FRENCH FINANCE
Delayed Budgets--The Caillaux Position--Outgeneralled in Finance--Gold
Reserves Undiminished--Allied Finance--No Financial Legislation--The
National Defense Loans.
The spectacle of England loaning money to rich France--20,000,000
pounds sterling, or $100,000,000--was something most surprising.
The French have been considered among the best financiers and
economists of Europe. The whole world has been envious of the saving
ability of France, and has invited the overflow of her accumulations
into their local enterprises. For many years France has had the lowest
interest rates and a considerable surplus to invest in outside
countries. It is upon France that Russia has mainly relied for funds
for her expanding industrial development. In the Baring crisis she
sent her gold to London to fortify the situation, and in the American
crisis of 1907 she extended her hand across the sea. Then she turned
about and steadily built up her gold reserve in the Bank of France,
from $500,000,000 to above $800,000,000, although her people were not
expanding in population, industry, or enterprise. France had grown so
confident that she seemed at one time to have lost her financial
cunning.
In Germany in 1913 I was told that German finance had passed through
the "fire test," that two years of building recession and of expanding
commerce had placed her on a solid financial base; and it was true.
I was told to step over to Paris and see a disordered budget, an
increasing national deficit, bad investments in Mexico and South
America, and disorganized finance. I did and found it all true. I
also found that France was fully able to take care of herself without
any outside help, and, but for the specter of outside interference, to
delay her financing if she so elected.
It has been something of a mystery as to how there could be two Balkan
wars and so little of public finance behind them. Of course, Russia
and France helped the Balkan States and Germany helped Turkey. The
money of France came from the French banks and was loaned to the
treasuries of the Balkan States and to Greece--to Bulgaria 350,000,000
francs; to Greece 250,000,000.
The French government said that this could not be financed by public
issue after the war until the national budget itself had been arranged,
although French bankers were permitted to float a $50,000,000 Servian
loan. With the increasing cost of labor and supplies the French
railways had been steadily running behind, and France had to face a
deficit in her budget of something like 1,000,000,000 francs, or
$200,000,000, per annum.
It was proposed last January that the government should consolidate its
indebtedness and put its financial house in order, by an issue of
long-term securities; but Caillaux opposed the programme and defeated
it for many months. This postponed the issue of the Balkan States'
loans.
To-day Caillaux is about the most hated man in France. Although he is
financially well-to-do, the people believe that his connections and
sympathy with Germany were too close. The German press took his side
in the famous Calmette shooting affair and the trial of Madame
Caillaux, and all this record now stands forth most threateningly in
the French blood.
I may perhaps be permitted to say that M. Caillaux has been under
arrest, and that the police of Paris have declared they would not be
responsible for his safety. It has, therefore, been diplomatically
arranged by the government that he should be now in Brazil upon a
semi-diplomatic and trade mission.
The French loan just before the war was not a popular success. The
reason is now obvious. It was sold short from other European capitals
where it was better known that war was in the air.
When a famous "bear" operator reappeared upon the Paris Bourse after
his return from Vienna, whence he had conducted his attack on the
French loan, he was greeted with a storm of hisses. The French Bourse
is a government institution and must support the credit of France and
her allies. In Vienna they knew war was planned for the end of
September, even before the assassination of the Austrian Crown Prince
at Serajevo June 28. This event hastened but did not make the war.
Nevertheless, instead of permitting the French banks to bring out the
Balkan loans thereafter, the French authorities allowed Turkey to come
into the French market with a loan for 25,000,000 pounds, or
625,000,000 francs.
Some people pleaded with them that this money would be used against
France, and that every franc would go to repay the German loans; and
they were right.
In this financial situation France was suddenly plunged into war, and
while Germany and England have been raising money by the billion, the
marvelous thing is that France has made no public issue beyond one-year
notes, but continues to pay her bills in gold and has the exchanges all
in her favor. Money is flowing in, and not out.
It was most marvelous to find in France, in the fifth month of the war,
prompt payment, no distrust of the government paper issues, gold and
paper circulating side by side, and no strain for gold as in Germany.
Nevertheless, the war has been fought thus far for the most part on the
paper issues of the Bank of France and with the gold reserve of that
bank undiminished.
This is most remarkable.
The first reason I can assign for it is that the French soldier gets
twenty-five centimes, or five cents a day, or one fifth the pay of an
English soldier. Kitchener's army is to-day costing far more than the
entire French army. French food is locally abundant and cheap,
notwithstanding the _octroi_, or French local tax of one eighth. The
main need of the French from the outside is boots and horses. The
English in France are not taxing French resources at all. All their
food-supplies, including the hay for their horses, come from England.
The English troops are also well supplied with money from home.
Outside the regular Tommy Atkins, the volunteers and territorials
coming into France have abundant money. They are the men from the
cities and from the wealthiest families in the country life of England.
There are more than 300,000 of them on French soil, and as they come
and go in France, they are spending not less than four shillings a day
each, or nearly four times their wages. This makes a daily expenditure
of 60,000 pounds sterling in France, and calling for exchange. Hence
the English pound has been at the lowest price in France on record,
24.95 and sometimes 24.90.
There is also the additional reason of higher insurance rates for the
transportation of money across the Channel,--a channel infested with
mines and submarines. It is no uncommon thing for boats crossing the
Channel to sight floating mines, and the wonder is that disasters
therefrom have been so few.
The third reason is that France has very large investments and credit
resources outside, and can still summon money from abroad.
You see more English than French soldiers in the life of Paris. Their
khaki uniforms are as conspicuous there as in London.
The character of the early enlistments for the front in London is
illustrated by the following story. An officer entered a restaurant
where a group of English soldiers in khaki uniforms were enjoying their
cigarettes and pipes. The officer threw some shillings on the table
and called, "Waiter, give these men some beer."
