The Ambassador in Belgium ( Whitlock ) to the Secretary of State

No. 990

Sir: I have the honor to report as follows concerning the final sessions of the International Financial Conference held on October 7th and 8th, 1920.

The session of October 7th, was devoted to the reading of the reports on:

Public Finances
International Credits
International Commerce
Money and Exchange.

Lord Chalmers, of the British delegation, read the report of the Committee on Public Finances, as follows:

Thirty nine Nations have presented their financial status; to the Conference. Three quarters of these countries and eleven out of twelve of the European States which have thus reported acknowledge a deficit in their budget for the current year. It is therefore important to call public attention to the fact that a lowering of prices and the re-establishment of prosperity depend entirely upon an increase of production and also that the deficit in the various budgets constitutes one of the most serious obstacles to this increase as it causes, sooner or later, the following results:

A new inflation of credit and of the fiduciary circulation.
A diminution in the purchasing power of national currencies and an instability in foreign exchange.
A further rise in prices and in the cost of living.

Therefore, the first financial reforms, should be directed toward:

Reducing the ordinary expenses to a size which can be covered by ordinary receipts.
Strictly reducing armament expenses as low as compatible with national safety.
Giving up all extraordinary and non-productive expenditures.

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An examination of the situation as indicated by each of the States represented at the Conference enables it to state that about twenty per cent of national expenses are being used for armaments.

It appears to the Conference that the world cannot continue to support this type of expenditure, therefore, the formal wish is expressed that the Council of the League of Nations should confer as soon as possible with the various Governments in order to obtain a general agreement for the reduction of the increasing war expenditure.

The Conference considers further that the various Governments should abandon as soon as possible all measures contrary to ordinary economic laws, for instance, the artificial reduction of the price of bread through fixing a sale price to the public lower than the purchase price. The railway and postal rates should be maintained at a sufficient height to cover the expenses of these services.

If, however, the ordinary receipts are not sufficient to cover the ordinary expenses, the deficit should be filled by taxation.

Following Lord Chalmers, Vice-President Vissering read the report of the Committee on money and exchange. The Committee reached the following conclusions:

It is very important to put an end to further inflation. This could be accomplished by increasing the real value of the reserves on which fiduciary circulation is issued.
Governments should regulate their expenses by their receipts.
Banks of issue should be managed on business lines.
Governments and municipalities should refrain from further increasing their floating debts and attempt to either consolidate or reimburse them.
In order to stop the increase in inflation it is necessary to augment production and to diminish consumption.
Commerce should be liberated from Government control as rapidly as possible.
The gold standard should be re-established in countries which have abandoned it.
It is at present impossible to fix a definite relation between the actual fiduciary circulations and their nominal value in gold as a return to a gold standard would necessitate a tremendous deflation.
Deflation should be undertaken with the greatest care. Otherwise a great disturbance in credit and commerce might follow.
The Committee does not believe in the issuance of an international currency as this could not overcome the difficulties of exchange.
In countries where there is no central bank of issue, there should be created one.
Every attempt to establish an artificial control of fluctuations in exchange is useless and harmful as these efforts falsify the market and thus tend to eliminate the natural correctives brought about by the fluctuations.

The Committee proposed the following:

A Commission should be formed to continue to assemble all useful financial statistics which have been presented at this Conference [Page 105] and to continue the study of a definite policy in regard to monetary circulation.

Mr. Ador, the Chairman, then called on Mr. Wouters d’Oplinter to present the resolutions of the International Trade Committee which are as follows:

The Committee affirms that any amelioration in the financial situation depends in general on the re-establishment of good relations between the various countries and particularly endorses the views of the Supreme Council made on the 8th of March to the effect that it is necessary to re-establish complete international cooperation and to organize an unrestricted exchange of merchandise among the States created or enlarged by the war, so that the essential unity of European economic life may not be compromised by artificial economic barriers.

