ons have in turn placed before the International
Financial Conference a statement of their financial position. The
examination of these statements brings out the extreme gravity of
the general situation of public finance throughout the world, and
particularly in Europe. Their import may be summed up in the
statement that three out of every four of the countries represented
at this conference and eleven out of twelve of the European
countries anticipate a budget deficit in the present year. Public
opinion is largely responsible for this situation. The close
connection between these budget deficits and the cost of living,
which is causing such suffering and unrest throughout the world, is
far from being grasped. Nearly every government is being pressed to
incur fresh expenditure; largely on palliatives which aggravate the
very evils against which they are directed. The first step is to
bring public opinion in every country to realize the essential
facts of the situation and particularly the need for reestablishing
public finances on a sound basis as a preliminary to the execution
of those social reforms which the world demands.

Public attention should be especially drawn to the fact that the
reduction of prices and the restoration of prosperity is dependent
on the increase of production, and that the continual excess of
government expenditure over revenue represented by budget deficits
is one of the most serious obstacles to such increase of
production, as it must sooner or later involve the following
consequences:

(_a_) A further inflation of credit and currency.

(_b_) A further depreciation in the purchasing power of the
domestic currency, and a still greater instability of the foreign
exchanges.

(_c_) A further rise in prices and in the cost of living.

The country which accepts the policy of budget deficits is treading
the slippery path which leads to general ruin; to escape from that
path no sacrifice is too great. It is therefore imperative that
every government should, as the first social and financial reform,
on which all others depend:

(_a_) Restrict its ordinary recurrent expenditure, including the
service of the debt, to such an amount as can be covered by its
ordinary revenue.

(_b_) Rigidly reduce all expenditure on armaments in so far as such