August, 1925
INDUSTRIAL A N D ENGINEERING CHE,VISTRY
naturally discussed, and the consensus of opinion was that through chemistry there was a real opportunity to regain lost positions. If a firm grip can be established through the synthesis under discussion, it seems probable that in the not distant future the world may be compelled to pay the indemnity and to rehabilitate commercial Germany. Liquid fuels and a number of other products capable of similar synthesis still constitute dominant factors in international relations.
Buying a Mortgage HOSE who are accustomed to investing their surplus in mortgages, or trusts as they are sometimes called, are careful to inquire which trust it is, whether first, second, third, etc. Those who are inclined to invest in the securities of private German concerns are investing in mortgages and would do well to be sure of the order or priority they may enjoy in participating in such payments as the industry may be able to make. The uncertainties of loans t o German industries, particularly long-term loans, fall into two general classes-those involved in peace treaty obligations and payment under the Dawes Plan, and others which depend upon domestic factors, somr of which have to do with treaty obligations and reparations and some of n-hich are rendered highly complex by peculiar local conditions. Under the peace treaty and the Dawes Plan w r y considerable sums must be paid annually, either in goods or in foreign exchange. There is always the chance that the payments required under the Dawes Plan may not he made in full and that if defaults occur the international political situation may again become strained, with all that that means in unfortunate reactions upon German currency and the economic life of the country upon which continued payments depend. If not declared in default, some allied government might attempt or threaten to revert to the separate action policy such as brought about the Ruhr Occupation, and this again might interrupt the operation of the Dawes Plan, render basic economic conditions uncertain, and imperil the new currency and the investments of foreign shareholders, bondholders, and other creditors, as mas done during the period of mark depreciation. The fact that interest on loans abroad must be paid in foreign exchange or goods is important. A concern might well be able to pay its interest in marks but unable to buy sufficient dollars to meet the service requirements of loans made in America, and American investors are interested in dollar payment or pound sterling payments and not in mark payments. Short-term loans can doubtless be paid in dollars, since for a few years a t least there is sure to be a considerable investment of foreign capital in German industries; but the availability of sufficient foreign exchange to meet demands four or five years hence is quite another matter. The extent to which new capital is being used for lother than productive purposes is also of moment, and American investors should be sure that any loans in which they participate are for the purpose of providing no more than the absolute minimum required for a gradual return to full production and for the increase of export which is essential if foreign obligations are to be met. The extent to which this growth of export trade may adversely affect American industrial conditions becomes another point for consideration. The question of future taxation of industry in Germany is also important. It seeins clear that taxes must be raised and quite probable that these increased sums must be secured by taxing Industry, products classed as semi-luxury, and even by the adoption of fiscal measures of questionable soundness. Branch concerns may even be taxed on the basis of earnings
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of the parent corporations in other lands, and the question of revaluation of old obligations is still unsettled. Bt the present time it is doubtful whether any German corporation can definitely know upon what basis its outstanding liabilities are to be revalued on the rentenmark basis. Even the new gold balance sheets are a further factor of uncertainty, for the l a w requiring recapitalization on a gold basis are vague and it might almost be said that any company can revalue in accordance with whatever policy its board of directors decides, without much reference to actual assets and liabilities. Further, the depreciated paper mark commercial debts and mortgages have generally been ignored, even in the Dawes Plan, but they are being revived in whole or in part and in the majority of cases will have precedence over the later loans, both as to interest payment and as to security. Recent decisions of the highest German courts on the subject of revaluing German debts emphasize that this constitutes an added danger to investors. Then there are plural Toting shares, a device by which Germany prevents foreign control, even though a majority of the capital is supplied by foreign investors. The extent to which German industries may be gaining in the export trade is also a factor of importance. It would seem, therefore, that out of profits German industrial concerns must first make payments under the Dawes Plan, must help to discharge reparation indebtedness, must provide other taxation for the maintenance of city, state, and national government, and after a time reach in the list payments for the service of foreign loans. It is an interesting economic problem, and if the small investor decides it offers real opportunities, he will need all the precise information he can command.
Economy in Government EDERAL expenditures for the year 1921, exclusive of the amount applied to the reduction of the debt, were $5,115,927,689.30. The first year of budget control we spent $3,372,607,912.84, which was $1,743,000,000 less than had been spent the previous year. Those figures interest all of us as taxpayers in the application of the budget to federal expenditures, a system which has for its purpose the limitation of government expenses to three billion dollars annually. What has been accomplished is t o the credit, not only of the Bureau of the Budget, but of the extensive cooperation of various government departments. It leaves us all with the ardent wish that every state in the Union might follow the example and do as much to reduce their expenses. Economy does not mean a refusal to buy, but merely the exercise of caution and good judgment in the expenditure of money. Surely this principle can be applied to gorernment expenditures, and particularly to national defense. A large part of federal expenses is for pensions, rehabilitation, and hospital maintenance on account of past wars and in the reasonable development of plans for national defense. If further large sums are to be saved, such iteins may be the first to be cut, since the true pacifists and thobe who cloak their real motives with pacifism have not hesitated to play upon economy and urge further reduction in the Army and S a v y . Chemical warfare is the most humane, the most effective, and the least expensive method of national defense. Whether the present situation may therefore serve to strengthen chemical warfare or, because of J l r . Burton’s political gesture a t Geneva, to embarrass the service still further, remains to be seen. We are interested in the proportion of the three billions annual expenditure devoted to constructive work. We all know the penny mise, pound foolish proverb and should see to
