Congress to give the War Finance Corporation power to advance money on railroad securities so that the railroads may have funds with which to buy equipment. The railroads are the biggest buyers in the country. They have need to buy. If they are furnished with the money, they can buy in volume enough to start the retreat of General Depression. If, however, they believe that steel prices are too high, this buying will not be generous but hesitant and meagre.

With these conditions in the almost vital steel industry, it is interesting to note that Mr. Fordney's tariff bill holds out encouragement to the steel men to persist in high prices in the shape of protective duties. It even goes farther, it imposes such a duty on the ferromanganese used in steel, most of which comes from abroad, that it seems to wish to force the price of steel up even if the manufacturers were willing to lower it.

In asking Congress to empower the War Finance Corporation to provide cash to pay the claims the railroads have against the Government, the President practically says that it is to the public's benefit for the Government to help the railroads finance themselves until they get on their feet.

But

This is what the suggestion comes to. The method is a little complicated. The railroads owe the Government money. The Government also owes the railroads money. Ordinarily in such circumstances the debts that offset each other would be canceled and the balance be paid by the larger debtor. In this case, however, the Government does not admit the railroads' claims in full, so that it remains problematical how much the Government debt exceeds the railroad debt. Purely from the Treasury point of view, the solution is to pay nothing until this excess is determined. the railroads want cash to buy equipment and the President is convinced that if they get this cash their buying will start an improvement in general business, as well as save the railroads from further disasters. He accordingly wished to give the railroads $500,000,000 on account. As security for this sum, the Government has the railroad obligations for what they owe the Government. This being the case, the ordinary procedure would be for Congress to appropriate the $500,000,000. But these are times of economy and the President did not wish to urge further appropriations. There was, however, an appropriation already

made which was not being used. The War Finance Corporation had been voted money by Congress with which to finance foreign trade. It had not been able to find enough proper foreign trade to use its money on. The President, therefore, asked Congress to change its functions somewhat and allow it to finance the railroads as well as foreign trade.

In recommending this procedure the President says:

With this end in view you are asked to extend the authority of the War Finance Corporation so that it may purchase these railway funding securities accepted by the Director General of Railroads. No added expense, no added investment is required on the part of the Government, there is no added liability, no added tax burden. It is merely the grant of authority necessary to enable a most useful and efficient Government agency to use its available funds to purchase securities for which Congress already has authorized the issue, and to turn them into the channels of finance ready to float them.

I can readily believe that so simple a remedy will have your prompt sanction. The question of our obligation cannot be raised, the wisdom of affording early relief is not to be doubted, and the avoidance of added appropriation or liability will appeal to Congress and the public alike.

In the case of the railroads there is a moral and a contractural obligation, and your favorable action is no less urgent and will no less appeal to public approval. Railway solvency and efficiency are

essential to our healthful industrial, commercial, and agricultural life. Everything hinges on transportation.

After necessary and dramatic curtailments, after harrowing straits in meeting their financial difficulties, the railroads need only this financial aid which the fulfillment of our obligations will bestow to inaugurate their far-reaching revival. Its effects will be felt in varied industries and will banish to a large degree the depression which, though inevitable

in war's aftermath, we are all so anxious to see ended.

This statement of the case is perhaps a little optimistic. It is true that Congress will not have to appropriate any more money. But the Treasury will have to get this $500,000,000 to give the War Finance Corporation. The War Finance Corporation has not got that money. It has authority from Congress to get it from the Treasury. The Treasury has not that money above the expenditures it faces. It will have to borrow the money and increase the national debt which it is trying desperately to reduce. There is now a floating debt of about two billion dollars. This half billion will be added to that.

It is wise to help the railroads to this extent if it will put them on a sound basis and help start a business revival. On the other hand, the public must realize that this half billion does not appear from nowhere. The public must either provide it in taxes or lend it to the Government.

