Part 4

THE EFFECT ON ITALY

Italy’s purchases in 1914 were five hundred sixty-four millions for imports against which she exported four hundred twenty-six millions; in 1915 her imports were nine hundred and seven millions against four hundred eighty-eight millions exports. When she got fully into the war in 1916 her imports were sixteen hundred and nineteen millions against five hundred and ninety-six millions exports. In 1917 her imports were fourteen hundred and twenty-nine millions; her exports four hundred and thirty-five millions. Italy’s bonds at five per cent. have been selling for eighty-six cents on the dollar, and an American dollar in New York will at current exchange buy about nine lire to the dollar, and one dollar, now (August, 1918) will actually buy ten lire of Italian bonds bearing five per cent., so that such bonds would return the investor ten per cent. payable in lire, which after the war must come back to par, and gives the investor a hundred per cent. bonus besides.

This means that brave Italy, shedding her blood lavishly on the battlefields for the liberty of mankind, is paying a hundred per cent. on top of war prices for the supplies required by her people, except goods sold her on credit by her Allies.

There are several reasons for this:

First.—To the extent that Great Britain, the United States and her Allies are not extending credits on a normal basis to Italy, Italian purchasers are compelled to rely upon private credits extended by citizens of other countries, who may or may not understand the stability of the Italian Government, nor the financial security of loans extended to Italian purchasers. The element of hazard, lack of knowledge and desire for gain of the private creditors of Italy are important elements in determining the enormous cost to Italians of credits for their purchases for war needs. To the extent that the United States, for example, furnishes credits to Italy, Italian purchasers only pay the ordinary war prices, but precisely to the extent that private credit is extended to Italy, Italy at present is paying approximately ten per cent. interest and a hundred per cent. bonus on the credits extended to her. This should be immediately corrected.

This egregious example will demonstrate the importance of obtaining for Italy sufficient credits at fair rates to cover her purchases during the war, and it illustrates precisely and fully the necessity of providing the United States with like credit facilities at fair rates for purchasing from Spain, from the European neutrals and from other nations where there is a depreciation of the currency of the United States.

The United States is paying from fifteen to forty per cent. on her purchases in nearly all the nations except in the countries of Great Britain, France and Italy or their immediate Allies, to whom the United States is extending large credits. It is perfectly obvious that there ought to be immediately organized a scientific, a well-balanced, systematic mechanism for handling this problem, for studying its details in every country in the world. We have no such organism. The Treasury Department through the Federal Reserve Board undertakes to look after the gold and silver embargo. It has a sub-committee passing on licenses to ship gold and silver. This sub-committee passes on applications for the right to ship gold and silver, and is refusing to permit many shipments without providing any means by which the foreign indebtedness intended to be covered by gold shipments can be otherwise covered by gold credits. This imposes a cost of destructive interest rates upon our business men requiring gold or foreign credits with which to settle foreign obligations.

IN THE ARGENTINE

In the Argentine American purchases have exceeded American sales to the Argentine during the last year, or since we entered the war, by about sixty million dollars. The Reserve Board was enabled to effect an arrangement through which Argentine gold credits were placed in New York on satisfactory terms until the war should be over.

This is one of the means by which to adjust our foreign purchases on a basis which requires us only to pay a fair rate of interest for the indebtedness due such country, but it is not the only way; the sale in the Argentine of American securities, of Liberty Bonds, payable in pesos, of War Finance Corporation Bonds, payable in pesos, or secured bank loans there, would suffice to effect the same ends. Such sales would be equivalent to shipping commodities to Argentine in settlement of our trade balance.

But if British merchants and banks, if French merchants and banks, if American merchants and banks were freely furnished the right to buy Liberty Bonds and War Finance Corporation Bonds payable in terms of pesos, thousands of individual adjustments could be made through such securities or with such securities as a basis of credit for the period of the war.

Argentine has a favorable trade balance. Argentine has the money and credits to lend. Argentine cannot otherwise conveniently employ these funds which are in excess of her normal requirements.

Argentine is therefore in a favorable position to make such loans, just as Spain is; moreover, if Argentine does not make such loans she will have her trade injured in a manner which was pointed out above in relation to Spain.

The United States also controls through the War Trade Board the issuance of licenses covering imports and exports. These licenses can be serviceable in bringing the dollar towards par by opposing no obstruction to the export of goods not required for actual war purposes to countries to which America owes a balance of trade.

The Shipping Board, as far as the war permits, should encourage furnishing bottoms to take supplies of commodities to those countries where America owes a trade balance in order to liquidate such balances as promptly as possible.