The Committee expresses the wish that each country will attempt to re-establish gradually the liberty of commerce which existed before the war. Furthermore, the Committee asserts its conviction that the instability of exchange seriously injures the return of normal foreign trade.

The Committee will accept with great eagerness any measure which might be taken by the League of Nations to permit those countries which are not able to buy certain products necessary for their rebuilding, to obtain temporarily commercial credits on approved lines. The Committee also expresses the conviction that it is necessary to improve and to utilize the various railway systems, especially those in the countries affected by the war. This is of vital importance in the re-establishment of international commerce.

Mr. Celier, then read the report of the Committee on International Credits, the important point[s] of which are as follows:

To permit impoverished nations to obtain credits otherwise unobtainable, there will be created an International Commission formed of bankers and business men named by the Council of the League of Nations. This Commission can create sub-Committees. Countries desiring to adhere to this project will notify the Commission what material guarantees they can give in return for commercial credits. The Commission will then fix the value in gold of these credits. The Government of the borrowing country will be authorized to prepare bonds equal to the value in gold of the collateral approved by the Commission. These obligations will be further secured by the revenue from the above collateral. This revenue will be administered by the borrowing Government or by the International Commission as may be determined. The borrowing Government may lend these bonds to its nationals who may use them to effect imports. The importer must prove to his Government that he has first obtained the permission of the International Commission to make this importation; after which he gives these bonds to the exporter to guarantee the operation as long as it may last. After its termination, the exporter returns the bonds to the importer who will in turn return them to his Government, which will cancel them and may replace them with other obligations up to an equal amount. The [Page 106] revenues from the collateral will be devoted to the foreign obligations of the importing State, as for instance to pay the coupons or to amortize the obligations up to 10% of their value. At the end of each year, any excess after paying the amounts above mentioned is at the disposition of the borrowing Government.

A Government however, may use its own obligations for its own imports, provided the Commission gives its permission to make the importation.

The Committee believes that every Nation which accepts the above principles will not be obliged to borrow in order to meet its ordinary expenses, except those nations which have been devastated by the war. The Committee thinks that it is necessary to fund the floating debts which are now weighing so heavily on the markets of the world, both internal and external. As regards external debts, the Committee believes that it is to the interest of the creditor Nations to accord every facility to the debtor nations to enable them to consolidate their floating debt.

In order to permit Governments to return to a sane basis of public finance, all classes in each nation should bring their utmost collaboration. Industry should be organized in such a manner so as to encourage the workman to exert himself as much as possible in his labors, as it is only thus that the return to normal conditions will be rendered possible. On the other hand, the richer classes should be ready to submit voluntarily to abnormal taxes, in order to put an end to the present situation. It is a patriotic duty of every citizen to practise the greatest economy and to contribute his entire effort to fill the abyss which for several years will separate the wish for return to normal conditions from its accomplishment.

Private initiative is the necessary basis for fiscal measures indispensable to the restoration of public finance.

The first condition to bring about a return of normal commerce is a re-establishment of real peace and the ending of wars which are still raging.

The reports of the four Committees were unanimously carried. The Conference then closed for the day.

The final meeting of the Conference was held on Friday afternoon October 8th.

The President, Mr. Ador, read the draft report which, I have the honor to observe accompanies this despatch.77 This report is addressed to the League of Nations. It reviews the general financial situation and draws general conclusions concerning the remedies to be adopted.

Mr. Ador congratulated the delegates for their broad-minded attitude as they have pointed the ways which the Nations must follow in order to rehabilitate themselves. The importance of the work of the Conference cannot yet be realized.

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Finally Mr. Delacroix, expressed the gratitude of the Conference to Mr. Ador for his able leadership. He paid his respects to the League of Nations, to whose initiative the calling of the Conference was due. Mr. Delacroix called this action a master stroke which proves the faith of the League in future international co-operation.

I have [etc.]

Brand Whitlock
  1. Draft report not printed; for final report, see International Financial Conference, Brussels, 1920: Proceedings of the Conference, vol. i, Report of the Conference, printed for the League of Nations, Brussels.