"Incredible Economic Folly"

"Especial attention should be given to the American tariff of June, 1930--an act of almost incredible economic folly. Unlike some recent foreign tariff changes, revision of our tariff was not needed either to protect our exchanges from depreciation or to guard our gold sup plies from depletion. On the contrary, the tariff law was passed when we possessed approximately 40 per cent of the world's monetary gold and when, as has been said, we were attracting large additional amounts.

"Reckless Borrowing"

"During the boom which preceded the depression, many countries borrowed abroad on a large and even reckless scale. When prices collapsed, these countries experienced great difficulty in meeting their foreign obligations and were compelled, in order to conserve their gold supply and to limit the depreciation of their currencies, to restrict their imports and to control the export of gold.

Argentina, Australia, Brazil

"Even six months before our tariff became law, Argentina, Australia and Brazil took extraordinary steps to control the export of gold. The desperate plight of many debtor countries plainly required that every possible aid should be given them to preserve their credit and to meet their obligations by selling goods rather than by exporting gold. This was desirable not only on account of the debtors themselves but of the world as a whole, since depreciation in some currencies tended to pull down the general price level and to intensify the depression throughout the world.

Smoot-Hawley Tariff

"In the face of these facts Congress passed the Smoot-Hawley tariff. Duties were raised or new ones imposed on commodities whose import value in 1928 was $1,133,000,000, while duties were removed or reduced on articles of import whose total value in 1928 was $214,000,000. This amounted to a demand on our part that the world pay us less in goods and more in gold, despite the huge hoard which we already possessed, the weakness in many currencies and the dire need of debtor nations for a better opportunity to sell goods.

"Although the United States, after working for years to re-establish the gold standard through the world, did not deliberately seek to undo its work and to accentuate the depreciation of many currencies, such was the net result of our tariff. If the drastic decline in interest rates here and the premium on dollar exchange had not produced during 1930 a record-breaking export of short-term funds from the United States, our pull upon the world's gold supply would have been far more disastrous.

Revive Investment

"If prosperity is to be fully restored one of the things to be done is to stimulate the demand for labor and goods by reviving investment on a large scale. This, in turn, requires not only political stability in the countries which seek capital but also moderation in tariffs--particularly those of the lending countries--in order that the flow of trade may adjust itself to the distribution of international investments and that nations may borrow without jeopardizing the stability of their currencies. Of particular importance is moderation in our own tariff policy.

"Time was when the United States could practice extreme protection with no disastrous consequences to itself or the rest of the world. This is no longer possible. We are now the second largest creditor nation in the world; adherence to our traditional, policy means that we shall attract gold in great volume and jeopardize the gold standard in many countries whenever we fall to lend abroad on a large scale. A few people mistakenly believe that our recent heavy gold losses indicate that our pull upon the world's gold supply has ceased. But these losses are only temporary and have been largely due to the conversion of foreign bank balances and bill holdings here into gold. The effect is to strengthen rather than to effect our creditor position, which is the basis of our pull on the world's gold. Consequently, we must either develop an import balance or exert a disastrous attraction upon the world's gold supply whenever we fail to lend abroad on a large scale.

Intensify Future Depressions

Every depression is bound temporarily to diminish our lending; a continuation of our present tariff policy will mean that we shall intensify future depressions, an we have the present one, by attracting gold which the rest of the world can ill afford to lose and by menacing the stability of many weak currencies. In addition, we shall retard the revival of business, because the countries which have been forced off the gold standard or which have had the stability of their currencies seriously threatened, will, even after the revival is under way, not easily obtain credit to but goods from the rest of the world.

Outlook Not Bright