The Federal Reserve Board, or the Treasury Department, acting under the authority given by Congress to the President, to control the transfer of credits to and from the United States, has a Department under the management of Mr. Fred I. Kent, with offices in New York and in the Treasury Department, which visés transfers of credits to and from the United States. This Department should facilitate in every way possible the placing of American securities, especially War Finance Corporation Bonds and Liberty Bonds, payable in terms of the currencies of the country to which they may be sold, or in which they may be placed as security, and should exercise every effort to place public and private credits in such countries where America or the Allies are in debt to overcome the depreciation of the American dollar and of the Allied currency, and to bring down to par the currencies of such foreign countries in relation to the United States and in relation to the Allies; otherwise the United States and the Allies will continue to suffer the enormous cost of these usurious credits which appear in so egregious a form in regard to Italy, but which in degree applies with equal force to the United States, to Great Britain and to France in their purchases from various other countries.

In 1917 the United Kingdom imported five billion, one hundred and eighty-four million, and exported two billion, eight hundred and ninety-four million; her excess imports were therefore over two billion, two hundred million. France had an excess of imports over exports of over two billion. Italy had an excess of imports over exports of over a billion, but the total imports of the United States, the United Kingdom, France and Italy amounted to over twelve billion dollars, a large part of it from neutral or non-belligerent countries who had a favorable balance of trade, and upon which the exchange rate ran from ten to fifty per cent. The loss of these gigantic war purchases which took place outside of the United States, Great Britain and France, probably exceeded a billion dollars because of the adverse exchange rate.

Such loss can be corrected by the United States, Great Britain, France and Italy by intelligent, comprehensive, co-ordinated employment of credits and government power. It is a question of an orderly arrangement by which to systematically accomplish this end.

The United States has as its only agency the Federal Reserve Board and the Treasury Department. The Secretary of the Treasury, occupied by many cares, being Director General of the Railroads of the United States, charged with the duty of collecting and disbursing the gigantic revenues, framing revenue plans, acting as Chairman of the Federal Reserve Board, of the Farm Loan Board, of the War Risk Insurance Bureau, and in charge of the Public Health Service, besides supervising all of the public buildings of the United States, not to mention miscellany, cannot give it much personal attention.

The Governor of the Reserve Board not only has the supervisory control of the Federal Reserve Banks with thirty-eight hundred millions of resources, supervising also the member banks, exceeding eight thousand, but is in active charge of the War Finance Corporation.

The question of adjusting these exchanges cannot receive the personal attention of either the Secretary of the Treasury or the Governor of the Reserve Board. The members of the Reserve Board are charged with duties of the gravest responsibility, enough to occupy their entire attention.

Mr. Oscar T. Crosby, the very able patriotic Assistant Secretary of the Treasury, is trying to adjust the exchange in Spain and Italy; he is now in Europe engaged in this very important business. Mr. Albert Strauss is acting as adviser of the Treasury in connection with the foreign exchange problem.

BRITISH FINANCIAL POLICY

Great Britain, when the United States entered the war, pegged the pound sterling in New York at $4.76-⁷/₁₆, which means that Great Britain through Morgan and Company, the agent of the Bank of England, engaged to buy all drafts on England payable in pounds sterling at $4.76-⁷/₁₆ for each pound sterling on the face of such bills. This was accomplished by the United States Treasury furnishing the money to Great Britain against British bonds, which enabled Great Britain and British merchants to buy in the United States the goods she required without paying usurious rates of interest for such credits. Except for the backing of the United States Government the pound sterling would have been most seriously depreciated in the United States and in the entire world.

Great Britain, the wisest of all financial countries, thoroughly understood this problem and put the pound sterling within two per cent. of commercial par—for the purpose of protecting Great Britain against the gigantic loss due to an adverse international exchange. The United States must pursue the same policy and make it effective with other countries. She has no adequate organization by which it may be accomplished.

It might be said—why do not the great New York, Chicago and Boston banks take steps to protect the United States against this loss thro the depreciated dollar?

The answer is—It is none of their business.

The answer is—They handle these bills as commodities coming over their counter; they buy them and sell them at the market, and the market is fixed by persons who appraise the matter purely from a standpoint of profit, and commissions based on an estimate of implied risk. Banks buy Spanish pesetas and sell Spanish pesetas to other banks all over the world; they do not look at the matter from a public standpoint, and it is not to be imputed to them as a fault because they do not regard this question from a public point of view.