A stimulus to private initiative in extending foreign trade has already been given by the passage of the WebbPomerene Act. This act legalizes the formation of combinations of competing manufacturers and exporters and frees them from the prohibitions of the Sherman Anti-Trust Act if their export associations take a certain form in organizing, if they organize in public, submit to supervision, and confine their co-operative activities solely to export trade. Up to the beginning of December, fifty-two statements of such export trade associations, covering combinations of machinery manufacturers, toolmakers, lumber manufacturers, iron and steel manufacturers, and general exporters were filed with the Federal Trade Commission. A combination in the steel trade is said to include twenty-eight companies with an aggregate annual ingot production of over 20,000,000

tons.

The Government, moreover, is taking a more active part in foreign trade exploitation. Recently it was announced that the War Trade Board had organized an exporting company known as the War Trade Board of the United States, Russian Bureau, Inc., with a capital of $5,000,000, to "engage in the business of exporting to Russia and Siberia agricultural implements, shoes, clothing, and other commodities which the Russian population needs, and bringing back Russian and Siberian raw materials." The company is intended to assist in stabilizing and rehabilitating Russian trade and enterprise, and particularly in encouraging private capital to engage in trade with Russia and Siberia as shipping becomes available for the purpose.

It is understood that similar plans are under consideration for creating through the assistance of the Government markets for our goods in other countries.

The Government's decision to go on with the building of a great merchant marine should react favorably on the extension of foreign trade. With a large American owned merchant marine there is obviously an added incentive for taking advantage of all opportunities for trade with other countries.

The question whether this merchant marine shall be under government or private control promises to be one of the important problems involved in readjustment in the United States.1

1See pp. 54-56.

Aside from the merchant marine is the question how far and how the banking facilities of the United States can be expanded and utilized so as to further the efforts of manufacturing interests in their campaigns for extending foreign markets. Much has already been accomplished in this direction by some of the large banks of the country which have opened important branches in several countries, notably in those of South America.

CAPITAL AND CREDIT

No accurate calculation of the total cost of the war is as yet possible. Some of the most careful estimates range around $200,000,000,000 without allowing for the loss of life.

In round numbers the Central Powers have increased their debts by about $40,000,000,000; the Allies by about $82,000,000,000, of which that of the United States (net) is over $10,000,000,000. These figures, while failing by far to measure the direct costs of the war, stand as a mortgage on the resources of the various countries. Interest and partial payments on this great principal must be paid in taxes each year.

The war leaves the United States a creditor instead of a debtor nation. To date, the country has paid foreigners for securities sent home probably $2,500,000,000; it has invested in the obligations of foreign governments about $3,100,000,000; it has advanced to its Allies through government loans over $8,588,000,000; and has raised for its own needs through loans about $10,000,000,000. In addition Federal war taxes raised in 1917-18 were approximately $3,700,000,000, a figure which will be greatly exceeded by the levy of the current fiscal year. This remarkable achievement has been possible only by curtailing extravagance and resorting to saving on a great scale. That is, it was made possible only by the creation of new capital.

In the coming readjustment, the United States must face the necessity of another large government loan in the spring of 1919, of heavy expenditures on the army and navy yet in service. More than that, it is the only country in a position to finance other nations in their period of reconstruction and at the same time to meet the demands of home industry.

That there are obvious difficulties in the way of doing this it would be useless to deny. In spite of proverbial American optimism it must be realized that credit, while not dangerously inflated, has been made to carry an

unusually heavy burden. The one and only remedy is a continuance of saving just as in the hardest days of the war. Evidence of this need can be seen in the condition of the Federal Reserve Banks. The original purpose of their creation was to rediscount only short-time commercial paper; the carrying of securities was discriminated against. Today, however, as a consequence of floating government bond issues, member banks and the Federal Reserve Banks have made enormous loans on the security of United States bonds. In 1918 such loans by the Federal Reserve Banks had grown from $1,200,000,000 to nearly $2,800,000,000. This action has been quite contrary to the spirit of the Federal Reserve Act, because these assets, while of the highest character, are not liquid in the sense that commercial paper is liquid. The repayment of these loans is the first task of financial readjustment.

The possibility of promptly lifting this burden of promises to pay depends on the maintenance of production on a large scale and, quite as important, on the strength of the saving instinct throughout the country. Under the pressure of war, thrift has been practised to an extraordinary degree. Whether it will be kept up after peace is another question. Already there are evidences of a relaxation of restrictions on unnecessary consumption and of a return to former habits of extravagance. Yet it is obvious that the country must save and keep on saving, if it is to meet the demand on its capital and liquidate its credit obligations as they mature.

The capacity for saving still remains as large as ever. It is limited only by the surplus of the production of goods above necessary consumption. All that is needed is to maintain production, stimulate the desire to save, and to control the wastes of extravagance. It is to be remembered that credit can be liquidated only by production and exchange of goods. It is the sale of goods and the use of their proceeds expressed in money which provide the true means of liquidation. In this way a large total sum of credit can be maintained in a sound and healthy condition by constant renewal and replacement. But it is not wisdom to overlook the fact that the banks have been forced to carry too large an amount of credit based on securities which is not as liquid as if based on transactions in salable goods.

The primary needs of readjustment are ample capital and sound credit. Behind all must be a well-adjusted condition of business, so that industries are kept fully occupied in meeting a legitimate demand and not injured by senseless struggles between managers and workmen. If goods are being actively produced, capital can be saved and credit kept sound. It is imperative, therefore, to do everything possible to stimulate prosperity in all industries, since thereby unemployment can be obviated, large savings made possible, and a current of healthy blood put into the credit organism. For employers and workmen to quarrel at this juncture would be comparable to two men in the water who, instead of quietly trying to save each other, endeavor to strangle each other.

But the question at once arises how increased production of merchandise can be paid for? As regards domestic conditions, the answer is easy. Continued large production in itself would assure the wages essential to current payment for goods and also to saving. The situation in regard to foreign trade is different. The enormous destruction and losses in man-power, materials, and capital in Europe force the question whether these war-weary nations can pay the United States for goods sold to them.

The prodigious payments of foreign trade are made by forms of international credit. Foreign exchange enables nations to offset accounts and pay only balances in gold. Gold cannot be sent as the main payment; nor is this essential. Goods may be imported; but production in some foreign countries has been so seriously crippled that for some time at least payment can be made only in part in this manner. In other words, since foreigners cannot pay at once in cash or goods they must have credit until their productive operations can be more fully restored. This country is therefore confronted with the necessity of taking a large share of the payment in forms of credit, chiefly long term government bonds. Acceptance of such securities as payment, in turn, calls for a wide and active market for these securities in this country. As yet our market has not been familiar with many kinds of foreign issues, as Paris, London, Frankfurt, and Vienna have been. Whether it can promptly be induced to absorb them is one of the problems of financial readjustment.

A first step is to obtain sound credit conditions behind the payments offered. This depends on after-war pro