And a khaki uniform snapped forth a sovereign on the same table, and
cried, "Waiter, give this officer some champagne."
Bank statements are queer contraptions nowadays. While the United
States, with less gold in the country and less reserve in the banks
than formerly, is showing the most enormous surplus--and a legitimate
and better-protected surplus by reason of the new bank act--and the
Bank of England is counting $100,000,000 of gold in Canada as a London
bank reserve, and Russia has counted, as gold in her reserve, money on
deposit which has been loaned out on time; while Belgium is doing a
banking business from an English base, and Germany is inviting gold
from the jewelry of her inhabitants and boasting her gold strength, the
Bank of France refuses to publish any statement, makes no boast, but
holds more gold than ever before in her history.
Only a few weeks before the war was her metal base put above
$800,000,000. Then she suspended official statements until one was
made to the government December 10, and this showed $880,000,000 metal
base, or 4,500,000,000 francs. Upon this her note issue, which was
formerly 5,800,000,000 has been expanded to nearly 10,000,000,000. She
is authorized to issue up to 12,000,000,000 francs in paper.
From this metallic base she increased her bills receivable by
3,000,000,000 francs, or about the same amount that the Bank of England
discounted in pre-moratorium bills under the backing of the government.
Each country took on $600,000,000 of mercantile credits, and both
countries are now finding this item receding. In France the mercantile
credits have been considerably reduced--the increase reduced nearly a
half--because the men are at the front and business is not calling for
the credits formerly in use.
The Bank of France also promptly advanced 8,000,000,000 francs or
$400,000,000 to the government.
In the last few weeks of 1914 the finances of Russia, France, and
Belgium became interlaced with those of England, and gold credits for
the Allies' supplies were established around the world, shipments from
North America going both east and west into the European war.
Government credit with the Bank of France was then extended, but should
not early in January have been more than $800,000,000.
This is the main financial assistance on which France for five months
conducted a successful defensive warfare, with 1,500,000 men at the
front and nearly 3,000,000 men behind them.
The next most remarkable financial feature in respect to France is that
there has been no special financial legislation, in fact no financial
legislation whatsoever, except the December budget vote to cover
government expenses, including the war. A moratorium was set up by
decree, but authorization for this already existed under the general
laws. Under this moratorium payments were permitted at first of 5 per
cent, then 25 per cent. Later depositors were permitted to draw from
the banks 40 per cent, and 40 per cent payments became the rule. Then
50 per cent for December, and in January, 1915, full payment to
bank-depositors, although legally the moratorium stands to March 1,
1915.
Among other temporary devices in French finance was the issue by French
chambers of commerce in the south of France of small pieces of
paper,--as low as 50 centimes or 10 cents,--used only for circulation
and change locally.
Many banks closed their branches because they had not the clerks to man
them. Many bankers lost three fourths of their staff when the
mobilization orders were issued, and all over Paris the banks are
closed from twelve to two because of the limitations of the staff.
When the Crédit Lyonnais reopened its branch in the Champs Élysées a
few weeks ago it was manned by women clerks.
The government loan issued in the summer of 1914 met less than half of
the floating indebtedness and 1914 ordinary deficit. The balance as
maturing has been merged into the national-defense loan, which is only
short-term financing. On the 10th of December there were 1,000,000,000
francs of the new national-defense loan outstanding, but it was being
subscribed for all over France daily. This national-defense loan
consists of three, six, nine, and twelve months' government bills
bearing 5 per cent interest. I figured that the amount issued December
10 was for the most part used to provide for the maturing floating
indebtedness, and for the deficit on the government budget aside from
the expense of the present war.
As the government is advancing money to Servia and to Belgium, the loan
of 20,000,000 pounds, or $100,000,000, from England can be readily
accounted for.
There were loans from the big banks of France for the government at the
opening of the war, but these loans I was assured were all merged in
the 5 per cent national-defense loans, which have not exceeding one
year to run.
On these national-defense loans the cautious Bank of France will
advance in limited amounts 80 per cent of the face value, but only
where the government loan matures within three months.
The great principle of the Bank of France is to keep liquid. Its
assets must always be mobile.
There is only one point at which French finance should be criticized,
and as we cannot know all the details of the stress of the military
position when Paris was abandoned, her mobilizing of the reserves still
in disorganization, and her transportation awry, we may not be in a
position to level any just criticism.
But it must be set down in the interest of true report that the French
credit was at one time endangered by the way the treasury, or the
military authorities, handled the government credit in payment for
war-supplies.
Instead of going to the bankers and making its financial arrangements,
paying the war-supply contractors, the French government made many
contracts under which it paid contractors, and purveyors, with the 6
per cent national-defense notes of the government, running three, six,
nine, and twelve months.
As the contractors were making 15 per cent and 20 per cent on their
mercantile overturn, they could afford to discount 5 per cent and more
in the sale of the government notes, and while the government was
passing out these notes at par to the patriotic subscribers, the
contractors were negotiating liberal discounts to bankers and others.
Nevertheless, the stupendous fact remains that France, caught in a
European war most unaware, with impaired budget and a floating
indebtedness, has carried the greatest war of her history for six
months without a long-term national loan and by the issue of less than
$200,000,000 5 per cent short-term notes for not exceeding one year,
and credits for less than $800,000,000 from the Bank of France; has
maintained her gold basis unimpaired; and has kept the international
exchanges steadily in her favor; and all this without any special
financial legislation.
Nor could I find any evidence of a French disposition to sell the
American copper shares, railroad bonds, or industrial shares into which
the French have been putting some money of late years. But I did learn
that short-term American railroad notes may this year be renewed abroad
only in part.