war, the prices in 1900 being represented as 100. It is likely, therefore, that Europe is entering on a period of high prices. The ten years succeeding this war will probably show high prices of food stuffs, raw materials and finished products.

With regard to the item of taxes which enters into the cost of production, it is only necessary to consider the cost of the present war and the burdens which it places upon the warring nations. The cost of this war is so prodigious that the figures can scarcely be comprehended. The mere statement that England in one year of this war will increase her public debt more than she has increased it in the last 100 years indicates the vastness of the financial operations. Enormous war debts are being piled up by the various European countries, and it must not be forgotten that the previous debts of Europe were already great before the war began.

The cost of the present war has been variously estimated. Mr. Lloyd-George, the British Chancellor, estimated that the cost to the allies of one year of the war would be about $10,000,000,000. The editor of the London Economist estimates that the per diem cost of the war in the larger countries alone, amounts to an expenditure of $50,000,000 per day. Already extraordinary measures are being employed to raise the sinews of war. In addition to the war loans which are estimated at about $6,000,000,000, other measures have been adopted. England has doubled her income tax, which now amounts to as much as 8 per cent in some cases. Germany has increased her capital tax, and has even issued treasury notes on security of personal property and jewelry. France has increased the authorized limit of bank notes and is raising taxes generally. But the general policy is evident on the part of the warring nations to secure the necessary funds for war, not from taxes, but from loans. This means that the effects of the war financially are not to be taken up immediately, but are to be distributed by funding operations over the next fifty or one hundred years.

The inference seems to be, therefore, that costs of production in Europe cannot possibly be lowered, and are quite likely to be considerably raised. If this is the result, the European level of costs and prices will more nearly approximate our own than ever. It will also mean that the American manufacturer will be able to compete with the European manufacturers on more favorable terms than ever before.

It appears, therefore, from the above statement of such facts as are obtainable, that the conditions in the world market are such as to warrant invasion by the American business man, not only in South America, but in other countries as well; that we are fast becoming a creditor nation and are now in a better financial position than ever before to extend our foreign trade; and that the costs of production in foreign countries are not likely to fall sufficiently, if at all, to drive American business men from the markets gained during the war, provided they will endeavor to deal with the foreign producers as the latter have always been accustomed to be dealt with.

The attitude, therefore, of the American business man, if he would take advantage of the tremendous opportunities that have suddenly been thrust upon him, and if he would continue the prosperity which he has enjoyed in the past, must be to emerge from his narrow policy of complacency with the home market and dependence upon artificial means to exclude foreign competitors there. He must look beyond the borders of his own country, not only to strive to extend his own trade to the uttermost parts of the world, but to meet his foreign rivals courageously in fair competition, both at home and abroad.

BRANCH BANKS AND OUR FOREIGN TRADE

BY WILLIAM S. KIES,

Of the National City Bank of New York.

Forty English banks operating in foreign countries have 1,325 branches; in South America, five German banks have forty branches and five English banks have seventy branches.

The South American foreign banks and their branches are active agencies for the promotion of trade relations between the South American republics and the home countries. These banks have entered actively into the industrial and economical lives of the communities in which they are located. They have furnished money for the development of the resources of these countries; have financed railroads, harbor works, public utilities and warehouses. They have been instrumental in building up markets at home for the raw materials produced by South America, and have in this manner established a basis for a reciprocal exchange of products. The money of England and Germany has been freely invested in the future of these countries. England and Germany have put into Argentine, Brazil, and Uruguay, in the last twentyfive years, approximately four thousand million dollars, and as a result enjoy together 46 per cent of the total trade of these three countries.

Of course these investments do not represent money taken from the capital of the banks, but the investments of the people of England and Germany in South American securities. A ready market has existed in Europe and on the Continent for South American bonds and stocks, and capital for development projects has been heretofore obtained with little difficulty. Germany has been able to do her share in the constructive work of upbuilding South America because of the effective aid of an almost paternal government, which has worked hand in hand with the commercial and financial interests of the empire for the development of German commerce. German investors have been taught that the prosperity of the country depended upon the development of foreign markets and have felt secure in their investments, knowing that the power of the

German empire would be exerted in the protection of contracts entered into in foreign lands.

England's position as a world power is in the largest measure due to the development of her foreign commerce. She has not only been the world's largest carrier and ablest merchant, but at the same time its greatest banker. England has loaned money in all parts of the world whenever she has been able to see trade returns as a result of the loan. Through her system of English-owned foreign banks, with their branches, she has ever been ready to finance the needs of countries whose raw materials could be used by her factories, and whose people in return could be converted into customers for her manufactured products.

England is the world's greatest market because in it there have always been found buyers for all the various products the nations of the world have had to sell. Should market conditions for particular products be unfavorable, a system of warehouses is at hand for the storage of the goods, and the owner can always borrow on his warehouse receipt, enabling him to hold his goods for a more opportune moment for their sale.

England's preeminence as a world financial market has been due largely to the services performed by the English "acceptance houses," and to the existence of an active discount market for bills of exchange on London originating in all parts of the world. The pound sterling is the common denominator of values throughout the commercial world. Exchange on London has been the means of settlement of transactions in international commerce for years, with a resultant large profit to the English bankers, who levy, in this manner, a tribute upon the commerce of the world.

The "acceptance" is a financial expedient until recently almost unknown in this country. The difference between the method in effect here and in Europe is that commercial transactions have been heretofore financed in this country by notes, and in Europe by bills of exchange. The one is an unsalable investment; the other a prime quick asset. Credit resources of American banks have been strictly limited to the amount of their real assets. European banks, on the other hand, have been in a position to maintain a contingent liability far in excess of this limitation by accepting and transferring bills of exchange. The services performed by the

London bill are not over-estimated by an article in the London Economist, printed just prior to the war, which reads:

The bill on London is the currency of the world. It is the only currency of the world. It represents gold but it is better than gold, and is preferred to gold because transferrable with greater rapidity, greater ease, greater certainty, and infinitely less risk of loss. It has therefore become the universal world currency, which, and which alone, the producer and handler of all nations will accept as wholly satisfactory and sufficient. There is nothing like it elsewhere. No such function is performed by a bill on Paris, on Berlin or on New York.

Prior to the passage of the Federal Reserve Act, national banks were not allowed to extend their cerdit, through the medium of the acceptance, to importers and exporters; neither were there any provisions in our national banking laws permitting the establishment of branches of American banks in foreign countries. There were likewise no national laws under which banks might be organized to operate in foreign countries under the authority and supervision of the United States government. Under the laws of some of the states, banking corporations could be organized with power to operate outside of the boundaries of the United States; but the fact that foreign banks, organized with large capital and well-developed systems of branches, were so thoroughly entrenched in South American and other countries, made the success of American banks problematical, if organized under other than national auspices. Then, too, a large amount of capital was needed in the organization of such branches; and it must be remembered that the United States itself is a borrowing nation, and has been a free user of the surplus capital of Europe in its own development.

The Federal Reserve Act, however, has made it possible for branches of national banks to be established in foreign countries, and to place back of the branches the prestige and resources of the parent bank. The Federal Reserve Act contains a further important provision of greatest value to the future development of our commerce. Section 84 is as follows:

Any member bank may accept drafts or bills of exchange drawn upon it and growing out of transactions involving the importation or exportation of goods having not more than six months' sight to run; but no banks shall accept such bills to an amount equal at any time in the aggregate to more than one-half its paid-up capital stock and surplus.