Stan Government was thought to be practically bankrupt in led July. At the end of the month the Treasury balance twas only one million francs with which to meet huge or obligations falling due in August, as well as large payments necessitated by the maturity of National Defence Bonds.

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The purchasing 'power of the franc in relation to wholesale prices ran a similar, though less sensational, course during 1926. Taking the 1914 basis of 100, wholesale prices stood at 646 at the opening of the year; they rose to 854 in July, and ended, much as they started, at 641 in December. Thus they had moved in a certain relation to the franc exchange. When the latter had recovered in the second half of 1926, wholesale prices had recovered too. Meanwhile, retail prices had pursued a different path. These had stood only at 463 at the opening of 1926, compared with their basis of 100 in 1914. From that level they had risen steadily et throughout the year up to 628 in November, and had ended it at 599, continuing with a slight descent in the opening months of 1927. Thus retail prices during 1926 had ignored the wild fluctuations of wholesale prices, and had been content to move steadily upward to a level which left them nearly six-fold higher than in 1914. Hence by the close of 1926 both sets of prices had risen correspondingly from their pre-war basis, retail prices somewhat less than six times, and wholesale prices somewhat more than six times. If the official estimate that wages have now risen to 607 from the 1914 basis be correct, then we may say that in France the costs of production have now established an equilibrium with prices as a whole.

But for the purposes of industrial stability an internal equilibrium of prices is not enough. What, then, is the relation of French wholesale prices to world prices, meaning by the latter term the combined figure of wholesale prices in the United States, Great Britain, Germany, Belgium, etc.? During the convulsion of July 1926, French wholesale prices, when reduced to their gold equivalent, had been at about their pre-war level, taking their basis in 1913. In that same month world prices stood at the figure of 144. But by the close of 1926 this great gap had been largely closed up, the

French figure being 132 and the world figure 142. If, then, French wholesale prices are a little less than world prices, and a little more than French retail prices, it seems to be a reasonable conclusion that, after the 1926 convulsion, a sufficient equilibrium has been established between the French price level as a whole and that of the rest of the world. The significance of that fact for French industry is this, that, if the French level were much lower than that of the world, France would be disposing of her products to the world too cheaply, or, vice versa, would be charging too much for them, to the detriment of her trade.

If the argument of the preceding paragraphs be accepted, it will follow that, though French industry has been rudely shaken by the economic upset of 1926, yet, viewed as a whole, that organisation has been able to retain equilibrium. Nevertheless, this establishment of equilibrium is being attended with considerable difficulties, especially for those who must sell abroad. Take, for instance, the situation of the French steel trade, as from the autumn of 1926. The wages paid had increased with the cost of living; taxation had been very considerably put up in August 1926; transport rates had risen over 40 per cent. since 1925, and all other manufacturing costs, accompanying the rise of wholesale prices of the first half of 1926 and not benefiting so far by the fall of them in progress, had swollen greatly. But had not the receipts of metallurgical products risen too, when sold at gold quotations on the Brussels exchange? In theory, as gold had depreciated, the French exporters should have recouped themselves to that extent when selling their goods for gold. But, actually, they themselves had been depressing gold prices by undercutting international values, thanks to the depreciation of the franc, so that metallurgical prices in gold during 1926 were at times about as low as, or even lower than, in 1914. Thus the French manufacturers in this case found themselves caught with rising costs of production and with stationary receipts. Hence the pains and penalties of a necessary readjustment. French industry must live on finer margins henceforth.

So far, then, our argument has been to show the

immense strength of French industry, as demonstrated by its triumphant recovery from the terrible shocks of the War. Next, it has been argued that French industry on the basis of the new price-level, should be able to adapt itself to the economic earthquake of 1926. But, if we look further into the future, the outlook yonder is that French industry is doomed to serious trouble unless it can obtain from the French Government a stable basis for its operations, i.e. a currency legally married to gold. Thus, since French industry depends for its future on the franc, and since the franc, in its turn, depends on the conduct of the public finances, we must briefly assess the latter, if we would form an accurate conception of the existing outlook.

The practical bankruptcy of the French Treasury in July last was averted by heroic measures. Taxes were so heavily increased that the Reporter of the Finance Commission of the Chamber of Deputies considers that the tax-payer finds himself surcharged in 1927, by reason of the recent statutes, to the extent of a total of 13,158 million francs.'* More immediate money was obtained by crediting to the Treasury the remaining balance of the Morgan Loan, by obtaining assistance from the private banks, and by pledging securities at the Bank of France. A Caisse d'Amortissement, or Sinking Fund, was instituted by the National Assembly, solemnly convened at Versailles, in order to amend the Constitution for that purpose.

