markets in the United States. As the result of a complicated set of factors, most of the effect of the huge gold movement into the United States and the resulting credit expansion, were concentrated mainly in the real estate and security markets. The expansion of buying power in the fairly narrow market for common stocks caused a skyrocketing of values, but this rise in prices did not set in motion the series of forces described above which automatically tend to stop a gold inflow. Instead of curtailing demand, rising prices for common stocks intensified the demand for them and the gold inflow, instead of being reversed, was still further stimulated. So the maldistribution of the world's gold supply was accentuated.

If this is a correct diagnosis, it is important for our prescription. Of more immediate concern to us here, however, are the effects of this drastic decline in prices. As I have already stated, the price decline of 1929-31 was unique in that it followed an era of price stability. This two-year decline was, however, only one episode in a story which began in 1920" the story of the deflation or liquidation of the inflationary movement of the war and early post-war years. As Colonel Ayres has pointed out, this is the third of these great deflationary movements in the history of this Continent, the two earlier ones occurring after the Napoleonic Wars and the American Civil War, respectively. But while it has taken about the same time to get prices back to pre-war levels in all three cases, the peculiar feature of the latest deflation is that it has come in two installments. After rising to a peak in 1920 about 150% above the 1913 level, wholesale prices declined drastically in the first post-war depression, then stabilized at roughly 50% above the pre-war level for about nine years and in 1929 began a second descent which today has carried them back approximately to pre-war levels. Now in the nine year plateau, commodity prices at wholesale were sufficiently stabilized to justify confidence in their stability and all other prices became stabilized in adjustment to them--retail prices, wages and salaries, cost of living, real estate values, taxes, freight rates, etc. True it is, that with the impediments placed in the way of the normal working of the gold standard, this equilibrium was always doubtful, especially insofar as international relationships were concerned, but the fact remains that in the nine year interval the various interdependent parts of the price system did work out some sort of stable adjustment. This system has been suddenly dislocated and business relationships are everywhere disrupted. Retail prices and the cost of living are out of alignment with wholesale prices; wage rates, salaries and other items of manufacturers' costs are out of step with selling prices; raw materials, agricultural products, producers' goods and consumers' goods have broken their traditional adjustments, and so on throughout the list. If it is true that prices are going to remain at roughly two-thirds of their former values or, worse still, are going to continue downward, then it would seem that wage rates salaries, taxes, and other items of cost may still be impossibly high, unless some striking increase in efficiency takes place. If prices stay down, land values, rents, leases, as well as taxes may prove to be too high. It would seem also that the burden of debt, piled mountain-high in the days of the "New Era" and already frequently backbreaking even under the old price level, may prove in many cases to be too great, and have to be scaled down. Falling prices increase the burden of debtors everywhere, whether the debtors be individuals, corporations, municipalities or nations.

I need not labor the argument. This, however, is one of the major problems of 1932. Must the new level of wholesale prices persist and, if so, must all other prices-retail prices, wages, salaries, rents taxes, interest, etc.--work out a new equilibrium by a painful process of readjustment? Or is it possible by increases in productive efficiency to reconcile the new levels of wholesale prices with the present levels of the various items of cost? Or can we hope to avoid the painful process of readjustment either by some automatic or deliberate method of lifting wholesale prices to something nearer the old levels?

The first alternative is not pleasant to contemplate.

As to the second, it is doubtful if alone it can be a sufficient corrective of dislocated price levels, though it behooves everyone to press for increased efficiency. Automatic inflation has come in those countries which have gone off the gold standard, and even in gold standard countries the ultimate effect will be to lower the value of gold and thus increase gold prices. But it is difficult to say how important this factor will be. Can we hope for automatic inflation through the rise of new demands or the expansion of a great industry like building or automobile manufacturing as in the period after 1920-21

One must regretfully admit that nothing of this sort now appears on the horizon. Finally, dare we contemplate the possibility of deliberate inflation with all its dangers, through co-operative central bank or governmental action?