And in helping the railroads in this manner, there is a danger which should not be overlooked. It is now three years since the war ended. The Government proposes to help finance a private or semi-private industry as a war measure. As a war measure it is justifiable, but three years after the war is over it may be taken as a precedent for peace times, and that would lead to unfortunate results. The danger of this is increased by the recommendation that the War Finance Corporation also help finance the farming industry. Will not the farmers return for similar relief with this precedent and a strong following in Congress when next there is a bad season or a period of low prices? Sound finance and sound government both urge upon us the necessity of withdrawing the Government from participation in private business as soon as possible, either as an operator of ships, or a financier for railroads and farmers. It is the road to State Socialism, and State Socialism is the end of individual enterprise and initiative, which happily still abound in America.

S

The Basis for Returned Prosperity

IGNS are now visible of a gradual recovery from the depression through which business in this country, in common with the rest of the world, has been going. Business concerns, which enjoy able and clearsighted management, have about completed the readjustment to new conditions in their selling prices, and to a large extent in their production costs. costs. And what is more encouraging, some of them are reporting a growing demand for their products. Not many are in the dominating position Ford enjoys, and cannot adopt as arbitrary methods as he did to recoup their finances. But his strategy in cutting prices to stimulate demand and of eliminating every unnecessary expense throughout his organization has been the plan of generalship that has been found effective by many business leaders, large and small; and those who saw the value of such a plan months ago, are now in a strong position and ready

to take advantage of the opportunities that are ahead.

As yet, buying on the part of jobbers and retailers is largely on a hand-to-mouth basis which makes it difficult for manufacturers to plan ahead, but with the revival of public buying which is under way, this will gradually change as confidence in the business situation grows. What is now needed as much as anything else is a realization on the part of everyone that we have passed the crisis of this depression and that the time for an optimistic outlook toward the future has arrived. Optimism alone will not bring prosperity, although it will have an important psychological effect; but optimism with work will bring much better business conditions. We might take a lesson from the present methods in Germany where work is going ahead rapidly and where the streets are posted with signs "Work and Reconstruct."

The iron and steel industry at this writing is still depressed, following its prosperity during the war; but the railroads, on which it depends for half its business in peace times, are now doing better, and orders for supplies and equipment seem in prospect. President Harding's plan, to have the War Finance Corporation advance the railroads a half billion dollars, is a step in this direction.

This attitude of the Harding Administration toward business problems is one of the most encouraging signs of the times. The disarmament Conference, with its possibilities for lightening the tax burden of the world, is one of the important "bullish" influences that normal business now has to contemplate.

These are signs of better times ahead. Authorities are beginning to agree on this point. The Commercial and Financial Chronicle recently said: "Things are certainly on the mend, and such a complete stoppage of work as now prevails in certain leading industries cannot long continue. That the business of a country with a population of 105,000,000 will remain indefinitely quiescent is unthinkable. And quite as surely is it out of the question to assume such a thing as regards the world's population of 1,500,000,000 people. The world's trade has been halted, but of course civilization must go on. The march of business, the preoccupation of the modern man, will be resumed. It is only a question of time. And signs are not wanting that the way is being prepared for this great event. The tendency of money rates throughout the world is downward.

Prices and wages are also falling. The trend is toward a reduction of costs, an ultimate stabilization of values, and a return to normal production and consumption; to the end that pre-war civilization may be restored, and the three primary wants of mankind, food, clothing, and shelter, once more put easily within their reach."

The National Bank of Commerce in New York, in a bulletin on July 21st, said: "The United States is practically through the period of violent business disturbance which began in May, 1920. We will, from time to time, have visible evidences of the distressing conditions through which the country has been passing, but these occurrences should be regarded not as indices to forward conditions but as relating to the past. . . . The period of general

age of the production of certain industries. For instance, we generally export 20 per cent. of our wheat, 60 per cent. of our cotton, 75 per cent. of our copper, not to mention others. Unless we find a market for the surplus production of our great industries, we shall continue to keep some 25,000,000 of our people in reduced buying power. We might even drive them into poverty-during the many years that would be required to shift the whole basis of our internal production.