The effect of all this was magical. Taxes poured in ; Rentes rose in value; the franc flew upward; the public rushed to renew their Bonds; the Morgan Loan was reconstituted; funds were accumulated partly to meet sterling obligations in 1927, and partly to enable the Bank of France to control further fluctuations in the franc; 2 milliards of the debt of the State to the Bank were repaid; the note circulation was considerably reduced; a portion of the short-term debt was converted into long-dated securities; the Budget of 1926 ended, so it was officially averred, with a milliard surplus, and, by another miracle of equally rare occurrence, Parliament passed the Budget of 1927 in 36 days, as compared, for

* Document No. 3386 of Chamber of Deputies, 1926, p. ix.

instance, with the 360 days consumed on the Budget in 1913.

The crowning stroke, which the best interests of industry now demanded, was the final stabilisation of the franc in a fixed relation to gold. The hour had come and the man. It may be laid down that, in order to attain that end, four financial conditions are necessary: a balanced Budget; a short-term debt under control; a reasonably favourable trade balance; and, lastly, a large fund of gold, supplemented by sterling and dollar bills and balances. If we may accept official declarations and official returns, all these financial conditions were present at the opening of 1927. Finally, in politics, the world observed in M. Poincaré a statesman who had rallied round him an all-powerful Ministry, who enjoyed the overwhelming support of the industrial interest, and whose prestige was at its zenith.

Across the frontier Belgium had effected the legal stabilisation of her franc at 175 to the £ in October 1926. In 1927 the Governor of the National Bank of Belgium writes of this operation: 'Our objective has been attained; the reform caused no upset in salaries or in prices; it encouraged saving; in recent weeks deposits have surpassed withdrawals by a million francs a day; the bank has maintained a ratio of 60 per cent. of gold against its notes, or, including all its sight obligations, 53 per cent.' It is relevant to observe that, taking the French franc at the same rate of 175 to the £, in the same month of October last the Bank of France's holding of gold was 54 per cent. of its notes and sight obligations. Add that at that date the Bank of France was collecting a large holding of gold exchange, as may be traced in its accounts under the heading of 'various assets,'

In France, however, M. Poincaré has pursued a different policy. In October, when the franc opened at about 170, he pronounced it to be too low, favouring 'revalorisation to the full extent of what is possible.' The franc having accordingly attained 120 to the £, and having remained for some weeks at about that figure, 'this,' he said, 'is a de facto stabilisation, and the Bank of France will do all that is necessary to maintain this rate, in order to allow industry to readapt itself,

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as for legal stability, it cannot be considered for an indeterminate period.' To this position he has steadfastly adhered, repeating, for instance, on Feb. 18 in the Chamber, 'at the present time the conditions are not in being which render possible the enactment of stabilisation by law. Is there a single man who can hope to accomplish that before the end of this Parliament?' So industry must wait indefinitely for a settled and legal basis.

Accordingly, as 1927 has gone onward, the various interests in France favouring various rates of stabilisation have organised themselves in strength. Those with fixed sums to receive by way of interest or salary favour further revalorisation' at a much higher point than now. Next, there are the industrialists who need, above all things, a fixed basis for their operations, but who would choose, next to a fixed rate, a lower rate for the franc. Lastly, there are the tax-payers, the fiscal interest, so to speak. Since about half the public expenditure is consumed in debt charges, that burden can be lowered by depreciating the value of the franc, say, to 150 to the £. As the industrialists would, of the two policies alternative to their own, prefer the latter, it may be surmised that, if it comes to a battle, the last of the three policies indicated will stand a good chance.

Instead of obtaining a fixed currency, France, according to the memorandum of the new Tariff Bill, is now to have an enhanced customs tariff under 1750 heads in lieu of the existing 650 heads. The erroneous argument is used that as taxation is, at the present level of exchange, 81. per head as against 4l. 3s. per head in 1913, industry needs to be stimulated by a tariff, a measure which can only force up further the cost of living within France and check consumption. Hence in the abeyance of a fixed legal basis for business operations, and in the presence of new measures only calculated to upset them further, the outlook for French industry must be termed precarious.

The extent to which the outlook is precarious may be estimated in an almost mathematical manner. It resides in the difference in the rate of interest on shortterm money and on long-term money in France. Shortterm money is easy and abundant. The precise converse