the Far East in open competition with German and other European manufacturing nations? The tariff against German goods may protect part of this country's manufacturers, but it inevitably will tend to keep up the cost of living and will make it impossible for the export manufacturer to turn out his goods cheaply enough to assure their being sold in the foreign field. Thus, if the situation has been correctly stated here, little permanent hope ought to be placed in a high protective tariff either for protecting American markets or assisting the world back to an industrial and economic equilibrium.

Great discord exists in Europe concerning the 12 per cent so-called tax on exports of German goods to be levied as an additional indemnity. This tax has attracted little attention in the United States, but in many newspaper and magazine articles it appears to be assumed that the tax is actually to be levied directly against the exports; that is, that German exporters would have to add that amount to the selling price of their goods, thus removing to that extent the differential now existing in favor of the German manufacturer by reason of his lower production costs. The facts in the matter are quite different. The Allied nations in assessing this additional indemnity simply used the total volume of German exports as a barometer by which the amount of the tax is to be calculated. The German Government is to pay it and it is given entire latitude as to means of recouping itself. It may levy a tax on liquor, tobacco or anything else in order to raise the money for this payment; or it may assess an actual export tax graduated in such a way that the products of which Germany has nearly a monopoly must pay most of it while products which are actually competitive with

other nations would be lightly affected. In other words, the so-called export tax is not an export tax at all and bears no relation to export in case the German government should decide to raise the money in some other way. Thus, it would appear that those in this country who have assumed that the 12 per cent German export tax would be the practical equivalent of a 12 per cent import tax levied by this country against German goods have been ill-informed.

In a way, the position of the United States at this time is not unlike that of England at the close of the FrancoPrussian war. France paid the indemnity to Germany by means of bond issues which it exchanged with its own people for the bonds representing their foreign investments. These foreign investments were then sold, principally in London, and the credits thus created were transferred in the form of goods, gold or commercial bills to Germany. One of the first effects after this large sum of liquid capital and great supplies of raw materials were introduced into Germany was to spur the export trade of that country, the result being that England, with no direct part in the war, was flooded with cheaply produced German goods, with resulting unemployment and industrial slackening.

EFFECTS ON THE UNITED STATES

At the present time, the United States is threatened with the same experience that England had after the Franco-Prussian war, with the added complication that we have done a large part of the financing of destruction and now appear likely to assume the financing of reconstruction whether we wish it or not. We contributed, in an economic sense, to an orgy of wealth destruction so great that no nation or group of nations can ever hope to actually pay for the large damage

done, but insofar as the damage is repaired, it will be paid for by those whose wealth is the greatest. This payment will be exacted by means of the general lowering of values which will take place through falling prices and through the inability of the world to resume, at least for a long time, its normal buying and consuming habits.

If the beliefs herein expressed are sound, it is clear that the United States will be damaged by the turning out on the part of Germany of a great volume of cheaply-produced manufactured goods with which to create credits for transfer to France, England and others. It is clear that we require greater markets for our permanent prosperity than those within our own borders, but if we keep up our domestic manufacturing costs and the selling prices of our goods, we automatically shut ourselves out of the competitive export field. A protective tariff protects only some of us, while the tax to be assessed as an additional German indemnity can not be said to be a protection at all.

What, then, remains as a remedy by means of which Germany may be made to pay, but which will also protect American industry from unjust discrimination in order that France may collect and which will also not retard the restoration of normal conditions throughout the world? Assuming, as nearly all do, that Germany has the ability to pay, but that the problem lies in securing satisfactory means of transferring the payment, the whole matter resolves itself into a question of foreign exchange, if payment is to be made in goods, or a monetary question, if payment is to be made in services. The first will involve the world and will retard recovery everywhere, the second will be a purely domestic matter for Germany in which outsiders will have no concern.

It is a profound error to say that such

a huge debt as the German indemnity can be paid only in goods. Debts can often be more easily and satisfactorily paid in services than in goods and the present instance presents such a case. If Germany, instead of being compelled to build up for herself the world's most efficient industrial machine in order that goods may be manufactured and sold for the purpose of making indemnity payments, is allowed to use the labor and materials of her own people in rebuilding northern France, every objection that might be raised in the United States to the manner of paying the indemnity would be removed.

The difficulty with the present plan of compelling Germany to sell goods throughout the world is that in the end it helps Germany more than anyone else. After the debt has been paid, or after Germany finds herself strong enough to refuse further tribute, the statesmen of France and England may find themselves confronting a creature of their own making which will be intent on their destruction. Divesting the indemnity of all elements except those that are basic, and looking at the actual possibilities of the case from every angle, it is apparent that Germany can pay only in work. This work may be performed in German factories and then done over again in the seeking of markets and the means for the transference of the resulting credits to France, or it may be done directly in northern France. The demand for large, annual contributions in cash is, in the present case, a political and not an economic demand, and there are signs that outside of political circles the people of France are beginning to see this problem in its true light.

