I hear you say, "cancellation, or, at least, a part cancellation of the debts, would probably be immediately answered by a cancellation of a corresponding amount of 'C' bonds." Very good! But the "C" bonds are but a mirage on the distant horizon, and when all has been said and done the reparations payments in the latest form are not even sufficient to touch the fringes of the "B" bonds. Nevertheless, I do not want you to take this as an argument against cancellation; I merely want to poiut out that the Reparations Commission, whose duty it is to collect from Germany, would not find its difficult task lightened by even so drastic a measure as the cancellation of the inter-Allied debts. About a year ago I had the honor of discussing this subject before the American Economic Society, and I have since seen no reason to change my views. I said then: "The moment is ill chosen to bring the question of the cancellation of the debt in so uncompromising a manner before our people. Economically speaking, we are at present a very much harassed people. The burden of the taxes, the difficultles

and hardships

brought upon us by deflation, make it very hard for the people at large to examine so important a question in the right spirit. Therefore, I propose that we should take a leaf out of Secretary Hughes' book and declare a holiday of ten years for our Continental Allies, during which the ebt would be considered as non-existent. After the ten years have elapsed the question of the cancellation should be taken up again. I believe that these ten years of an absolute suspension of the effects of the debt would create an atmosphere of judicious aloofness. We should then be in a much better position and also in a much better mood to approach so vast a proposition.

"After all, it will be granted that in 1931 things may look quite different from what they are now. Our debtors are hardy people, who have weathered more than one storm, and ten years should witness great changes for the better in their affairs. But the point is not so much to wait ten years in the hope

that our Allies may be in a position to pay easily their debt; my proposition is not a veiled moratorium. I conceived it in the hope that, ten years hence, conditions both in this country and abroad will have prepared a better terrain for the discussion of the problem."

The terrain for the discussion of the problem was at the time so little propitious, indeed, that, instead of the beau geste advocated by Prof. Seligman and so many of our best minds both in academic and financial circles, the Bill for the Refunding of the Allied War Debts was signed by President Harding on February 9, 1922.

Meaning of the Refunding Bill

Quite naturally, the people and the press in Europe were far from pleased at the action taken by the United States Congress. Eight months have passed since the signing of the bill, and it will be admitted now that the bill is anything but a summons to pay. The bill merely creates a World War Foreign Debt Commission, which is authorized to refund the debts of the former Allied and associated governments. But, as has been pointed out in our discussion, the Commission's power is very strictly limited by the proviso that the time of maturity of these debts cannot be extended beyond June 15, 1947, at an annual interest rate of not less than 44 per cent. Finally, the Commission's . authority to refund the debt is to cease at the end of three years from the date of the In other words, the passage of the bill.

bill means that a commission of five should start negotiations with our debtors, but its power to refund the Allied war debts is made dependent upon the proviso of a 25 years' maturity.

Because of the very strictness of this limitation the Commission is practically precluded from refunding the war debts, and all it seems to be able to do is to discuss with the representatives of the foreign treasuries the possibilities of eventual payments. The Commission is told to try to refund the war debts, but only on condition that the maturity be not extended beyond the 25 years. If the Commission is unable to obtain from the debtor acceptance of the maturity stipulation, all it can do is to report its failure. is The bill, and this the parting shot, graciously grants three years to the Commission to try and do its best.

The bill, I repeat it, is not a categorical summons to pay; it is an invitation to talk matters over. It undoubtedly serves notice

to the Allied world that our people are not in favor of a cancellation. It does not at all warrant the criticism that America is an implacable, merciless creditor. The solution I suggested in Pittsburgh would have this advantage over the funding bill in that it takes the question out of the realm of politics for a definite period.

American Policy of Isolation

In the meantime the important thing for us is to know how to shape our own financial and economic policies with an eye upon the European situation. We have not ratified the Versailles Treaty, we are not in the League, we are not on the Reparations Commission, but our abstention from the councils of the world does not preclude us from living in the midst of a world of which, whether we like it or not, we are a very powerful, but still a dependent part. Our failure to occupy a seat at the Conference table in Genoa has certainly not lowered an asbestos curtain, financially or economically speaking, between Europe and us. Our State Department turns out polite notes declining invitations to attend international gatherings, but in the meantime our people subscribe to foreign loans, buy foreign exchange, or sell locomotives to countries whose credit rating is not even always very reassuring.

