During the past eight years, most of the leading countries of Europe have become bankrupt. Before the World War, the sixteen principal belligerents had total debts of 28,660 millions of dollars, with a total note circulation of 5,000 millions, making a total of promises to pay amounting to something more than 33 billions of dollars. When the Treaty of Paris was signed, these sixteen countries reported debts of 171,633 millions of dollars and paper money issues of 77,954 millions, making a total of promises to pay about eight times the volume of 1913. Since the signing of the Treaty, most of the European countries, belligerents and neutrals alike, have continued to pile up obligations. According to the estimates of O.P. Austin, of the National City Bank of New York, world indebtedness was 43 billions of dollars in 1913, 205 billions in 1918 and 400 billions in 1921. ("Our Eleven Billions," R. Mountsier. Seltzer. 1922. p. 43.) A point has now been reached where the French, Russian, Italian, German, Austrian and Hungarian debts are equal to at least half of the total estimated national wealth. When it is remembered that most of this wealth is in private hands, and heavily encumbered with private mortgages; that the cities have issued enormous numbers of bonds against the same wealth, and that even though the wealth were in public hands it could not be liquidated for anything like its estimated value, it must be apparent that the capitalist world—particularly that part lying in Central Europe—has put itself into a position where its governments cannot meet their promises to pay.
Nor is this the worst. The war experience taught European government officials that it was possible to make money and pay debts with the aid of printing presses. The rapid increase in prices, and the unwillingness of the owning classes to pay for the war by means of a capital levy, placed the governments in a position where the ordinary expenses, plus the costs of the war, the interest on the war bonds, the costs of reparations and other extraordinary expenses amounted to far more than the total government revenue. As lately as 1920, all of the European belligerents, with the exception of Great Britain, all of the European neutrals, except Sweden, and all of the other principal countries of the world except Peru and the United States, reported expenditures in excess of receipts. The deficit for Austria amounted to 38 per cent of its expenditures. In other principal countries the ratio of deficit to expenditure was:
| Belgium | 69 | per cent | ||
| France | 57 | " " | ||
| Germany | 46 | per cent | ||
| Italy | 21 | per cent | ||
| Japan | 17 | per cent |
("Our Eleven Billions," p. 40-41).
These events led inevitably to a demoralization of the foreign exchange market, which reflects the measure of confidence felt by the business men of one community in the promises to pay made by the government of another community. The exchange values of the non-warring countries remained generally near to par during the entire war and post war period. Japanese exchange fluctuated very little; British pounds, which up to the time of the war were recognized the world over as the standard of value, fell to about three fifths of their par value as expressed in dollars; the French franc and the Italian lira fell to a quarter of their par values, while the Russian ruble, the German mark, the Austrian and the Polish crowns fell to less than one-tenth of one per cent of par. In addition to the serious depreciation of these various currencies, their values fluctuated from day to day and hour to hour, making business transactions difficult or impossible.
Coupled with the disorganization of exchange has been the economic depression which, beginning in March, 1920, spread like a tidal wave, bringing disaster and hardship to workers, farmers and business men. With abundant crops, with industries united into great combinations, with the banks more efficiently organized than ever before in modern times, there should have been no crisis according to the accepted economic philosophy, or, if there was a temporary set-back following the strain of the war, it should have been a regulated panic. But despite the predictions the depression came, and proved to be one of the most severe that the modern world has experienced. The thoughtful man noting these facts, and then learning that, beginning with the hard times of 1814, there have been seventeen of these breakdowns in the economic machinery of the United States, with corresponding derangements in France, Britain, Germany and the other industrial countries; and learning further that there is a tendency for such catastrophes to become more, rather than less severe, begins to wonder whether the difficulty is not very much more deep-seated than many public men would have him believe. Even the most stalwart supporters of the present order must agree that the system does not function smoothly. There are many bumps, jars and hitches, and considerable friction.
Another evidence of economic chaos is furnished by the extent of industrial waste. Studies in industrial efficiency have led recently to the publication of a number of reports, the most ambitious of which, "Waste in Industry," issued by the Committee on the Elimination of Waste in Industry of the Federated Engineering Societies of the United States, describes waste under four aspects:
1. Low production caused by faulty management of materials, plant, equipment and men.
2. Interrupted production, caused by idle men, idle materials, idle plant and idle equipment.
3. Restricted production, intentionally caused by owners, management or labor.