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Largely Paper Losses Cancelling Paper Gains SLUMP MAY LEAVE WORLD BETTER OFF

(By Professor' Shann)        

When in 1913 the United States set up the Federal Reserve System , its sponsor, Senator Owen, boasted that it would make the old-time panics impossible. Now, out of a blue sky of record prosperity comes   a devastating smash on Wall-street, and at the usual time— "the fall."

The trouble Is that American finan- ciers have not yet learned their respon- sibilities as leaders of a great creditor nation. In their days of sudden wealth the United States have hugged their traditional interest, first and fore- most, in the home market. No doubt it is a wonderful one — 120 million people with high spending power, rather uniform, notions of using it, and no impediments to internal trade. Yet even that is insufficient scope for busi- ess expansion and modern salesman- ship, despite consumers' credit.   Great Britain, in similar circumstan- ces after the Napoleonic war, had per haps less temptation to play the her- mit in her own market, though she tried it in wheat-growing for a time. In the second half, the wonder-time of the 19th century, she took the more courageous line of budding up the pros- perity of her customers abroad, by private investment there. CREDIT SYSTEM Private venturers sold British iron and steel, locomotives and steamships, above all British textiles, all on credit. Hav- ing by railways and mechanical trans- port overcome physical obstacles to trade, they offered rich cash markets in Britain for old and new lands' raw materials and food. They spread thence a great system of finance and insur- ance to make the process safe. Thus they raised the world's income almost, six-fold between Waterloo and Mons. 'The States' became suddenly rich by selling munitions and food to gov- ernments and thought, after the war,   to go on dealing with governments. Bri- tish investors, finding private venturing less welcome abroad, have done this, too, since 1900. But when America found her European debtors were pay- ing her just what Germany had bor- rowed from her to pay them, she drew in her horns as a lender. With a foreign trade back to 8½ per cent, of her production, as against Bri- tain's 30 and Australia's 34 per cent., she thought to concentrate at home and let Europe solve her own problems. All went well. Steel production, build- ing construction, retail turnovers, auto- mobiles registered, even railway receipts advanced from record to record. The combined net profits of 536 manufac- turing and trading concerns showed an increase, in the first six months of this year, of 36.6 per cent. over 1928, it- self a record half-year. Iron and steel led the way with dou- bled gains. Such figures set up a crescendo of stock-exchange speculation during the last two years. Yet a few straws floating wide hinted that the   tide was at the flood. Building in 1929 was at a lower level than in 1928. New records set up each month in motor production told of a strenuous struggle to sell between Ford and Gene- ral Motors, making respectively 35 and 30 per cent, of the new cars.     TARIFF DEMANDS No plan could be devised to curtail crude oil production and an accumula- tion of stocks. There were uneasy de- mands for a higher tariff. Finally the pleasant harmony of mutual felicita- tion between corporation presidents was

drowned by a yawp of discord from the farmers. Good harvests had built up a mass of 250,000,000 bushels of wheat to be 'carried over' when 1929 opened. By May there was a winter-wheat crop of 560,000,000 bushels ready for harvest in the Mississippi Valley. Such stocks caused a break in wheat   prices so heavy that the net incomes of the farming population from wheat were threatened with extinction. Stock markets are always sensitive to the future state of commodity markets and the slump in Wall-street predicted for May by Sir George Paish, arrived on time. In June the position was saved by a severe drought in the Dakotas and the Canadian West, plus unfavorable seed times in Argentina and Eastern Aus- tralia. The carry-over would be wanted to fill big gaps in the 1929 world production. Back to the wheat pit crowded the buyers. From 97c. in May wheat went to 1.49 dols. on July 17 at Chicago. When it was seen that at this figure the American farmers, in the mass, would get rather more for their smaller crop than for that of 1928, up went stocks again and from far and wide orders came to buy shares in the profits to come.     Then wheat sagged again in August.

What was wrong now? It was only old   Europe rattling her chains. France   was bragging of a magnificent harvest,     and so was Mussolini. Neither would   need much imported wheat. News of     a belated improvement in the Southern   Hemisphere's crops came ticking along,   too.   WALL-STREET SHIVERS     Early in August another shiver went   through Wall-street, but word of cheap     stocks brought a fresh rush of 'stags,'   amateur speculators and investors who   knew how well business was going.   under Hoover's presidency. As to the   farmers, Congress had voted 100,000,000   dollars for their relief. That would   'stabilise' wheat and good times for   all.     Would it? Did it? Outside the States   wheat markets feared that that subsidy   would enable the Middle West to poc-   ket contentedly, a lower export price,     and so wouid cause them to unload   slackly and soon. The drift in wheat   continued in September and gathered   way in October. It is now about 1.25   dollars a bushel in Chicago.   The rise in London's bank rate, forced by the attraction of European money     into the New York boom, was depress-     ing British markets afresh. The fall-   ing commodity markets in other coun-     tries told upon even American self-   confidence. So, this week, the stock     markets broke for the third time and     for three days defied every effort to   stop the haste to sell. The prosper-   ity had been too good, too local to   last.     The 10,000 million dollars by which   stocks have dwindled in market value     are largely paper losses cancelling the   paper gains of Wall-street profession-   als, manoeuvring for financial control   of big businesses. More significant are   the losses, probably much smaller, made     by 'stags' who rushed in and have   lost their antlers.   These must be losses on a large scale.   For a year New York banks have been     trying hard to prevent their loans being   used to finance speculation, but in vain.   Money, once in circulation is likely to   go wherever the demand for it is     greatest. It has gone.         SOBERING EFFECT   The loss of such money must have   a sobering effect, and luxury trades, in       particular, may budget on less reckless   spending. But the downward trend of   commodity prices generally is not so   much the effect as the cause of the   break in speculative stock-trading. If     New York, under the lead of the Fede- ral Reserve Board, can check the fall   at a level of stock prices reflecting the       profits likely at a commodity price-     level corresponding with that of Wes-     tern Europe, the world may well be     better off as a result of the slump.     Its occurrence shows that old David   Ricardo of London (1812) knew more   than Senator Owen. No monetary   system, he said, is panic proof. But   a wise handling of the crisis may en-     hance the prestige of the Federal Re-     serve System and give Americans a         reasoned faith in their financiers such       as they could not have in the days be-     fore 1913.       More important for the world at   large is the question whether America     will draw the lesson that she cannot   prosper alone. Edward Filene predicts   that within five or ten years the United   States will be a low tariff country,     ready to negotiate reciprocal reductions   of duties to enlarge the outlets for her   manufactures.   GENERAL ADVANTAGES       If so, the broader basis of prosperity   that this policy can provide will be to   the advantage of America, Britain and   America's customers alike. Britain has   a hand in all trade and all trade brings   mutual benefit to the parties. If it   did not, men would not engage in it.   There is one consolation for W.A. in   the falling commodity prices the slump   has advertised. If we know how to     admit their operation here, through all   our knotted restrictions on trade, they   must benefit gold-mining. Ore with   a lower content will pay the lowered   expense of treatment.       On the other hand any reduction of   American costs makes her traders more   formidable rivals in selling foodstuffs       to Asia where, with easy sea access     from our wheatlands near the coast, we   should stand to profit by every step to-     wards prosperity.