If Germany is compelled to sell goods made in its own factories in order to raise cash for the indemnity

payments, then it will be inevitably constructing a marvelously efficient industrial machine which will remain

to turn out goods after the necessity for making indemnity payments has passed. On the other hand, if Germany is allowed to do what it has already offered to do, that is, pay off a considerable share of the indemnity by means of the labor of its people directly expended on reconstruction or any kind of construction work in northern France, it is France that will possess the industrial machine. Germany will then be able to convert a considerable part of the indemnity problem from an international question to one that is purely domestic. It can pay the workers in its own paper money, which is good in their hands but in no one's else, and it can purchase construction material in the same way.

The folly of not doing this is incredible. Lack of labor no less than lack of funds is delaying the rebuilding of the devastated regions. It is a fact that while workers are idle in Germany, thousands of Italian and Spanish laborers are engaged in the work of rebuilding northern France. These workers remit a large share of their wages to their home countries, thus aggravating the abnormal condition of the French exchanges. German workers, on the other hand, would absolutely remove this obstacle to

exchange rectification and would accelerate more than by any other conceivable plan the actual and vitally important work of rebuilding homes, factories, roads, canals and all other manner of construction needed in the occupied zone. The following quotation from the Paris correspondence of the London Economist dated January 18 is in point:

That the demand for certain kinds of labor in this country is still great is seen by

the fact that large numbers of Spanish and Italian workers are constantly employed in the devastated departments. Practically the whole of these belong to the unskilled categories, and are engaged in the preliminary work of restoring farming land to cultivation and the construction of roads, etc. The evil that has to be feared in this country as time goes on and it becomes possible for the work of reconstruction to be taken in hand in earnest is a serious scarcity of labor, that will probably prove as great a hindrance to complete economic restoration as the present lack of funds to meet the necessary expenditure and the high prices of all kinds of raw materials.

In this connection it must be remembered that France lost 57 per cent of all its young men between the ages of seventeen and thirty-one during the war, so that the supply of workers on whom industry may draw has been sadly depleted. After a two-months' inquiry, it is now announced (March 21) that the Conferation Generale du Travail, which corresponds to the American Federation of Labor, has decided to favor the importation of German workers for reconstruction work. Labor leaders are said to have announced that if dependence were to be placed wholly on French labor for this work, it would take another forty years to finish the job. If this plan goes into effect, no financial operations will be necessary and Germany will simply be credited with the for wages and for material. Thus the amount it pays out in its own money for raising large reconstruction loans necessity now confronting France would be lessened and the strain on the financial community lightened to that

extent.

All in all, it would appear clear that America's interest in this matter is very definite and plain. We are interested in helping the world to get back to normal. We understand full well that whatever settlement is ar

It is clear, of course, that in so short a time we can not analyze budgets, or attempt to show in detail the alarming proportion of public revenue still being devoted to preparations for war. We are concerned with what is to be done with the cost of past wars, and, in a very general way, with the way in which the nations are going to be safeguarded from further unrestrained preparation for war. Moreover, the few figures I shall submit are not extreme; still deeper colors could be used in a more detailed study.

THE BRITISH DEBT

The British National Debt, funded and unfunded, is declared in parliamentary papers (Cmd. 1024, 1920, and Return 240, December 15, 1920) to have stood on March 31, 1920 at £7,828,779,095, an amount greater than the debt as it stood March 31, 1919, by £397,126,574. But the British Government has certain obligations additional to its funded and unfunded debt (pp. 10-13 of Cmd. 1024), which amounted on March 31, 1920 to £46,862,866. The aggregate gross liabilities of Britain were calculated at £7,875,641,961. Converted at $4.86, this sum would represent approximately thirty-eight and a third billion dollars; but if converted at something like recent sterling exchange rates (say $3.75), it would represent approximately twenty-nine and onehalf billion dollars. The figures, not all official, for the current fiscal year (until March 31, 1921), indicate that the burden is steadily growing heavier. The Statist (December 18, 1920) estimates the gross liabilities of Britain as £7,881,893,000, and it is known that the floating debt is increasing. On March 31, 1920, the floating debt was £1,312,205,000; -on December 31,

the figures accessible take account of the enormous aggregate of claims against the British Governmentclaims of every description, and in every stage of formulation and validation, railroad and shipping claims, prize court claims, and property claims. While the total value of these liabilities will not have to be provided at a given or an early date, they constitute, none the less, an appreciable drain on the British national finances.

Against these liabilities there are recorded, in addition to the potential wealth of the nation, some assets calculated with precision to reach £106,023,346, and consisting of (1) shares in various corporations, (2) shares in the Suez Canal, and (3) French and Indian obligations. Other assets amount to £700,000,000, and consist of: (1) advances to the Colonies, Allied Powers, and the like, and (2) surplus stores, ships, and other war supplies. From time to time, of course, parliamentary debates disclose certain details in reference to these advances and other assets; and treasury statements frequently submit itemized figures. A fairly recent one is shown on page 292.

On May 19, 1920, the Chancel'lor of the Exchequer stated that the indebtedness of France to England was in the neighborhood of £500,000,000. On November 23, 1920, it was stated that Serbia had been lent £21,000,000 during the the war and £1,500,000 since the war, for which that country undertook to deliver obligations bearing 5 per cent and 6 per cent, respectively. The figure of £700,000,000 is assumed on a basis of a very low realization on the loans (with their par values of £1,850,500,000) and low prices for war material. During the nine months ending December 31, 1920, the government received £199,907,733 for surplus war stores, but