On the other hand, you will have noticed, for instance, that our people have become less enthusiastic in taking up foreign loans which certainly goes to prove that we are following as closely as possible affairs in Europe, and that our financial seismographs record even the slightest transatlantic trem.

ors.

Much gratuitous advice has heen given to poor Europe. Europe is told to balance her budgets, to re-instate the gold standard, or failing this, to stabilize her currencies; to levy higher taxes-in a word, to behave according to the rigid precepts of a conservative political economy. Good, sound, oldfashioned economics, but they are the preaching of categorical imperatives about as impossible to comply with as the friendly advice to a man falling off the Woolworth Building, to whom one would say, "Go slow, my friend, better take your descent in easy stages; or, better still, go back to your starting place and don't fall."

History, after all, like the experience of the individual, is the very best teacher. European Nations Should Get Together

After our Civil War the recovery of the Southern States, with their currency wiped

out, their obligations repudiated, would have been delayed for generations had they not been a part of the greatest interstate free trade area in the world. Free interchange of goods, commodities and service unhampered by artificial barriers was immediately resumed.

I believe and hope that Europe will sooner or later profit by this experience in our history. It is high time, now that self-determination has been at least measurably accomplished-though not in all cases with full justice that the snarling and bickerings and quarrels of Europe should cease and be replaced by sound principles, mutual understanding and mutual co-operation. It is high time that Europe should cease her. criticism of the aloofness of the United States, and that the various nations get together for their mutual interests.

The British review, "The Round Table," observes that many Americans had felt acutely that the United States should take a hand in the work of reconstruction, but that these Americans had also felt that the greatest necessity of all was that the nations of Europe should begin to show some kind of European community. This is well said. America is very little inclined to play a part in the European concert, and when she receives the flattering invitation of assuming leadership she must refuse to accept the baton of a guest conductor. But America will not withhold her co-operation from a Europe which shows some sense of European community.

England, a creditor nation for more than a century, maintained her financial supremacy, not by collecting and spending, but by collecting and re-investing what she collected. The statistics of the growth of her foreign investments show that her foreign holdings have been steadily built up by the accumulation of interest.

Foreign Markets for Surplus Goods

America, a young creditor nation, with enormous sums of money flowing back to her in the form of interest and sinking fund payments, will necessarily be on the lookout for safe and profitable re-investment opportunities. The problem of finding markets for her exportable surplus of goods will be paralleled by a not less vital one the finding of employment for her exportable surplus of credit. Not in the form of gigantic international loans-I must confess that my imagination stalls when they are under discussion-but the future holds for the Ameri(Continued on page 486)

No one claims that England is insolvent. During the war she raised by taxation from one-quarter to one-third of her cost of the war. There was enough taxation to prevent any extreme inflation. Her national budget is now practically balanced. Whi she might be pleased to be relieved of her debt of about $5,000,000,000 to the United States she does not expect to have the debt canceled. Few Englishmen and fewer Americans now contemplate any such cancellation. England can pay-not all at once, but she can pay the interest now and the principal within a reasonable period.

France and Belgium Struggling with Deficits

In France the situation is not so clear. At the breaking out of the war France had a public debt of about 32,000,000,000 francs, then the largest national debt in the world. At the armistice her debt had risen to about 142,000,000,000 francs. Now, it is said, her debt has risen to near 340,000,000,000 francs. Included in this is about 85,000,000,000 francs spent in reparations in the devastated

area.

Thus in the three years since the war, exclusive of the amount spent in reparations. it appears her debt has increased nearly as much as it increased in the three years during the war. She owes the United States-say 40,000,000,000 francs at present rate of exchange. She cannot pay this now, nor can she now fund it with long time bonds. She cannot now pay the interest; and, in her budget she does not now include this interest as a liability. And yet, outside of any expenditure for further reparations, this year her deficit will be. at least a billion francs a month.

