1 FEBRUARY 1957, Page 30

THESE BANKERS'

By NICHOLAS "DAVENPO RT

IT used to be said of economists, and can now be said of bankers, that when five or six are gathered together six or seven different opinions will be heard. If the annual statements of the chairmen of the joint stock banks had been prepared after, and not before, the formation of a new Government and its decision to cut defence, greater unanimity might have been seen, but as they stand they present a bewildering confusion of advice on general monetary policy. Perhaps it would be better if in future they gave no economic advice at all but confined themselves to practical banking affairs. Lord Harlech of the Midland pointed the way by giving useful in- formation about his customers and how their business had been upset by the frequent changes in Government policies. His experience made him distrustful of statistical planning. Likcwise Mr. Tuke of Barclays, who shuddered at the late Chancellor's sublime faith in statistics and frankly declared he would feel more encouraged if Mr. Macmillan had called in one sensible housewife who could tell him how many beans made five. Now it is legitimate enough for plain, honest, reactionary bankers to tell the clever Whitehall planners how businessmen humanly react to inhuman Treasury regulations. It is fair enough for them to criticise the high volume and inflationary finance of Government expenditure, as Mr. Tuke did. or the weak financial position of the nationalised industries, as Sir Oliver Franks did. But I do not think that bankers are entitled to give us, or the Government, lectures on economic theory when they are not professional economists or even up to date in their reading of economics.

Professionally, Sir Oliver Franks is a philoso- pher, but after leaving Oxford he had a dis- ' tinguished- career' as a civil servant and then as our ambassador at Washington. His. City career began with the chairmanship of Lloyds Bank. Last year his annual statement showed that he had been studying Keynes., this year he seems to have forsaken Keynes for Mr. S. W. Alexander. Inflation, he says, is still the great danger. This- remark was prompted by_ his expectation that retail prices would rise as the result of the Suez crisis. But he had just observed that there were two ways of withdrawing purchasing power in an inflationary situation—exacting a Budget surplus by taxation and allowing prices to rise! (As he objected to penal rates •of taxation he presumably preferred the latter.) But his main argument was concerned with another sort of inflation which resulted when savings were inadequate. to finance the amount of investment undertaken. There came a point, he said, when any further increase in domestic capital forma- tion tended to be offset by a deterioration in the external balance of payments. Once that point had been passed a further rise in domestic invest- ment would make no net contribution to our national wealth : it would be offset by an increase in external debt or a lost of external assets. `No advantage is to be gained from building factories and paying for them by the loss of gold.'

* * * This was a fantastic remark for any British banker to make in 1957, especially for Sir Oliver Franks, who recognises the need to step up our

rate of investment and increase in productivity if we are to hold 'our whole status in the world.! Who would not exchange gold today for a nuclear power station or a super-tanker? The reason why Great Britain has lately been falling behind its industrial rivals in the rate of economic growth, why the British share of the world exports of manufactures has been falling, is simply the inadequacy of our postwar productive industrial investment. The reason why we have been run- ning into periodic balance of payments deficits is because we have been giving more or less equal priorities to three policies, the combination of which is beyond our capacity—the maintenance of a power position in international politics (ex- pressed in the Suez misadventure), performance of the grand role as the sterling world's banker (which needs more gold than we have got), and the modernisation of our industrial machine with all the new techniques in power developments and factory automation. Thank heaven the new Government is going to scrap the first and give us another chance to pursue the third! As for the second, we must consider whether our survival as an industrial trading nation will allow us to maintain the banking role in the old-fashioned Oliver Franks way or whether it would pay us better, before joining the European free trade scheme, to adopt a more flexible exchange policy than the EPU allows.

Sir Oliver Franks over-simplifies our economics and ignores the real issues in the balancing of our economy. I repeat there is more risk of falling down on investment in 1958 than there is risk of inflation in 1957.