FINANCE—PUBLIC AND PRIVATE.
[To Ills EDITOR OF TIER " SPECTITOR."1 SIB., —A very able—indeed a remarkable—speech was delivered by Mr. McKenna last Monday evening at a gathering of the National Union of Manufacturers. A more lucid statement of certain aspects of the present financial and economic situation could scarcely have been made, and equally forcible was the plea made by the ex- Chancellor of the Exchequer for early and drastic economy in Government expenditure. It is not, therefore, because there was not much in Mr. McKenna's speech which was both timely and helpful that I am nevertheless constrained to draw your attention to the fact that in the judgment of many sound financial quarters there is danger of harm being done by the tenor of the criticisms not only of Mr. McKenna but of many other bankers with regard to the present policy of taxation and to the monetary policy of the Treasury and the Bank of England. I would like first, however, to refer to that part of Mr. McKenna's.speech which was wholly admirable and which has particularly commended itself to the City. A favourite method of defence by the spokesmen—the present Chan- cellor perhaps not excluded—of all prodigal governments is to challenge the critics of extravagance to name those items of expenditure which they would propose to reduce. This challenge is not infrequently effective in debate, though the tactics are rather poor, for it is obvious that only those with complete access to the Treasury Accounts could hope to comply with the challenge. With a shrewdness, how- ever, based no doubt in part upon actual experience at the Exchequer, Mr. McKenna, when dealing with the vital necessity for economy in the national outlays, declined to be drawn into the trap, and warned his hearers of the device. " Do not," he said, " be put off by any enquiry as to which item of expenditure you individually would cut down." He then went on to say : " I am quite willing to assume for the sake of the argument that every purpose to which the money is devoted is a good purpose, and that every penny is spent on the most economical lines. I have no doubt that each item of expenditure can be defended on its own merits. The answer to any such inquiry is, we have so much money and no more to spend. A selection must be made amongst these desirable objects, some curtailed. some postponed, some absolutely cut off. We cannot with safety exceed in the total the margin we can afford. Everyone in private life is confronted with the same problem. Take the various items of useful, I might almost say indispensable, ex- penditure—the best schools for our children, the best doctor. m sickness, tho pleasantest and most healthful country resort for the holidays—every one of them most desirable, every one with an urgent claim upon our purse. But if we haven't gob the money we have to dispense with them. What is true for the individual is true for the nation."
This is sound reasoning, and it is not surprising that this portion of Mr. McKenna's remarks was received with prolonged applause.
Indeed, if Mr. McKenna had concentrated the whole force of this plea for economy upon expenditure, and especially future expenditure, instead of challenging so strongly the latest increase in taxation to meet expenditure already incurred, his remarks would have been entirely helpful. Unfortunately, however, in his attempt to demon- strate that the taxable capacity of the country was being overstrained, he conveyed the impression that even granted the necessity for meeting authorised expenditure, some other means than taxation should have been resorted to. This impression, moreover, was strengthened by the fact that Mr. McKenna also criticized the policy of dearer money and practically all attempts in the direction of deflation.
Of course, some allowance must be made for the fact that Mr. McKenna was addressing a gathering of manu- facturers in the capacity of banker, and the temptation to shift some part of the responsibility for the discrimina- tion in the matter of advances, which is now very properly being exercised, on to the shoulders of the Government must have been very great, and that his remarks were agreeable to those to whom they were addressed was plain from the remarkable ovation which he received at the end of his speech. All the same, and for reasons I will mention, I find that while the City is unanimous in approving Mr.
McKenna's appeal for economy, there are many quarters in which his protests against the present policy of higher taxation and of dearer money are most certainly not endorsed.
