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merly he had to find only four marks. And do not forget that Germany and Austria were the two countries which before the war were the largest and perhaps the only consumers on a great scale of our low-grade cotton. We have a lot of low-grade cotton in this country today, and our problem now is to dispose of it. If we cannot find some means of shipping it to Austria and Germany, the price of cotton in this country is going lower instead of higher.

As I said, however, the export season is at its height, and Europe is in sore straits for means of paying for what she desires to import from us and what we are equally desirous of exporting to her, namely, our surplus. Money rates in this country are unusually high, so that even allowing for the fairly liberal rates of interest which European banks are paying on deposits, our own demand for capital in this country is so keen that American banks have not been able to carry in Europe the foreign balances which they were in the habit of carrying.

The result is that there is a constant pressure to sell on the foreign exchange market. I may say further that not only is that . pressure exerted because of the depreciation in foreign money, but also because of the fear always lurking in the back of every exchange dealer's mind that exchange may fall lower,

Foreign exchange before the war did not give us much concern, because during that period money rates were easy, business conditions generally were normal and goods moved freely. If England owed us something we got gold for it. If France owed us a balance we called for gold and got it. Per contra, if we owed England and France, we shipped gold to them. Under these conditions, therefore, the fluctuations in foreign exchange did not exceed perhaps 17/2 or 2 per cent per annum.

Prior to the war, money rates were fairly easy and foreign exchange rates were kept within bounds by what were known as the gold points. In other words, as soon as it became cheaper to ship or to import gold, gold was shipped or gold was imported, and that checked the upward or downward movement in the exchanges. Those days, however, are over.

History is repeating itself. The other night, while sitting at home, I was reading and refreshing my memory with Green's

History of England. Writing of the conditions in England about 1816, immediately after the Napoleonic wars, Green says:

“Peace left the country feverish and much weighed down by heavy taxation and enormous debts. The markets were glutted with unsalable goods, and mills and manufactories were brought to a standstill. Much of the prosperity of English agriculture was fictitious and rested on the high price of corn brought about by the war.”

It seems to me that with some little modification, that description would almost fit our country today.

The foreign exchanges are, of course, the direct reflectors of the disordered state of the world's affairs, and time will be required to restore them.

Until trading and commerce readjust themselves, as they must and will some day, we may expect great and violent fluctuations. We have them every week or two, sometimes we have them every day. We had a bad break this week. Sharp movements take place most unexpectedly and for reasons that cannot always be discerned or explained.

I do not want to go into too much detail, but last Saturday, only six days ago, you could have bought all the sterling exchange you wanted in Chicago for $3.33 a pound. Yesterday afternoon you could get $3.51 a pound for the same sterling. There is an advance of 18 cents. To what it is attributable, nobody yet knows. The news from abroad is no more favorable than before. Whether there has been a slowing down of exports temporarily or not, I do not know, but these unexpected movements take place and we find out a week or a month or two months after they occur what caused them; but at the time of their occurrence they are often hard to explain. There are so many cross currents in the foreign exchange market at the present time that it presents a situation which is exceedingly difficult to grasp. For example, we may not know it until afterwards, but France may be a seller of Belgian exchange, while London is selling marks, or vice versa. Therefore we cannot understand at the time what brings about these remarkable fluctuations, which occur without any warning.

The changes brought about by the war are only now beginning to make themselves thoroughly understood to many of us, and some of them are not and will not be completely understood until the system of governmental control of commodities and prices

throughout the world has been completely ended. That situation is rapidly coming about. The foreign exchanges are now free and regulating themselves according to the laws of supply and demand. Over some few other commodities, however, it is understood that a partial measure of control is yet being exercised.

To go back a little, shortly after the declaration of war, in August, 1914, most of the foreign exchanges rose rapidly. The pound sterling, which had a normal quotation or par value of $4.8666, rose to $7.50. The French franc with a par value of 19.3 cents advanced, if my memory is not at fault, to something like 23 cents. The German mark, with a par value of 23.8 cents, advanced to about 27 or 28 cents, and so on throughout the list. The reason for that was because those countries had been suddenly plunged into war and they were trying to draw home all the capital they had abroad, and they were rapidly selling all the securities of other countries, and American securities in particular, that they had, and were also selling in the American market any of the foreign securities they owned which the American market would or could absorb.