A third aspect of the business depression to which I wish to call attention is the special burden which declining activity and declining prices have brought to the agricultural classes and the agricultural areas. This phenomenon is all too familiar to Canadians. It has several fundamental causes. On the demand side, two chief factors have been at work. In most "civilized" countries, population has been growing at a slowly decreasing rate and this has retarded the increase of demand for food. The substitution of mechanical for animal power, especially important in Canada and the United States, has likewise reduced the demand for fodder. On the supply side, we have seen an extension of the world's arable area in North America, South America, Europe, Asia and Africa, due to improved means of transportation, to irrigation and drainage projects, to the development of new plant varieties and to the growth of economic nationalism, especially in the former belligerent countries of Europe. We have seen also the spread of scientific methods of cultivation, the improvement in the business and managerial aspects of farming and the invention of numberless improvements in mechanical devices which have increased substantially the productivity of the agricultural worker. Finally, we have witnessed the astounding effort of Soviet Russia to "come back" in the world's agricultural markets in order to get the "wherewithal" to carry out the Five Year Plan. In addition to this more rapid growth in the supply of agricultural

products relative to the demand for them, we find other factors making for special weakness in this field. The demand for most farm products is notoriously inelastic--increased supply brings an unduly great decrease in price. The huge number of small and independent producers prevents effective organization for the control of the market or the limitation of output. Agricultural raw materials form the bulk of the commodities which enter into international trade, and consequently the numerous impediments to international trade which have characterized the last decade have tended to affect these products more than the sheltered domestic manufacturing industries. Finally, most of the nations which produce agricultural raw materials for the international markets are debtor nations, and any difficulties arising in payment of foreign obligations provide a stimulus for forced exports of the staple commodity, sometimes at greatly reduced prices. For all these reasons, evidence of existing difficulties in the field of agricultural raw materials appeared before the recession set in, and the decline in agricultural prices since 1929 has been especially rapid. If the price readjustment to which we have alluded is inevitable, the lot of the agricultural producer will be difficult and the incidence of his difficulties upon the lending classes, the manufacturers of agricultural implements, etc. cannot be underestimated. Any comprehensive program of reform, particularly for a country like Canada, must pay sympathetic attention to the difficulties of the farmer.

The final phase of the business situation to which I with to direct your attention is the crisis in banking and credit which in the last six or seven months has supplemented the influence of declining prices in increasing the intensity and scope of the business depression. Fortunately, this is a phase which we have largely escaped in Canada, thanks to the generally sound organization of our financial institutions and to the confidence of the Canadian public in their financial strength. However, we cannot afford to ignore a factor which has so profoundly affected our nearest neighbor and several of our most important customers. Moreover, Canada is one of the many countries which during the crisis has had to go off the gold standard-to all intents and purposes. Search for the ultimate causes of this crisis of confidence would lead us back to such fundamental factors as the reparations and allied debt agreements which were the heritage of the war; to the stupendous totals of debt, private and public, which were built up in the years prior to 1929 when rising trends seemed to be immutable laws of nature; to the replacement of England by the United States as the world's lending nation with all the evils of inefficiency, inconsistency and timidity which are inevitable in amateurish lending; to the weaknesses of the gold exchange standard and the other modifications introduced in the normal working of the international monetary standard; and to the sins of economic nationalism committed chiefly by the great new creditor nations of the world which failed to realize that one cannot eat one's cake and have it too.

But these are complex questions which we cannot hope even to outline here. Suffice it to trace the development of the credit crisis and to suggest what immediate importance it may have for us. It began, as you recall, early in May with the emergence of difficulties in Austria's leading credit bank, and later spread from one country to another like the plague, carrying destruction in its path. June and July saw the German crisis emerge and culminate. This was checked by the $100,000,000 credit to the Reichsbank, the Hoover moratorium on reparations payments and the so-called "standstill" agreement immobilizing until the end of February next the huge total of foreign short term balances in Germany (chiefly held by England and the United States). In mid-July the run began on the City of London, a run by foreign creditors who were frightened by the knowledge of England's huge balances now frozen in Germany and Austria, the Labour Government's failure to balance the National budget and the nation's failure to restore its balance of trade. Fanned by such factors as the May Economy Report, criticism of the so-called "dole", exaggerated rumours of a threatened mutiny in the British Navy and talk of a general election, the outcome of which was not completely assured in the mind of the foreign observer, and checked only for a time by credits of $250,000,000. and $400,000,000. by France and the United States to the Bank of England and the British Treasury, the run continued for two months until a billion dollars in gold had been withdrawn from London, and England had been forced off the gold standard.

