THE TER MEULEN PLAN 61 factory both from the standpoint of returns on them and of the direct stimulation of export business which they gave. Irrespective of the direct effect of the loan, investigations which must precede investments of this nature often disclose trading opportunities and thus lead to the establishment of commercial relations. Such investments also create more intimate relations and bring about greater confidence between the peoples of the lending and the borrowing country, which in itself is conducive to the formation of larger business transactions. The Ter Meulen Plan for International Credits.-The object of the Ter Meulen plan is to provide, through governmentally secured bonds, an instrument which would inspire confidence in exporters and would enable importers in war-stricken countries to obtain essential commodities on reasonable terms. An International Commission constituted under the auspices of the League of Nations is to be entrusted with the task of carefully examining the proposed bonds and of assigning a gold value to the assets which the governments of the countries accepting the Ter Meulen plan would be willing to pledge as security for commercial credits to be granted to their importers. The bonds are to be issued payable to bearer, maturing in five, ten or fifteen years and yielding a stipulated rate of interest. The securities back of these bonds must be of such nature as to give a regular and frequently recurring revenue, such as customs duties, state monopolies, etc. These assets are to be managed by the country issuing the bonds, or, if the Council of the League of Nations so decrees, by the International Commission. The bonds will be placed at the disposal of only such importers as may be able to satisfy the bondissuing government as to their responsibility and business standing; they will have to be used for importing only such goods as are likely to promote the general welfare and the economic life of the importing nation. In case of default on the part of the importer, the exporter is allowed the alternative of either holding the bonds as an investment until their maturity or of selling them at any time he wishes to do so, provided that before he offers the bonds for sale a reasonable opportunity be given to the government which issued the bonds to repurchase them by paying the exporter the amount of his claim. Defaults, according to the advocates of the Ter Meulen plan, are likely to take place exceedingly seldom as the borrowing government will be very discriminating in the selection of importers to whom they entrust the bonds. Upon the fulfillment by the importer of the terms of the contract of sale, the exporter will release the bonds and return them to the importer, the latter in his turn giving them back to the government. The bonds returned to or repurchased by the participating government shall be forthwith canceled in accordance with the regulations of the International Commission; they may be replaced, on the Commission's approval, by other bonds, conforming to the conditions governing the original issue of bonds. It is doubtful whether large credits will be extended by private concerns under the security of the Ter Meulen bonds even though approved by an international commission, as long as the countries pledging these bonds do not curtail their expenses or do not increase their taxation so as to be able to meet the demands of their treasuries without resorting to continuous issues of paper currencies. The Ter Meulen plan does not go to the root of the evil; it is an attempt to provide a credit mechanism for countries which, though impoverished by the war, have not learned war's lessons; many of these countries are yet animated by national militaristic ambitions; their governments, instead of promoting the economic life of the people, are keeping up armies on a war footing and are fighting or preparing for conflicts. Confidence can not be restored by the use of documents. Furthermore, it does not seem that the machinery which it is proposed to set up is suitable for the furthering of short term mercantile credits, tied up as it will be with the use of long-term bonds. REFERENCES BYRNES, R. M. Profitable Foreign Investments or Loss of Export Trade— Which Will America Choose? The Americas, February, 1921. Pp. 1-5. CULBERTSON, W. S. Commercial Policy in War Time and After. Chap. XVII. FRAZER, SIR DRUMMOND DRUMMOND. International Credits. Address before the Convention of the American Bankers' Association at Los Angeles, October, 1921. GEPHART, W. F. The Ter Meulen Credit Plan. North American Review, March, 1922. GRUNZEL, J. Economic Protectionism. Pp. 77-100. HALSEY, F. M. Investments in Latin America and the British West Indies. Bureau of Foreign and Domestic Commerce, Special Agents' Series, No. 169. HOBSON, C. K. The Export of Capital. HOLDSWORTH, J. T. A Foreign Loan Policy that will Enable Our Factories to Get to Work. Proceedings of the Ninth National Foreign Trade Convention, 1922. Pp. 4-17. JONES, GROSVENOR M. Exporting American Capital. The Economic World. May 26, 1923. Pp. 724-727. KIMBER, A. W. Foreign Government Securities. KINLEY, D. Investments as a Basis of Foreign Trade Expansion. Second Pan-American Scientific Congress, 1916. MCINTOSH, C. K. Foreign Investment as an Aid to Foreign Trade. Proceedings of the Fourth National Foreign Trade Convention, 1917. Pp. 140-153. MOULTON, H. G. The Financial Organization of Society. Chap. XV. SANTILHANO, J. Banking for Foreign Trade. Course in Foreign Trade. CHAPTER V FOREIGN TRADE RESTRICTIONS AND PROHIBITIONS The term prohibition has been used very loosely not only by the general public but by many writers on the subject and by many of those who have been administering the customs laws. A distinction should be drawn between absolute prohibitions, the number of which is at present small, and a much larger class of so-called contingent prohibitions, which are not prohibitions in the strict sense of this word, but are restrictions placed on imports or exports, both being allowed upon the fulfillment of certain requirements. It is true that the requirements are at times so stringent as to make the restriction tantamount to an absolute prohibition, but such is not often the case. History. The first prohibitive measures enacted in connection with the regulation of foreign trade may be traced back to the early part of the thirteenth century. In 1211 a law was promulgated in Padua which forbade the importation of woolen goods under the penalty of their being seized and burned. In the fifteenth century Venice and England began to resort to prohibitions, the latter forbidding in 1455 the importation of silks. A more determined and consistent application of the prohibitive system commenced in the middle of the seventeenth century when the doctrines of the mercantile school were influencing the actions of statesmen. Prohibitions of imports in order to foster national industries, prohibitions of exports for the purpose of keeping in the land foodstuffs and raw materials, became one of the prominent features of a country's commercial policy. In Austria the prohibitive system was established in 1659, by Leopold the First, who forbade the importation of all foreign goods except the strictest necessities. In Germany, the highly protective commercial policy inaugurated by Frederick the Great relied for its effectiveness largely upon prohibitions. In France the high protective duties contained in Colbert's tariff acts of 1664 and 1667 were changed to absolute prohibitions during the latter part of the seventeenth and the beginning of the eighteenth century. In England a rigid prohibitive system was inaugurated in the seventeenth century, the imports of certain manufactured articles having been forbidden under the penalty of death. After the industrial revolution England forbade the export of textile machinery; the aim of this measure was to prevent foreign countries from using English-made machines to compete with English textile fabrics. This policy did not lead to the prosperity so confidently looked for. It injured one industry, that of making machines, in order to guard against a probable future injury to another industry, the production of textiles. In 1826 a petition was presented by the machine makers of England, requesting the removal of prohibition on the export of machines; when the restrictions were removed the disaster feared by the British cotton manufacturers did not materialize; Lancashire continued to maintain its supremacy in supplying the markets of the world with cotton fabrics. The prohibitive policy reached its highest expression in the Continental Blockade decreed by Napoleon the First in 1806. All communication with the British Isles was strictly forbidden. British subjects, if they were found on the territory occupied by the allied troops, were imprisoned and their goods were seized as lawful prizes of war. England replied by promulgating analogous measures against her foes. Napoleon justified his decree on the ground of military necessity; he expected that by its means English commerce would be speedily ruined and the country brought to terms. However, what he succeeded in accomplishing |