America and the Balance Sheet of Europe

Part I—The Situation As It Really Is

CHAPTER I

TESTS OF EUROPEAN CONDITIONS

It was doubtless inevitable that the American people, irritated by European war experiences and disillusioned by the terms of the peace settlement, should revert to the tradi­tional policy of American isolation. It is just as inevitable, however, that under the compulsion of irresistible economic forces the pendulum will again swing in the opposite direc­tion—toward co-operation with Europe in the solution of post-war problems. Europe as the controlling element in the world economic situation is a fact which simply will not down. Regardless of the decision of the American people in last year's elections against further European entanglements, and notwithstanding the more recent presidential announce­ment that the first and most important task of the present administration is that of tidying up our own dooryard, the paramount American issue of the next four years will be the European question. We could afford to forget about Europe during the post-war inflation period of last year; but now that the fateful processes of economic readjustment are at last under way, we shall find European conditions will largely determine American conditions. The outstand­ing problem of the world today is the formulation of a program of international action designed to prevent progres­sive economic and social decadence.

The striking events of the past five years have tended to dull the apperceptive qualities of mankind. Events are daily chronicled in the newspapers which would have shocked the public consciousness five years ago; but they now pass un­heeded by a public whose attention has been jaded to satiety by the abnormal events of the war and of the years that have followed. As a nation, we are so particularly weary of all things European that the vast majority of people in the United States now refuse to give European affairs so much as a passing thought.

Even among those who do give heed to international economic conditions, there is usually a tendency—born of a lack of understanding of the complex interrelations of the economic organization of the modern world—to seize upon every particular development or manifestation as proof positive that conditions are distinctly on the mend. Such developments are all too often mere surface phenomena, lulling us into a sense of economic security, while under­neath, silently but irresistibly, are being organized the forces of economic and social dissolution.

Economic Interdependence of Nations

The confusion in American public opinion concerning the economic situation in Europe and its relation to American conditions is one of the most serious obstacles to world recovery from the disastrous effects of the war. If con­structive assistance in the re-establishment of world finance and world commerce is to be rendered by the United States, we must first understand precisely what the present economic condition of Europe is; we must know what is to be remedied or re-established. And if the support of this country is to be enlisted in any comprehensive plans for in­ternational, economic reorganization, the rank and file of people must first be given a clear appreciation of the bearing of present European conditions upon conditions within the United States; they must be made to realize the full sig­nificance of the words, "The world is an economic unit; nations are economically interdependent." The first part of this volume is therefore devoted to showing the true eco­nomic status of Europe today and the probable effects of European developments upon the economic welfare of the United States.

Diversity of Views

As a matter of fact, one finds alike in the effervescent comments of returning tourists and in the soberer statements of financial and economic writers, the greatest diversity of view as to present conditions abroad. These sharp differences of opinion are largely to be explained by the selection of different facts or data for the purpose of testing condi­tions and by varying interpretations of the meaning of the data selected. When the economic physician attempts to appraise the condition of diseased Europe, he must not only look for the symptoms which are the real indexes of vital conditions, but must also be able to give balanced weight to each and to distinguish those indicating permanent under­lying conditions from those reflecting nervous shock or temporary exhilaration.

Facts—admitted facts—are frequently presented as con­clusive evidence of improving conditions when in reality they are merely evidences of disordered economic life. For ex­ample, it is frequently pointed out that European capitals were never more gay, never more luxurious, or never more apparently prosperous than now. The truth is that the more disorganized is the currency and the more unsettled are prices, the greater is the tendency to wild extravagance and utter disregard of values. Examples of this kind, though quickly forgotten, are frequent in history; where peoples drugged with illimitable quantities of paper money have ap­peared to be prosperous and have continued to live extrava­gantly almost to the very moment of monetary and economic collapse. This was, of course, notoriously the case in the well-known John Law paper money episode in France in 1719. A writer of the time states: "Plenty displayed herself through all the towns and all the country ... in a word, riches flowed in from every quarter; gold, silver, precious stones, ornaments of every kind which contribute to luxury and magnificence, came to us from every country in Europe." This was written only a year before the final collapse of the famous Mississippi bubble.