Almost immediately after the English debacle on September 21st, the world panic hit New York City. Here again the motivation was largely fear for the safety of foreign balances held in New York banks, though the desire to strengthen weakening situations at home was also probably a factor. In a six weeks' period, over $740,000,000. in gold was either withdrawn from the country or specially earmarked for foreign account at the Federal Reserve Bank in New York. This foreign drain would not have seemed so threatening had it not been accompanied by a domestic drain of equal magnitude. With his suspicions aroused by the numerous failures of small unit banks, the American investor began increasingly to "run" on his local banks, withdraw his deposits and "hoard" the proceeds. The hoarding movement of course, merely increased the difficulties of the banks, multiplied the number of failures, and caused enormous pressure upon the bond market as a result of the wholesale disposal of securities "at the market" by the banks who were engaged in a "race for liquidity" or a "race for salvation". By the end of October the increase of currency in circulation amounted to over $1,100,000,000. of which the bulk represented hoarding, while in the twelve months ending on that date, the number of bank failures exceeded 2,300, or over 10% of the 22,000 individual banks in the United States. Further, the Federal Reserve ratio dropped from 81.4% in August to under 60 and the New York Reserve bank twice raised its official discount rate.

If I may pass now from this brief discussion of background to an even briefer consideration of the present and immediate future, I would point out that in my opinion the most hopeful element in the present situation is the fact that this world panic, this crisis of confidence, is now apparently at an end for the time being at least. About four weeks ago, the foreign raid on New York ended. Perhaps of even greater importance is the change which has come in American domestic psychology. The hoarding movement and the runs on the banks have apparently been checked, thanks in part to the formation of the National Credit Corporation which, mobilized the resources of the stronger banks for the benefit of those under pressure, and to the announcement by President Hoover of his intention to recommend to Congress legislation providing for the liberalizing of the rediscount regulations of the Federal Reserve Banks, and for the establishment of a system of central mortgage banks to discount residential mortgage paper now resting in enormous amounts as "frozen assets" in the portfolios of many financial institutions. These promises have now been implemented in the President's annual message to Congress on Tuesday of this week, and have been supplemented by several other recommendations, the most notable of which is to establish a two billion dollar reconstruction finance corporation to provide emergency assistance to the railroads and other "sick" industries or institutions. This program should still further help to stabilize the American domestic situation. Now that the Federal Reserve System has come through this unprecedented episode of a double run on its resources with a supply o£ gold apparently still sufficient to pay off all the remaining foreign short term balances-amounting to about 11/2 billions-and in addition to meet any home credit requirements likely to arise, the world can afford to breathe more easily. I say "the world" advisedly, for while this phenomenon seemed apparently a purely American domestic problem, it was full of potentialities of danger for the world as a whole.

Due in large part to the lifting of this credit strain and in part to reports, probably exaggerated, that Soviet Russia would be practically out of the world's wheat market during the next two years, we witnessed a few weeks ago a substantial upswing in wheat and a number of other commodity markets, also in the bond and stock markets. As usual in speculative markets, the pace of recovery became too rapid and the gains have not been held. Indeed, the stock market has made new lows. But a distinct change in the psychology of business men resulted and has, I think, persisted. Business men were apparently surprised to find that markets could go up as well as down, and began to take a new grip on themselves and their businesses. The result is not unlikely to be some improvement in business activity a little later on, representing a deferment of seasonal activity which should normally have come in September and October, and may now be delayed until the end of the year. Certainly this is going to be the case in the automobile industry, where the introduction of new models has been delayed several months by most companies. This postponement of the offering of new models is partly responsible for the record low output of cars in the last two or three months, and it may be that increasing activity in this important industry a little later on will act as a tonic to general business. (Applause). In those countries which have gone off the gold standard, some stimulus has also occurred already in the export industries, due to the depreciation of their currencies.

But if we are to hold the gains already achieved and capitalize a somewhat favorable opportunity, we must have statesmanship of a high order in operation promptly in the international field. Three problems cry urgently for solution: The problem of German reparations and short time credits: the world price and monetary problem; and the problem of international trade policy. To that you may add, if you like, the problem of disarmament, which must receive at least tentative solution in the next few months, but which to discuss here would take us too far afield.

The German problem is most immediately upon us. Presumably the Hoover-Laval negotiations laid the basis for a solution of this problem-or part of it-by indicating the extent to which the United States is prepared to go-much farther, by the way, than would have seemed possible six or eight months ago. But France now holds the key to the situation, and how wise a creditor she is going to be is not clear. So far she has maintained that the reparations problem must be solved within the limits of the Young Plan, and that reparations payments must take precedence over the payment of private credits, whereas Germany, as well as England and the United States, which hold most of the short term credits immobilized in Germany and row estimated at 21/2 billion dollars, insist that the prior meeting of short term and other private debts is indispensable to the solvency of German industry, the maintenance of German trade, and the payment of any reparations. Meanwhile, as this deadlock persists, the number of unemployed has increased to nearly 5,000,000, the Reichsbank gold coverage has steadily declined from 30% to about 12%, departure from the gold standard seems increasingly inevitable, and the disappointments and hardships to which the people are subject are making for a steady rise in the fortunes of the political extremists. Will France be sufficiently far-sighted to see that economic and political pressure has brought Germany almost to the breaking point, and that both she and the world have everything to lose and nothing to gain by forcing Germany once more into financial and political chaos? As Ramsay MacDonald has pointedly declared, the time is short and every minute counts. May world statesmanship be sufficient for the problem; but until we know its record in this case, forecast for business during 1932 is futile.