We are to-day the only great source of enlarged food production. Europe must and will draw from us a great proportion of food supplies that she formerly drew from Russia. I see no basic reason why we should not continue to export approximately the same large volume of foodstuffs that we have shipped abroad during the last twelve months.

Another great but uncertain shift in world forces will arise out of Germany. Germany is left without much gold, foreign property, or foreign business earn

be made mostly by the sale of manufactured goods outside her borders.

Mr. John G. Lonsdale, president of the National Bank of Commerce in St. Louis, writing in July, said: "There is no doubt about it. Business has been very sick, and when such is an acknowledged fact with respect to any patient, the best we can hope for is a slow process of recuperation. Therefore, tempered optimism should be the order of the day in the commercial and industrial world; because, if the ordinary criteria can be accepted, the worst is passing, and forthcoming months will bring improvements, which, though slow, will still be appreciable."

Herbert Hoover has expressed his views by saying, "We have already turned the corner of this depression."

In an analysis of his reasons for optimism, he gives the following review of our economic position, and a statement of the ways in which we can help the upward movement:

Our whole standard of living greatly depends upon our imports and our exports are the great balance wheel for our production. Exports are vital Exports are vital to the stabilization of our industries, of price levels, of wages and of employment. While our exports do cover but a small per cent. of our total production, on the other hand, they comprise a large percent

If we analyze the effect of these forces on the market for our manufactured goods, either in Europe or in our much larger market outside of Europe, we quickly find two directions in which we occupy a position of some security. The first is in those exports of lower production costs which are the result of great repetitive production, which has its firm root in our enormous consumption. The second is in that large number of special manufactures in which the inventive genius and skill of our people have been developed beyond any country

in the world.

our own.

As to our manufactures containing a large element of labor cost, in which we do not enjoy special advantages, we must look out and take measures of . . Fundamentally, we must get our production costs down. That lies only along the road of increased efficiency in our whole industrial machine. It means a willingness of our working people to put forth every effort that is in them consistent with health, proper family life, and good citizenship. The surest road to a continued high wage and the surest safeguard against unemployment are to remove every restriction on effort.

But when all is done, the real cure for all depression is courage and applied intelligence and the return to primary virtues of hard, conscientious toil and economy in living. On every side there is evidence that the vast majority of our whole nation is making an effort in those directions equaled only by that of 1918, and the day some months ago when we entered this effort we fundamentally turned the corner of this depression. While our recovery may be slower than some may expect, nothing can prevent the prosperity of a country where the people have enlightenment, wish to work, wish to produce, and wish to do right by their neighbors.

MERICAN investors will have more

A

foreign bonds offered to them, many more. Only thus can a foreign trade balance in our favor be financed. In the past, the people of Europe have been our best customers. Just now they do not have the money to pay us, but they need our goods more than they ever did. One economist says we must loan them money or see them starve. Furthermore, we need their trade to take up the surplus production in this country over and above what we need for our own use. It will be as true of these loans as were James J. Hill's comments on the Anglo-French loan-the first long-term credit to be placed with American investors to enable England and France to continue buying here during the war: "Its greatest benefits are to come to the people of the United States. One who looks at the plain facts will see that the grant of this credit for the purpose stated is far less an accommodation to the countries that ask it, than an act of necessity for us." We no longer must send war supplies to those who stand between us and the Hun, but we must send supplies to the undernourished people of the world, and it is as true to-day as it was in 1915 that we must grant these credits or our plants will stand idle for want of orders, and the return of prosperity will be longer delayed. The banks cannot provide the credit for financing this trade, for it must be longterm credit. American investors alone can supply it.

