TIIE RISE IN THE BANK RATE.
[To the Editor of the SPECTATOR.]
SIR,—It is curious to observe the ideas prevailing among our politicians as to the origin and cure of unemployment, and the study throws not a little light upon our failure to provide a remedy for that evil. Thus Sir Philip Lloyd-Greame, President of the Board of Trade, informed the House of Commons in this connexion last week that " the greatest policy which this country can pursue, if it takes the long view, is the steady and bold policy for the development of its Imperial resources." Apparently the President of the Board of Trade has overlooked the fact that we have been developing the resources of the Empire for several centuries, and that this has never made the slightest difference to the problem of unemployment. As a matter of fact,• the average amount of unemployment in Australia, New Zealand or Canada over reasonably long periods works out at about the same as that in this country ; and emigration provides no cure for unemployment, because in expatriating a producer we are• expatriating a consumer also, the state of affairs as regards unemployment remaining " as you were."
The same authority is pessimistic about the immediate future because practically all merchants and business men are telling the same story. " Orders are not coming in to-day, and the reason is not far to seek. It is the general uncertainty caused by the failure to obtain general settlement throughout the world." But it is odd that a still worse state of unsettle- ment did not prevent us from having a boom during the earlier half of 1920 ; and why should unsettlement in the political world cause a lack of orders in the business world now ? It is because business men are afraid of a decline in prices, which will involve them in heavy losses if they lay in large stocks. From bitter experience in the past, and particularly during the slump of 1920, they have learned that in times like this the Bank of England has a trick of raising the rate of discount and bringing on a contraction of credit with a consequent fall in prices. This uneasy anticipation has recently been justified by the raising of the discount rate to 4 per cent. with a hint of a possible further rise to 5 per cent. Is it any wonder that business men refuse to order goods under such circumstances ? They must either refrain from buying or run the risk of ruin. Just when business should be encouraged and stimulated by every available means, and particularly by means of cheap money, the Governors of the Bank of England seize the opportunity to deal it a discouraging blow by raising the rate of discount upon the most trivial pretexts--a policy which every business man and every economist knows
will necessarily depress trade and increase unemployment. Of course, we shall be told that, the depression in trade is the result of the position in the Ruhr -1 The truth is that the position in the Ruhr only affects the matter through the dread business men have of the consequent action of the Bank of England. If that body would encourage trade at such times by lowering the rate of discount instead of discouraging trade by raising the rate the situation in the Ruhr need not seriously affect our trade at all. We merely export in order to pay for our imports. What we cannot import from the Ruhr we can import from other countries if our purchasing power is kept up by encouraging production, and those countries are bound to take our products in payment, either directly or indirectly. Unemployment is a product manufactured• primarily by the blunders of our financial authorities, and its only remedy lies in removing the cause.
Yet the House of Commons was informed in answer to a question last week that the action of the Bank of England is directed to the public good. It would be interesting to know what are the benefits showered upon us by the policy of raising the Bank Rate just when trade needs encouraging by the reverse policy. The disadvantages are obvious. The contraction of credit brought on by the Governors of the Bank of England in 1920 gave us a couple of millions of unemployed, drove thousands of business men into bank- ruptcy,
brought ruin to the lives of millions., produced scores ; of disastrous strikes against falling wages, of which the present dockers' strike is but the latest example, and resulted in a vast shrinkage of the public revenues which completely: wrecked all our schemes to- make this a country " fit for heroes to live in," and reduced- vast numbers of those same heroes to the necessity of selling matches in the street. These disadvantages are tangible. They can be seen, felt, heard, or even tasted. Their taste, indeed, is very bitter in the mouth.' But the advantages which are hinted to us are so intangible that no one can tell us what they are. Even the' Governors of the Bank of England, who might be supposed to be in the secret, cannot specify them.
One wishes it were possible to turn with hope to the Labour Party. The Daily Herald, in a leading article on Friday, July 20th, declared that the older Parties do- not grapple with unemployment because " they do not know what to do." This statement is unquestionably true, but it would be difficult to imagine a more pleasing example of the pot calling the kettle black. Our Labour leaders " do not know what to do " either, and it is precisely for this reason that they exhaust their mental energies in vapid generalities about the nationaliza- tion of industries, although they do not know how to nationalize and although they do not know how nationalization would cure unemployment even if brought about. It is a very convenient method of evasion and self-deception, and it saves a lot of hard thinking.—I am, Sir, &c.,
CHARLES- EDWARD PELL.
21 Westbourne Avenue, Acton, W. 3.
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