In a similar way, far-sighted and generous cooperation among the nations seems necessary in the field of price and monetary problems, whose importance we have found to be crucial. In this field the experts differ radically, both as to theory and as to technique, and some skepticism exists as to the results of any deliberate cooperative action. But surely the urgency and nature of the problems call for joint consideration at least, and surely also, some positive good can be accomplished. Certainly, it would seem possible by concerted action to meet some of the problems involved in the disorderly "flight from the gold standard" and the ensuing scramble among the nations for gold. One thing, for instance, that is required is an early stabilization of the English pound---not a return to par" but comparative freedom from fluctuation at some level, however low. Probably neither Paris nor New York can promptly take the place of London as the world's banker and broker-they have neither the specialised insitutions, the technique nor the traditions entirely to supplant their great rival. In their own interest, as well as that of the world, it would seem desirable to cooperate in such a stabilization of the pound as would once more release for the benefit of world trade the unrivalled facilities of the City of London. (Applause). Some such combination of the surplus gold of France and the United States with the brains and experience of English bankers may prove to be a cornerstone of a new era of world prosperity. Or perhaps a more ambitious scheme might be worked out to affect a gradual re-distribution of the world's gold stocks, correcting the serious maladjustment to which I have already referred, and which has been aggravated rather than alleviated by the heavy gold movements of recent months. Permanent correction of this problem involves, however, a readjustment of German reparations, inter-allied and other international debts, and the tariff relationships of debtor and creditor countries. Apart from this problem the whole question of the future working of the gold standard or some substitute international monetary standard must be grappled with. The gold standard has broken down because we have been trying to work it under an impossible set of conditions. To what extent can these basic conditions be changed? If we cannot expect to return wholly to pre-war conditions, what modifications in monetary standards and in the technique of credit control must be introduced to give us a workable world standard and a world system of prices which will perform the vital functions in the guidance of economic activity that prices used to play? Further, is it unreasonable to hope that even under current conditions joint action of the central banks of the world might do something,, at a favorable moment, to break the vicious circle of deflation and save us from some of the pains which automatic liquidation to the bitter end is bound to bring? Some of us may fear the dangers of price control but, for good or ill, whether we wish it or riot, most of the world is none subject to currency management and managed currencies are with us for a long time to come. Can international cooperation not perform some service in this field of currency and credit control? Specifically, would it not appear desirable to call an international conference of the world's central bankers and Finance Ministers, perhaps also of prominent business men of the leading countries, to thresh out this tangled sheaf of price and monetary problems, and recommend to the cooperating countries such joint and individual action as reason seems to dictate? Will such a conference take place or will liquidation be allowed to run its course? I am pleased to note, in the morning papers, Ramsay MacDonald's announcement that Britain plans to call such a world conference immediately after the committee of experts now examining into the German problem at Basle has made its report. Again may we express the hope that world statesmanship may rise to the full measure of its responsibility. (Applause).

While this world conference is at work, it or one of its committees may well assume responsibility for the third of our international problems, that of international trade policy, which is" of course, closely bound up with price and monetary questions. I am sure that, whatever may be our views on tariff reform for Great Britain, each one of us here must be getting peculiar pleasure out of the current spectacle of John Bull administering to his benighted neighbors the same medicine that they have so long forced him to take. (Laughter and applause). But while we are enjoying this spectacle, those of us who have some faith in geographical specialization as the necessary basis for world prosperity may well ask where all this is going to end. We have already referred to the numerous impediments placed in the way of international trade in the post-war decade. We have just seen a world flight from the gold standard resulting in the imposition of automatic import tariffs of 10, 20 or 30 percent in the case of a long list of depreciated paper countries. These, in many cases have been met by the application of anti-dumping tariffs by other countries. The paper currencies, moreover, result in fluctuating standards of value which still further impede the free flow of international commerce. Now the world's great free trade nation begins to depart from its traditional policy with 50 per cent. import duties and power to impose 100 percent duties, and immediately we get threats of reprisal tariffs from France, Italy, Germany and other countries. One may well ask whether the tender plant of international trade can continue to survive at all in such soil and with such horticulture--whether indeed the world is not about to enter a "dark ages" insofar as international commerce is concerned. These are grave questions which deserve the serious consideration of a world conference of statesmen possessed of technical competence, a sense of economic realism and" above all, the spirit of cooperation, the will to workout a working program under which nations may live or let live. As one of its functions, we might hope that such a conference would speed the day when the world's great creditor nation, the United States, will realize that it cannot continue to force debtors to pay current charges on their huge totals of indebtedness, and at the same time refuse to accept the products of these debtor nations in payment. (Applause). As the months pass, more and more people in the United States realize that restoration of equilibrium with the rest of the world will necessarily involve a lopping off of part of the mountain of debts due their country, and at the same time a lowering of tariff walls, with a consequent readjustment of American industry. But judging by the statement from the White House this week, the dawn of official enlightenment is yet to come. (Applause).

