ABSTRACT
The case for a “moratorium” for taxpayers in the over-defl ated, gold-logged countries We are about to urge that the present business crisis is largely due to excessive defl ation in the gold-logged creditor countries, and that anti-defl ationary measures are necessary in these countries. Budget defi cits are the natural cure as well as the best antidote to excessive defl ation, and suspension of taxation for a suitable period in these countries would bring about general prosperity. In the period 1920-1930, the United States of America reduced its national debt, mainly by means of money taken from the taxpayer, from $25,482,000,000 to $16,185,000,000, namely, by over $9,000,000,000 in ten years, and at the rate of about $900,000,000 a year. But in the ten pre-war years, 1903-1913, the American national debt was not reduced, but was increased by about $34,000,000. In the three years 1928-1930, France reduced its national debt, mainly by means of money taken from the taxpayer; by over $1,208,000,000, that is, at the rate of about $400,000,000 a year. This was due to the vast amount of new taxation that was imposed to arrest the fall in the franc in 1926, which drastic defl ation was not discontinued when its object had been attained. Nevertheless, in the ten pre-war years, 1903-1913, the French national debt was not reduced, but was increased by nearly $500,000,000. Americans and Frenchmen who wish to know why so much gold has been dragged to earth in their countries in recent years have, here, something to think about. In the period 1920-1930, the British taxpayer has been forced to surrender enough money to reduce the British national debt by nearly $2,000,000,000, namely, at the rate of about $200,000,000 a year. Yet at the end of 1913 the whole of the British national debt only stood at about $3,150,000,000; and it had been reduced by less than $400,000,000 in the ten years, 1903-1913, or at the rate of under $40,000,000 a year. Some will object that pre-war national fi nance was unsound. But surely everybody ought to see that the expression “sound fi nance” is grossly abused when in its name the three great creditor countries, England, France and the United States, proceed to squeeze over $12,000,000,000 of purchasing power out of their
wretched taxpayers, and to defl ate the quantity of government securities by this amount, in the brief space of ten years. To give an idea of the kind of results that may, in certain circumstances, be involved in such drastic defl ation, it may be said that had the $12,000,000,000 remained in the hands of the taxpayers and had they turned this amount over in 1930 no more than three times in the buying of goods and services, the total amount of buying in that year would have been increased by $36,000,000,000-or by enough to prevent the depression.8 Sound or unsound, such an idea as the defl ation of national debt by $9,000,000,000, or even by $2,000,000,000 within a period of ten years was quite unknown in pre-war days. From the man in the street to the inmates of the great institutions for the insane, it had occurred to nobody; and there is no evidence that it had so much as begun to germinate even in the great institutions of the intelligentsia. The notion, it may be supposed, was the creation of post-war geniuses, and of heroes whose nervous systems had been irreparably shattered whilst defending the home fronts in the perilous moments of air-raids. Again, the inter-governmental debt question-another phase of post-war mentality-would never have become acute had it not been for excessive taxation and defl ation in the creditor countries. The fact is that, had gold been allowed to perform its normal function, it would have raised prices in the countries it entered until the imports of these countries increased in relation to their exports enough to cause inter-governmental money payments to be transformed into payments in goods and services. This is really very simple; and the day will surely dawn when school children, merely bored when the duffer of the class suggests that two and two make fi ve, will shriek with laughter when he announces that annual payments of, say, $400,000,000 collected by a great country from (taxpayers) abroad, should be applied to the reduction of its national debt-used in a defl ationary manner in the receiving country-at a time of falling prices, and thus be sterilized, instead of being re-injected into circulation by being used for increased buying of goods and services. Post-war directors of national fi nance in the creditor countries, mad with infl ation-fright, have indulged in an orgy of defl ation. Statesmen have yet to learn that there is an appropriate rate, varying with circumstances, at which national debts should be reduced; and that if the docile taxpayer can be driven to death, he cannot be driven to by-gone pre-war positions. The truth is that defl ation, like infl ation, may become ruinous; and that if infl ation must be arrested at all costs by budget surpluses, it is equally important to arrest defl ation by budget defi cits. Budget defi cits are, in fact, the natural cure of defl ation. We know that when defl ation passes a certain point, it either forces debtors to suspend gold payments, or it brings out budget defi cits. Either way, additional money is directly or indirectly furnished to debtors, and the result is of an order that tends to bring about the reversal of the downward course of prices. Thus, whilst it is certain that, at the present time, balanced budgets are essential in countries that have been forced to suspend gold payments by excessive defl ation in the gold-logged creditor countries, it is equally certain that a large temporary remission of taxation, involving budget defi cits in these over-defl ated countries, is the only sound policy for them to-day.
