FINANCE-PUBLIC & PRIVATE.
[BY OUR CITY EDITOR.]
MONETARY AND OTHER UNCERTAINTIES.
[To the Editor of the SPECTATOR.] SIR,—When some of the factors calculated to restrain business on the Stock Exchange are considered, it must be admitted that the steadiness and even the firmness of most markets is rather remarkable. It would be difficult to say whether, among the factors tending to restrain activity in securities, foremost place must be given to political or to monetary Uncertainties. As a matter of fact, both are closely linked. As regards Reparation developments, hopes concerning the forth- coming London Conference -alternate with extreme pessimism, and, meanwhile;- the uncertainty tends to restrain business. Likewise the premature talk about a rise in the Bank Rate also produces the same condi- tions of uncertainty, while, in addition, markets are naturally affected by the constant stream of new capital issues, added to which we are now- approaching a period of the year when stagnation on the Exchange is usually profound: In spite of these influences, however, prices in most departments are well maintained, and the tendency to which I referred some weeks ago for business to expand in the more speculative departments is becom- ing increasingly noticeable. With regard to the whole question of monetary-policy —concerning which the City has read with more interest- than agreement the articles and correspondence which have appeared in the last two issues of the Spectator —there are one or two aspects of the City's views which I think may be usefully recorded. Your readers may have noted that, from the first, I have not supported -the arguments-for an immediate-rise in the Bank Rate, although I have quite faithfully, I think, expressed the City's approval that Mr. Leaf should have drawn attention to certain possible developments in the situation which may call- for some such action a little later in the year. Bearing in mind the fact that this question of monetary policy has become a highly controversial one, there is little doubt, however, that, on the grounds of tactics, it would be easy to criticize Mr. Leaf's proposals. Empha- sized; moreover, as they were by the Times in a manner - which suggested a quick rise in the Bank Rate, the whole thing savoured too much of a raging, tearing propaganda in favour of dearer money. As a matter of fitef,z there__ will- be common agreement that, other things_ heiog_ eqUal,- plentiful supplies of credits on low terms are generally. desirable. in the interests of trade and prochietion, and therefore it-i0 incumbent upon those whiladvoCate dearer money to show cause forthe applica- tion of that measure.- Mr: Leaf suggested that those cailks were likely to arrive at no distant date, and the Money. Market as a whole agrees with him. Inasmuch, however, as we are dealing to some extent with a possible rather than an actual _situation, there would have been considerable .surprige if the Bank Rate had suddenly been raised to 5 per cent: without an attempt in the first place to make the 4 per cent: 'rate effective. - That was my main -contention, you will remember, when writing a fortnight ago; and since then it is satisfactory to note that the Market Rate of discount has come up from about 2i to 31 per cent., and it looks as if, in the near future, it might be possible to discern more clearly the effects of an effective 4 per cent. Bank Rate before determining as to the desirability of a still higher quota- tion. Meanwhile; holitever, to suggest, as has been suggested in some quarters, that the central authorities have a kind of penchant for dear money, and have decided to immediately apply the 5 per cent. rate, is to give those authorities credit neither for -wisdom nor common- sense.
Concerning what may be termed the broad aspect of the whole matter, there are only two points to which I would draw your readers' attention. One is that now that we are off the gold standard—I am not arguing for the moment' whether we should or should not return to it—we are, of necessity, without the same processes of automatic control or even of obtaining indications as to whether credit resources are or are not being overstrained. That I suggest is a circumstance which, in itself, should impel special caution in the case of a country which, after all, owes something to its great financial and banking prestige extending over many generations. The other point is that in two respects I think that there is a tendency to unduly concentrate upon the new scientific formula expressed in the phrase " Price Level." It is, for example, suggested that with gold pouring into America, we have only to remain quiescent as regards our own monetary policy for a sufficient period to make it certain that prices will bound up in America to an extent which will enable us to obtain all that we desire without a rise in money rates here. The suggestion deserves all serious consideration, but I thir k it pays insufficient attention- to what may be termed the time aspect of the problem. If conditions were reversed and the gold had been pouring in here, the theory put forward would have acted very rapidly, and long ere this we should have been exporting our gold and lending hand over fist to other nations. In the United States a much longer period may have to elapse. Finally, I suggest that as regards this question of price, the econo- mists, like the politicians, are afraid to state plain truths to the masses concerning Trade Union tyranny, the demoralizing effect of doles and the general cramping of output, _ If- _a trade revival were to come to-morrow, I do not believe it would go far, not necessarily because of any curtailment of credits, but because we should get the old insistent demand for higher wages, irre- spective of output, and that in -turn would be followed by higher prices until we were back again to somewhat similar conditions as those which prevailed in the pre- mature boom of 1919-20.—I am, Sir, yours faithfully, page 70.) (Continued on
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