For what are the facts ? Let me assume for the moment that with a spendthrift Government in office Mr. Austen Chamberlain has not succeeded in sufficiently enforcing upon his colleagues and upon the spending departments the supreme necessity for an immediate halt in the National Expenditure, though his efforts in that direction have been considerable. The task which has fallen to his lot in straightening out the financial tangle resulting from the war is a Herculean one which may well call for special sympathy and support from the City where the immensity and complexity of the task should be most vividly appreci- ated. Still, as I have said, assuming that he has failed to secure the immediate economies—of the sincerity of his desires in that direction there is no question—which are so imperatively called for, he has at least taken the course most likely to impose a check at an early date. By refusing the easy course of further borrowing and by imposing stiff taxation, he has done more to arouse the public to a per- ception of the situation and to recognise the need for both National and individual economy than could have been accomplished by any other means. For if one thing has been made more clear than another during recent years it is that nothing but the force of public opinion will arouse Parliament—to say nothing of the Government—to a eense of its responsibilities as guardians of the Public Purse. If, therefore, Mr. McKenna is really sincere—as, of course, he is—in his desire to obtain economy both in public and in individual expenditure, he would do well to encourage rather than to oppose the courageous attempts made by the Chancellor to bring home to the community, through the operation of taxation, the fact that the period has passed when increased expenditure can be met through the easy expediency of mere credit expansion. I am well aware, Sir, that this question of the policy of high taxation and dearer money is an exceedingly contro- versial one, and I am by no means unmindful of the supreme necessity for providing our trade with all that is requisite in the way of banking facilities to stimulate production. You may recall, however, that in my letter to the Spectator of March 20th, when indicating the probability of a rise in the Bank Rate, I stated that the policy was sure to arouse the strongest opposition in many quarters. At the present moment bankers are full of zeal, on behalf of the trading community, and in one sense the fact is warmly to be welcomed, for time was, not so long before the war, when we had the traders complaining that bankers were disposed to be international and cosmopolitan in their sympathies at the expense of the home trader. All the same, I am afraid that any complete and fair statement of the present financial position must include the fact that much of the financial difficulties responsible for the recent heavy fall in industrial securities and the sharp decline in certain commodities can be directly traced to speculative operations by individuals and groups financed in part on borrowed money. In other words, it has been a case of encroachment upon banking resources for speculative purposes when they should have been strictly conserved for the legitimate trade and productive enterprises the claims of which are now so loudly advocated by the banks. Moreover, this question of taxation and dearer money rates has its psychological and human aspect which it is well to remember. Bankers, for example, assure us that left to themselves they would have easily discriminated against demands for accommodation for mere speculative purposes, and that it needed no application of either high taxation or dearer money rates to cause them to blend their enthusiasm for the commercial interests of the country (and incidentally their profit-earning activities) infinite discretion. Nevertheless, the fact remains that the experience of the peat six months has shown that it was not until higher interest rates were imposed that the process of real discrimination commenced, and that process has revealed in more than one direction speculative operations of dimensions which could only have been reached through the use of borrowed money. Similarly, in the matter of individual extravagance we should no doubt all protest that left to ourselves we are quite ready to economise and are more than ready to keep a vigilant watch on the Public Expenditure. Yet here, again, experi- ence shows that the habit of extravagant spending by a large section of the community is hard to break, and it is only when the shoe of taxation is pinching severely that the public is sufficiently alive to the necessity for economy as to arouse the House of Commons itself to a sense of its responsibilities as guardian of the national financial interests.
Therefore, while welcoming Mr. McKenna's powerful contribution to the general plea for immediate economy in public expenditure, I am bound to record that it is weak- ened to some extent by the fact that, possibly by reason of the gathering to which the speech was addressed, there was scant recognition of the part played by high taxation in arousing the public to a perception of the necessity for economy. Nor will it have escaped your notice that in certain quarters the disposition is to seize every criticism of the Government's financial policy as a whole and use it for a personal attack against the Chancellor of the Exchequer. This disposition was evident almost from the date of his appointment to office, and it is very manifest to-day. Yet I am only voicing the opinion of nine out of every ten bankers in the City when I say that the last thing which they would desire is for a change to take place in the office of the Finance Minister of the country. The sincerity, honesty, and courage of Mr. Chamberlain's policy are as universally recognised as are the enormous difficulties with which he has to contend. Therefore, while, for the reasons I have indicated, bankers may be free with their criticisms, it must be with feelings of considerable chagrin that they see these criticisms used and distorted in certain quarters into a personal attack upon the one member of the Cabinet whose efforts to establish sounder financial conditions are beyond question. —I am, Sir, yours faithfully, ONLOOKER. The City, June 17th.
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