THOSE who desired to do so could have seen the “Money Power” in action at the Hotel Commodore, New York City, in the week beginning October 2, the occasion being the forty-eighth annual Convention of the American Bankers’ Association.
There are those who entertain a very low opinion of the “Money Power,” attributing to it all manner of base and ignoble designs on the prosperity of the country for its own financial profit. I once held some such views myself. A closer acquaintance with banks and bankers has brought to me the understanding that unsound banking methods do not succeed, while sound banking depends for its success on the prosperity of the country at large. When business goes to pot, bank loans follow. Also, I have learned that bankers themselves are very human, even though their contact with businesses of all kinds usually develops in them a breadth of view not often shared by other business men. Indeed, I am beginning to believe that it is this very breadth of view, in which small objectives are merged in the general ensemble of things, which is the source of much of the popular suspicion in which they are held.
As a proof of which I submit the attitude of the great international bankers toward the international debts. Vast profits might be realized by their funding and the flotation of the immense bond issues this would entail. Yet these hankers regard these debts as almost impossible of payment, as choking the economic recovery of the world, and look favorably on the proposal to write them off-at least in great part-while popular opinion is against their cancellation. Many great speeches were made at this Convention on the all-engrossing subject of aiding in European economic revival-speeches which for solid merit would have stood out among those made at any international financial conference yet held-but the address of the Hon. Reginald McKenna, chairman of one of the world’s greatest banks, the London Joint City and Midland, Ltd., and former Chancellor of the Exchequer of the
British Empire, was easily the most important event of the meeting. He chose for his subject “The Reparations and the Interallied Debts.” The simplicity to which he reduced the complex factors of international financial relationships, the exactness of his data, and the authority with which he spoke carried unwilling conviction to many that the methods heretofore applied to the untangling of the international web in which trade and finance are enmeshed are all wrong. He set forth that Great Britain alone of the debtor nations is in a position enabling her to pay her foreign debts. Such debts can be liquidated only from assets accumulated abroad or by an excess of exports over imports. Britain alone possesses the assets abroad in volume sufficient to pay.
And the payment of the German reparations is by the very nature of things limited to the same methods! His estimate of German assets held abroad, and therefore available for reparation payments, is in substantial agreement with that of John Maynard Keynes-about a round billion dollars. Germany has already paid about twice that amount, largely by the sale of marks. Beyond this she cannot pay except by the extension of her export trade, which would enable her to accumulate other assets only to the amount by which her exports exceeded imports. He described with great minuteness the method by which France discharged her indemnity to Germany fifty years ago, partly in gold and partly by the transfer of commercial bills of exchange and other foreign assets, unduly extending her own export and Germany’s import trade. The gold transfused into Germany’s circulating medium disarranged her price level. The great influx of imported goods depressed her industries. French trade and industry boomed, and he almost believed the remark attributed to Bismarck, that the next time he defeated France he would insist on Germany’s paying an indemnity.
He believes, the question of what Germany can ultimately pay is capable of being answered, but “the answer runs counter to the popular hopes, the popular passions, and to something more formidable still, a popular sense of natural justice which prescribes that the defeated enemy which planned the war should make good the damage suffered by the victors.”
It is worth while to note that Britain’s foreign investments which Mr. McKenna proposes to turn over to the United States are not to any great extent American investments, such assets having been sold early in the war to purchase war supplies here. They are mostly investments in other lands and payable in sterling. The problem of converting their sterling proceeds into dollars would still remain to plague the exchange market.
Regarding the implication that payment of the reparations and international debts by exporting goods must necessarily depress industry in the countries receiving the same, I hope to some time take a day or two off from my job of keeping tabs on foreign affairs, and clear up this paradox of a nation being impoverished by an inundation of desirable commodities, the mere statement of which is an affront to common sense. Mr. McKenna had able assistance.
President John McHugh, of the Mechanics and Metals Bank of New York, one-time head of a projected $100,000,000 foreign trade financing corporation which looked over the foreign trade field and decided there was too much risk and too little prospective profit therein to justify the venture, prepared the ground for the former Chancellor by laying bare the fact that much of the present commercial chaos was the result of selling goods abroad on credit in such volume that the international scale pans had become hopelessly unbalanced. He believed that without a revival of European production and export there was no remedy for the situation. He urged the cancellation of such part of the foreign debt as was incurred in prosecuting the war as a measure to restore world commercial and financial stability. He deprecated financing exports beyond balancing imports, but would give Europe a chance to pay for her purchases.