"Calamity Boom"

Again, it is often pointed out that there has been a great rise in the prices of securities since the Armistice and that speculation is rampant, particularly in Germany. Once more, the truth is that speculation and rising security prices are directly attributable to the unsettlement of financial conditions and the inflation of paper currency. One is re­minded, in this connection, of the period of paper money inflation in Revolutionary France in 1791, which ultimately culminated in financial disaster. Of this cataclysm, the historian White writes: "With the masses of the people the purchase of every article of supply became a speculation—a speculation in which the professional speculator had an immense advantage over the buyer. Says the most brilliant apologist for French Revolutionary statesmanship, 'Com­merce is dead; betting took its place.' "

While speculation in some European countries is now less rife than it was in 1919-1920, in others, where inflation has continued, it is now more rampant than ever. At the present moment Berlin is witnessing what is there known as the "Calamity Boom," No more fitting characterization could be given to the skyrocketing of security prices which accompanies the outpouring of paper currency during the period preceding the inevitable collapse of the whole tissue of artificial valuations.

Misleading Statistics

Similarly, statistics showing an increase in national wealth and in the volume of trade do not in a period of great price changes accurately reflect fundamental economic con­ditions. For the volume of trade and of national wealth is computed in terms of money, which is depreciating in pro­portion to the rise of prices. A sample of the misleading conclusions drawn from statistics of trade expressed in terms of depreciated dollars is found in a recent statement in a prominent financial journal, commenting on export trade data furnished by a large New York bank. It was stated: "Exports from the United States to Germany in the fiscal year which ends with June, 1921, will exceed those of any year prior to the war . . , they will be of greater value, measured in good American dollars, than in any year in the history of our trade relations." This statement fails to take into consideration the great rise in prices that has occurred. If allowance is made for this fact, German purchases in the United States during the current year (1921) are less than any year as far back as 1900—before the so-called "American export invasion of Europe" began. When one of the greatest banks and one of the greatest financial journals in the United States will thus misread economic data, it is not surprising that the average layman is misled.

The absurdity of growing excited over figures of expand­ing national wealth at a time like this may be understood if one reflects that the wealth of Russia since the beginning of the war has, as measured in present Russian money, in­creased more than a thousandfold. Other countries differ from Russia only in degree.

Statistics which show the huge profits earned by in­dustrial corporations are equally untrustworthy evidence of economic recovery. A period of monetary expansion and rising prices always means imposing paper profits, largely obtained through the process of buying goods at one price and selling them at an advance. In Austria goods frequently pass through the hands of fifteen or twenty speculative middlemen, each selling at a handsome advance above cost. The profits are thus the result of an inflation of values that carries with it no necessary increase in actual goods pro­duced. In Germany, for example, the receiver of paper money dividends four times as large as pre-war gold divid­ends may at first glance appear to be prosperous; but his real poverty is revealed when he goes to purchase food, etc., at prices from ten to fifteen times the pre-war prices.

Improvements in agriculture and in food conditions are also cited as conclusive evidence that the worst of Europe's difficulties have now been compassed. Increasing agri­cultural production is essential to world recovery, it is true; but it is not the determining factor in world prosperity. As we shall see in the following chapters, the modern world is essentially an industrial world and on the recovery of industry hangs the rehabilitation of civilization.

Abatement of Social Unrest No Index

Furthermore the fact that social or industrial unrest is receding in this or that particular country at a given time, is by itself no conclusive evidence that economic recovery is a thing assured. Unrest may be lulled into momentary inactivity by fantastic padding of government pay-rolls, by liberal payments of pensions and unemployment insurance, by subsidies, etc., as has been the case in nearly every country of Europe. It may be temporarily allayed by the drugs of monetary inflation, to which reference has already been made, as has clearly been the case in Germany. It may be held in leash by extravagant governmental promises of reparations, as has no doubt been the case in France. It may even give way to grim despair, as has been the case in Austria. Even where the recession of unrest may fairly be ascribed to a recovery from the neurasthenic of the war era, this factor by itself cannot insure prompt economic readjustment. The mere fact that the German or the Italian or the Belgian people may now be showing a renewed disposition to work, while a hopeful sign, by no means makes it certain that these people will be afforded an opportunity to work. There are millions of people in the United States today who are now willing to work, whose hands unfortunately find no work to do. The same con­dition exists in Europe.

How, then, can anyone judge whether Europe is on the highroad to economic recovery? What are the economic guide posts that reveal the true situation? If one is to understand the economic status of Europe at the present time, he must look beneath the transient surface phenomena, and read the lessons contained in the stories of: (1) the depreciation of the international exchanges; (2) the foreign trade statistics of the several European nations since the Armistice; (3) national debts and budgets; and (4) the reserves of banking systems. These are the true indexes of fundamental underlying conditions.