In Canada, we are unusually fortunate. We have been less guilty, than several of our neighbors, of some of the excesses which contributed to this depression. We have great natural resources and a financial structure that still retains the confidence of its constituency. We have a people of resourcefulness and courage, a people that has always been able to measure up to its tasks sand will do so again. The special tasks immediately before us are important but by no means insuperable. Our agricultural problem has already been touched upon. Perhaps the most serious of our remaining problems relate to our public finance. Some of our municipalities and provinces assumed heavy burdens in the recent years of hectic growth and universal extravagance. Many of their obligations were floated in foreign markets which now command a premium on Canadian exchange, and at the same time offer no relief via the refinancing route. Under a deflated price regime, these commitments will in many cases prove burdensome, if not intolerable, to taxpayers already beset with numerous other ills. It is high time that our legislative bodies heeded the warning recently issued by the Canadian Bankers' Association to exorcise administrative waste and reduce borrowings and expenditures to the limit. (Applause). The same principles of thrifty administration coupled with a wise selection of revenue-raising devices must also be applied by the Federal Government, which will continue to bear a heavy burden, thanks to its role as residuary legatee in the field of unemployment and financial distress. This function the public will insist that it continue to perform, but perform with economy and discretion. The Federal Government and the country are to be congratulated, first, on the timely conversion of our war loans, and secondly, on the striking success of the recent National Service Loan, which is an amazing tribute to Canada's ability to "come through" in a critical moment. (Applause). But the capital markets will have to be called upon again and yet again in the next two or three years, and if the response is to be equally successful, the most thrifty and judicious governmental housekeeping is essential.

Next in importance amongst our national tasks is probably the solution of our railway problem, a problem which dates back to war and pre-war years, but which has been aggravated by a decade of wasteful competition between our two great transportation systems, resulting in needless duplication of facilities and ridiculously lavish standards of service. Fortunately for my hearers today, this problem has been put up to a distinguished Commission, whose report is now being awaited by the Canadian public with the hope that it may be both fertile in its suggestions of appropriate remedies and persuasive in its power to secure adoption of its recommendations.

Finally, as individuals and as business corporations we have the major task of making our individual and collective adjustments to the new economic system or regime that is to prevail during the next few years. As already indicated, we should bring a sane and informed public opinion to bear upon the cooperative solution of the world's international problems, but even if we assume some measure of success in the deliberate effort to control price levels, a degree of readjustment will probably still be necessary. Undoubtedly, therefore, our major contribution as individual business men and business corporations must be our individual endeavours to readjust ourselves to the changed situation. We will contribute most by making or accepting new price and contract relationships with other individuals, corporations, or social classes that will provide the basis for a new working equilibrium of economic forces. For the business corporation this means, of course, the reduction of production and distribution costs to a point where the balance can be restored between prices and consumer purchasing power. For some individuals it may mean wage or salary adjustments or possibly compromises with debtors. But whatever it may be, let us give up vain regrets and empty illusions,, let us recognize that 1932 is to be a year of readjustment-as 1931 was a year of disillusionment-and let us buckle down at once to the task of effecting those readjustments which are necessary for an early restoration of business prosperity. (Applause).

In proportion as we speed these individual readjustments, and at the same time restore sanity in our international relationships, shall we see an early and measurable restoration of that prosperity for which a harassed world is eagerly waiting. (Loud applause).

Mr. Norman Sommerville, K.C., moved the thanks of the Club; he asked the audience to express themselves in appreciation of one of the most magnificent addresses ever delivered to the Club. The audience expressed their feelings by rising and cheering.