To-day, American investors are holding more than a billion and a half of foreign bonds that they have bought since the war started. Nineteen different countries are represented in the list of our foreign security holdings. More than two and a half billion have been sold here since 1914, and about one billion have been matured and paid off. The only defaults have been on Russian and Mexican Government bonds. The experience of American investors with foreign bonds has, therefore, on the whole, been a favorable one. Those who see the

necessity for our taking more of them, but who fear they cannot be sold here in amounts adequate to meet the situation, reckon without that host of new investors created by the war. These new investors will not take many bonds individually, but collectively they will provide the requirements of our own government for refunding the maturing loans of our railroads, other utilities and industrial companies in need of vast sums of money, and also of foreign governments that look to us for help. It is the duty of our investment bankers to find the way to reach these many new springs of investment savings, and lead them into the streams and rivers of capital that will finance the requirements of the world. Steps are now being taken to do this.

Why should we look beyond our own borders for investment opportunities? We did not do so before the war, why should we now, when the war is over? the war is over? At the risk of repetition, it is well to point out why Americans, for their own interest, must now finance other nations of the world. The reason is clear but is being lost sight of. Before the war, we were a debtor nation. We owed abroad something like five billion dollars. That was money the British, French, and other foreigners had invested in this country by the purchase of securities and in other ways. To pay the interest on that amount called for a trade balance in our favor, i. e., an excess of exports over imports of three hundred million dollars a year. The war has changed all that. We have bought back a good part of our securities held abroad, American investors have taken a billion and a half of foreign bonds, and our government has loaned ten billions to the Allies. From a debtor nation we jumped in five years to the world's greatest creditor. The trade balance would have to be more than five hundred million against us to meet the annual interest running to us. Now the rest of the world has no such trade balance for us, and if it had, we would not want such an excess of goods sent to us. But the only way to keep the rest from

sending us more goods than they buy from us is to continue to loan them money to pay for what they buy here, until they get back to prosperous conditions, when they will begin to pay back what they owe us from their savings.

STATISTICS PROMOTE INVESTMENTS

was due to British readiness to lend money abroad to finance trade; and to her bankers' skill in establishing credits for foreign buyers. America can take a place of leadership if her new investors are educated to lend as freely, and her bankers show the same skill in administering credits. Not only must our investment bankers locate the new springs of investment capital in this country; they must educate the owners of this capital to invest it in foreign as well as domestic securities. They must see to it that the foreign securities they offer to them are safe investments, then they must show them that their money will be safely invested in them. One house, that has specialized in Canadian securities with marked success, has recently done this in regard to that country.

ready had with foreign government issues shows the chief risk investors run, and the one which is hard to guard against-that of the instability of governments themselves. Not always does the overthrow of a government undermine the value of its securities, but such an event is likely to do so and this point of the stability of governments is one that the buyer of foreign bonds should take into consideration. If the government of a country is stable, however, and its people are able to pay the taxes necessary to meet the interest and principle of its obligations, then the bonds of that country are likely to prove good investments.

SAFETY FOR FOREIGN INVESTORS

NOTHER point which is worthy of consid

tural and natural wealth of the Dominion, and pointing out the great material progress that has been made in Canada during the last few years.

Such statistical information as it presents cannot but increase the confidence of investors in Canadian securities. The same thing should be done for other countries. While in many cases it would not show such a record of progress, yet it would increase the investors' knowledge regarding the security behind the obligations of those countries, and help to establish confidence in them. "American investors have grown to feel that when investing in Canada, they are investing at home," is the way this house explains the growing popularity of Canadian securities in this country. What is needed is more of an "at home" feeling regarding investments throughout the world. Familiarity with the wealth and condition of foreign countries and with the nature of their peoples will give something of that feeling. Some of the cosmopolitanism

the foreign issues which have been brought out in this country in dollar denominations, are generally regarded as coming ahead of the internal loan bonds of the same countries. This is based on the theory that a country will regard the maintainance of its credit abroad as of more importance than the meeting of its obligations to its own people. In other words, should occasion arise when it could not meet all its obligations, it would first pay the interest and principle of its loans abroad. These are the kind of loans that will be made here to finance our future trade balance, and they will undoubtedly hold out some attractive opportunities for American investors. Those foreigners who bought our high interest bearing bonds after the Civil War were in much the same position that we are to-day in regard to the rest of the world. We have a large share of the world's investment capital. Our future position in world trade depends largely upon how we use it.