TOPICS OF THE DAY.
TIIE NATIONAL DEBT.
TILE problem of the Budget is "How much or how little money shall be employed in reducing the National Debt ?" It is probable that Mr. Baldwin will make his decision during his Easter holiday at Chequers, where, let us hope, he will be free from those "asking faces " which he tells us haunt him—as, according to Lord Halifax, they used to haunt Charles II. And here we may say in parenthesis how pleasant it is to have a Chancellor of the Exchequer who can quote the great Whig Trimmer ; for of all political issues finance is the one that requires the greatest skill in trimming the boat. Before the Chancellor finally makes up his mind we shall venture to set forth certain considerations which, though he knows them well enough without our telling, may all the same be usefully recalled with a special emphasis just now. The things to be remembered in all Budgets arc :— (1) That the real burden of a debt is incurred when you borrow it. A nation can never wholly pay off a debt because the borrowers and the lenders so often have the same faces and the same purses. The result is that a nation, when it talks of "paying off," is really only taking money out of one set of its many pockets and putting it into another set.
(2) That the National Debt was borrowed in paper. —Take care it is not paid off in gold or the virtual equivalents of gold.
(3) That the taxes on the National Debt are more cheaply and completely collected than those levied on .the things into which "the paying-off money" would be put—trade, land, houses, foreign investments, stock- in-trade, 8te.
Is there, then, nothing to be done? Are we to leave the Debt for ever severely alone ? By no means ! What we must do is that which the wise man of business does when his premises are mortgaged. When he is considering whether he shall or shall not pay off his mortgages, he says to himself something of this sort : "I have got £50,000 free money in hand. Shall I pay off the mortgage with it or shall I put it into the business ? If I pay off my six per cent. mortgage, I reduce the over- head charges by £3,000 a year, but if instead of that I put the £50,000 into extending the business I can see my way to making my eight per cent. to a certainty, and if I have any luck I ought to make twelve per cent. even after I have set aside all the necessary money for the wear and tear of the machinery, for renewals and for the new plant which I am going to buy."
The nation, in considering the problem of paying off debt, has in a similar way to consider whether the money *available will be better used in paying off debt or by being put back into the myriad businesses. From the nation's point of view the latter course means not drawing money out of business by the tax-gatherer but leaving it to fructify in the pockets of the individual traders.
The answer in the case of the business man almost wholly depends Upon the prevailing conditions of business. If things arc very dull and the markets Very irresponsive, he naturally does -not want to sink more money and so increase his overhead charges. In a word, his best plan in a slack time may well be to pay off old encumbrances rather than to spend money on new things.
In the case of a Government, however, the problem is rather different, especially when, like ours, the Govern- ment is responsible for the maintenance of .the working plan and his family. In these circumstances it . may well be sound economy not to pay off debt, but to use the money in reducing taxation, since by doing so you at the same time reduce your maintenance expenses. If the employers, as a whole, are let off, say, 50 millions of taxation, they may put that 50 millions or most of it back into the business and earn 10 per cent. on it, which 10 per cent. will, to begin with, pay income-tax and perhaps super-tax. Next, the said 50 millions put back into trade will increase employment and so relieve the Government of some of its maintenance charges. No doubt money used in buying out or paying off the debt holders would also to a large extent go back into business ; but it is by no means so certain that it would as directly and as quickly increase employment.
We come back, then, to the problem propounded above. Its solution, as we have said, depends upon whether employers throughout the country, by having more money left in their pockets, will make that money earn a higher rate of interest than that which the Govern. ment pays on the Debt.
Another consideration deserves attention here. It will pay the Government to reduce debt if the rate of interest which they are now paying on loans, capable of being paid off, is higher than the rate of interest at which they can borrow. In that case a scaling down of the interest by the various methods appropriate to those conditions is obviously sound. To reduce the interest on the National Debt is the very best possible way of dealing with it. In fact, if not in name, it reduces the capital burden.
Now comes a very important point. The paying off of debt by a Government is, in fact, a form of deflation. In the great controversy between the deflationists and the inflationists, the essential thing to remember is that both inflation and deflation are bad per se. Both lead to instability in the standard of value; they provide a yard measure on which you can never depend, since it is sometimes four or five inches longer, and sometimes four or five inches shorter, than a yard. The one thing you want is an unalterable measure—i.e., a stabilization oi your standard. If you have got stabilization, and a standard of value which is steady, the buyers and the sellers can and do adjust themselves to it perfectly well. What upsets them is to buy under one scheme of value and sell six months afterwards under another. Those are the conditions which make speculation—that looking ahead which is the life-blood of commerce—a wild gamble instead of "a reasonable prospect." And here one may observe, though it is a dangerous argument and may be easily misused, that if you must have an alteration, psychologically (psychology is as important in finance as in everything else) it is better to inflate than to deflate. And for this very good reason : it is easier to be a bull than a bear. It is easier to lay your trading plans in a slightly rising market than in a falling one. It is better, that is, to do business with a sense of buoy- ancy Than with one of depression, though no doubt if your inflation comes too fast you may make everybody in commerce drunk. In other Words, it is worse to be dead drunk than to be depressed.
Once more, stability must be the object. We could not help interfering with stability when we were borrowing money to keep the foe from the door. But that evil once *done cannot be undone by 'a wild rush in the other direc- tion. When the port side of the boat is right down in the water because she is badly trimmed, you do not trim her by violently bringing down the starboard side to the danger-point. You correct the list to port by gradual changes so as to make the boat rock as little as possible.
If we were asked to put the problem of the National Debt into a set of short phrases, the statement would go something like this :—The_ time to. pay off debt is not a time of commercial depression when you have got a large percentage of the workers unemployed. The right time is a prosperous period when there is plenty of money. Even then the way to do it is not by taxing people, but by getting the national creditor to assent to a reduction in the rate of interest.
We cannot end without once more recommending to the Chancellor of the Exchequer our plan for a compre- hensive Sinking Fund which will take the form of paying a very slightly larger rate of interest on portions of the funded debt on condition that the holders of the debt will take a ninety-nine years' annuity instead of one based on perpetuity. If we were to accomplish that reform we should have done a good deal for posterity without overburdening ourselves in a period in which the strain of paying off the debt may well paralyse trade. One must, of course, in every transaction of this sort keep perfect faith with the national creditor.
J. ST. LOE STRACHEY.
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