At that time there was a great hue and cry throughout the country as the result of representations made to us by England and France, that we ought to ship gold; that the pound was selling at 40 per cent premium in America and no gold was released, and that gold ought to be forthcoming. Many of the merchants and business men in this country were indignant with the government and the bankers because it was thought they were slow in agreeing to the exportation of gold at that period. But wiser counsels prevailed. There were better hands at the helm than some people thought at that time; and as a result of one or two conferences held in Washington, it was decided to form what was known as the one-hundred-million-dollar gold pool.

This is all ancient history now, but they did form the onehundred-million-dollar gold pool, and that hundred million in gold was held in reserve to meet any emergency. The country could use that gold if necessary; but it was pointed out at the time by those best qualified to speak that the exchange of any country engaged in war must sooner or later go to a discount, and consequently it would be only a short time before the English, French, Italian and Belgian exchange would fall to a discount when

reckoned in terms of the American dollar. Therefore, it was felt that it would be a great mistake on the part of this country and a needless expense to ship a large amount of gold abroad to protect the exchange rate when because of these reasons the exchange rate must necessarily adjust itself within a short time and render gold exports unnecessary. The wisdom of that course was demonstrated within a few months when the foreign exchanges, which had been so much against us, began to break and to turn in our favor.

Nothing of a very decided character took place until August, 1915, about a year after the outbreak of war, when, like a bolt from the blue, sterling exchange broke from about $4.70 a pound to about $4.25 a pound. Sterling at $4.25 a pound looked cheap, although it was difficult to say at that time whether it was really cheap or merely low. Those who bought around that figure made money, for shortly afterwards sterling went up. The rise, however, came about because of arrangements which were entered into shortly after that time between England and the banking firm of J. P. Morgan & Co. of New York acting as fiscal agents for the British government in particular and the allies in general in this country.

As a result of that arrangement Morgan & Co. agreed (the British government, of course, finding the money for the purpose) to take up the daily slack in exchange. The practical working of the arrangement was smooth and satisfactory. Sterling exchange quickly came back to 4.76 a pound, or about 2 per cent below par, and was maintained in that neighborhood until November, 1918, the month of the armistice.

The French franc, which had fallen low, was also brought back to $5.45, or about 6 per cent discount. The Italian lira was brought back from a price of about 10 to the dollar to a price of about 61/2 to the dollar, and maintained by the allies artificially during the whole period of the war.

About the end of November, 1918, however, government control or artificial support of the exchanges was withdrawn without any warning to the market as a whole. Many people were running along with a feeling of false security. Others thought, if the allies were able to maintain exchange at these prices during the war, that as soon as the war was over many of these exchanges

would go to par.

As a matter of fact, as soon as the drawbar was pulled out, foreign exchange began to drop.

Perhaps the most remarkable outcome of the war has been the complete transformation of the United States from a substantial debtor country into the chief creditor country of the world. In many respects it is a position that is far from being as comfortable as that which we occupied when we owed something. As I said a little while ago, at the outbreak of the war we owed Europe four billion dollars. We have paid that off, our government has lent ten billions to the allies for the prosecution of the war, and, in addition to that, there is overhanging the market a commercial floating indebtedness of between three billion and four billion dollars, so that Europe at the present time is indebted to us to the extent of about fourteen billion dollars.

While it is true that we have become a creditor nation, it is also true that we have become a creditor nation more by accident than by design. How long we may be able to maintain our position as the world's chief creditor nation will depend very much upon our own thrift and upon our own ability.

Prior to the war and for a great many years before the war, England, France and Germany were the world's principal creditors; but these countries had become creditor nations because of the thrift and industry of their people and by reason of the fact that their people were in the habit of investing their savings abroad.

As the world's creditor nation, I am afraid we shall have to revise some of our ideas and try better to realize that our new position as well as bringing us great wealth and prestige also brings with it great responsibility and great obligations. For years our own country was dependent for its upbuilding upon loans obtained from Europe. Without the money which we got on what now seems to have been extremely reasonable terms from the old world, we would never have been what we are today.

There is little likelihood that Europe can ever pay off what she owes, except in goods and in services—and we must realize that. Lately we have heard people who ought to know better, I believe, asking whether this government or that government is likely to pay its indebtedness. Governments have rarely paid their indebtedness in the past, and the holders of their bonds never

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