France and Belgium, in a general sense, use their revenue to pay the interest on internal debts, leaving as a deficit their general running expenses. Revenues from taxation in Belgium and France speaking generally are approximately 50 per cent. of their necessary expenditures. Those two countries are busy with repairing the dam ages in their devastated areas, compensating their citizens in the devastated areas for personal and property losses. Their pensions to the wounded soldiers and to the families of the dead soldiers are enormous and there is a strong political influence in both countries to increase these pensions. Labor is thoroughly organized in both couatries. Wages are yielding as little as pos sible from the high level reached during the war. The government employment of great numbers of laborers in restoration work in the devastated areas tends to keep wages up. Trade is disorganized. The markets of

the world are upset. There are internal and local problems that absorb the attention of the people. Those two countries, as far as I could learn, are not yet bothering themselves about either the interest or the principal of their debts to the United States.

Harmful Effects of Cancellation

In order to be able to raise the money to meet this deficit of at least a billion francs a month and the expenditures for further necessary reparations, France must maintain her credit with her own people by coutinuing to pay the interest on her internal debt. Notwithstanding her debt to the United States and not so much to England and her inability to pay the interest thereon, her present situation is such that she must spend, outside of expenditures for reparations, a billion francs a month more than her income. As she is not paying. not even maturing as a liability in her budget, the interest on her debt to the United States the cancellation of the debt would not improve her budget. The owner of one of the leading daily papers in Paris told me he knew of only one Frenchman of distinctive prominence who now was advocating cancellation of France's debt to the United States.

I believe that the cancellation now of the debt of France to the United States would have two very harmful effects. First, it would have a tendency to make her people less sensitive to the necessity of cutting down expenses and increasing revenue, and thereby putting her own house in order.. Moreover, if those countries are spending practically twice as much as they can now collect by taxation, notwithstanding the fact that they are paying the United States neither interest nor principal on these war debts, then if the United States should cancel these debts, those countries would find increased pressure for larger pensions and greater expenditures, and there would be greater difficulty in balancing their budgets. Second, the argument would be made that the thrifty businesslike Americans would never have canceled the debt except that they knew France morally did not owe it: and, if France did not owe that debt because France and America had been in a war for joint account, then America in all good conscience should share jointly with France all those damages suffered by France during the war which could not be collected from Germany. There would have been planted in the hearts of the French an enduring hatred of America.

Moreover, the United States has taken the definite position that those debts are moral (Continued on page 478)

H

ERETOFORE the paths of the life insurance counselor and the trust company have diverged too far. These two interests have much in common, and yet, in the past, both have seemed, in some measure at least, oblivious to the opportunities which co-operation could make possible.

The deep seated foundation of a real community of interest is the primary object of promoting the building up of an estate for the protection of the family. The business man requires advice, admonition and pressure even to make him realize that this is a duty to be performed, even at some sacrifice.

The life insurance man's best prospect and that of the trust company are identical. Therefore, if a plan could be worked out by which the trust company could create business for the life insurance man, and by so doing be a factor in establishing many family estates for the trust company to administer, a mutually profitable result would be obtained.

The Field Favorable to Creation of Such Trusts

Great interest has been shown in this plan, although it has been made public by only a comparatively limited publicity by advertisement and letters.

The especially significant response was that of life insurance men. Fitted as they are to understand the details and practical application of such a plan, their instant and wide approval of it, and the institution of vigorous presentation of it, is considered a basis for the assumption that it will meet a real need.

When the large force of insurance agents which can be found within the field of any trust company find that a plan is one which they not only approve, but set out to sell with enthusiasm, the trust company has obviously expanded its contact with its public in a remarkable measure.

With but limited publicity the demand for literature, the number of interviews had, and the business developed, have been several fold greater than the response evoked by like publicity of any other branch of trust service.

Explanation of "Insurance Trust" Plan

The plan itself is quite simple. It recognizes the fact that, though men may strive to create substantial family estates, those who succeed adequately are in the small minority. The plan suggests dedicating, in the form of an irrevocable trust, such securities as a man can and should devote to the protection of his family, and the use of the income from these securities for the purchase of life insurance. Thus an immediate protection is created far in excess of the amount of securities deposited. As a further family protection, the agreement designates our company to receive the insurance at death of donor, join it with the trust estate and administer it for the beneficiaries; final distribution to be made in accordance with the terms of the agreement.

With that conservative and certain accumulation at compound interest which sound insurance offers, there is united the element of present and continuous maximum protection. Tables prepared by competent actuaries show that, even at ages as high as fifty