Thomas W. Lamont spoke in similar vein, condemning the action of Congress in so tying the hands of the Debt Refunding Commission that the only proposition it can make to the debtor nations is to “sign on the dotted line” agreements to make impossible payments. Of the new Tariff Law, he said it protects a lot of industries which do not need protection while cutting off from our farmers and manufacturers a lot of markets ready to buy our commodities.
Alvin W. Krech, President of the Equitable Trust Company, of New York, speaking on “Keeping Faith with Europe,” asserted that this faith would be kept when Europe “replaced the snarling and bickering and quarreling with sound principles, mutual understanding, and mutual co-operation.” The thought that we might assist in allaying this quarreling may be detected in his criticism of our trade policy. The following resolution adopted by the Convention can do no harm, and it may do some good:
We believe that the time has come for the Government of this country to formulate the principles on which It will be able to co-operate with other nations to bring about the needed rehabilitation of European countries and peace in the world.
Some of the speeches merit friendly criticism. The retiring President of the Association, Thomas B. McAdams, in an address marked by broad liberalism, chided the banker who fears to speak bis mind lest some depositor disagree with him. This is hardly applicable to the present situation. The banker in charge of other people’s money is scarcely to be blamed for being timorous about condemning a universal superstition which, like trade obstruction, blocks the progress of the world but is devoutly believed in by the great mass of business men. His advice to bankers to take a more active part in politics is economically sound, but I am not so sure of its practical wisdom, because I know the disposition of a large part of the people, influenced by yellow journals, to suspect any and all measures recommended by bankers as inspired by sinister motives. While the spirit of liberalism was dominant in this Convention of the “Money Power,” there were discords.
The address of L. F. Loree, President of the Delaware and Hudson Railroad Company, was one of these discords. His criticisms of “Labor Unions” were undeniably sound, but marred by his very obvious hostility to them. Unions are very democratically organized, and officials hold their positions by producing results, or they go out. The unions will no more accept Mr. Loree’s plan of State supervision than will some associations of capitalists, as, for example, the New York Stock Exchange. Really, it were better to demonstrate to them in a more friendly way the futility of their uneconomic methods, the real source and limitations of wages, and how a smaller money wage, with a fair readjustment of rents and prices, might purchase a better standard of living than they now enjoy. They are not the only people who believe prosperity is to be found in scarcity of and high prices for the thing they have to sell. Mr. Lamont’s speech was a good antidote for that of Mr. Loree.
Despite the numerous expressions of optimism heard at the Convention, I thought I detected beneath the hopeful words a feeling of pessimism-an apprehension that, after all, the fears of an economic collapse in Europe repeatedly expressed by Frank A. Vanderlip may be well founded. This is not to say that the international bankers have no idea of how Europe may be saved, but they are by no means sanguine of getting done the things that must be done, which, as Mr. McKenna pointed out, run so contrary to the popular idea. It is reported in the papers that “Washington is cold to the suggestion of debt cancellation.” It does indeed seem improbable that anything said in the speeches will affect American official action or public opinion for a considerable time to come, and they may produce an effect the opposite of that intended. Washington sees, not the impossibility of collecting the debts, which has been demonstrated before, but only that they are valid debts. It believes not Moses and the prophets; why should it believe mere bankers?
Mr. McKenna’s subsequent remark that from her South African mines Great Britain could pay the interest and sinking fund on her debt in gold reminds me of the perfectly valid threat of another Englishman: “We’ll pay the debt in gold until you are up to your necks in it and cry for help.” The prospect of such enormous additions to our present stock of gold is simply terrifying to the economist who sees its inevitable effect on our price levels.
Some interesting personages were among the 9,000 bankers from all parts of the country assembled there. John A. Stewart, with a century of life behind him, who was one of the Government’s trusted advisers in the days of the Civil War, was among them. George F. Baker, reputed to be the only surviving charter member of the Association and now perhaps the most powerful financial magnate of them all, was another.
A lot of work of interest to bankers was done. The Convention recorded itself strongly against the extension of branch banking to the National banks, though Walter E. Frew, President of the Corn Exchange Bank and newly elected head of the New York Clearing House Association, is quite as strongly in favor of it. Mr. McKenna in the course of his address, comparing the American and British banking systems, stated that the ten thousand or so banks in Great Britain are branches of thirty-nine central banks, five of the latter controlling three-quarters of them.
John Huegin Puelicher, President of the Marshall & Ilsley Bank, of Milwaukee, who took an active part in our war finances and has been prominent in banking and educational work through the American Institute of Banking, is the new President of the Association, succeeding Mr. McAdams.
New York, October 5, 1922.
Source: The Outlook, 18 October 1922