THE FINANCIAL OUTLOOK UNLESS the indications are misleading, there seems
to be ground for thinking that the closing months of the year may mark the commencement of greater activity in trade, and that there may be a further extension of financial and business activity in the new year. Not that the outlook is by any means entirely clear. At the moment of writing, we have, for example, .such deterrent factors as chaotic currency and financial conditions in France, the autumn drain of gold from the Bank of England, and the fact that even now relations between Capital and Labour are scarcely • of a character warranting hopes of the nation as a whole putting out its maximum amount of effort. Moreover, the latest returns of our foreign trade for September, revealing a further increase in the adverse trade balance, shoW how much effort is required if our export trade is to be raised to the point which is necessary if our financial and economic independence and our command of the foreign exchanges is to be regained.
LORD INCHCAPE AND SHIPPING.
I make no apology for prefacing the first article to the Spectator's Autumn Banking and Insurance Supplement with a reference not only to the trade of the country but to general international conditions, for the manner in which 'our banking and commercial prosperity are closely linked, and, moreover, the extent to which the prosperity of the country as a whole is connected with international develop- ments, is becoming increasingly recognized. From week to ;week current financial developments are dealt with in the financial pages of the Spectator, but in these supple- ments it is possible to take a somewhat more exhaus- tive view of the situation and to gather from the develop- ments of the previous four months some idea of future prospects. Before dealing, however, with the immediate banking and financial outlook and giving cause for the note of optimism sounded in the first sentence of this article I may perhaps be allowed one further word of preface to the various articles which will be found in the following pages. It is in harmony with the fact that our banking and financial developments are so largely dependent upon our great shipping and commercial industries that first place is given, to. the valuable article which Lord Inchcape has contri- buted to our columns on the subject of liner traffic: and there is a point in his article which seems' to me so vitally connected with the whole financial outlook that I shall refer to it more fully at the end of this article.
BANKING IN SCOTLAND.
A complete survey of the English banking position will appear as usual in-the February issue, following the pub- lication of the Annual Reports, but in the present number detailed examination will be found of Scottish banking by an Edinburgh banking correspondent, from which one or two very interesting facts emerge. Whether as the result of competition from the South, or of convictions from Within, there is little doubt that the Scottish banks are Using their resources much more freely for the financing of trade, and are, relying Jess completely upon long-dated investments for the employment of their funds. This is undoubtedly a good feature,. and if, perchance, it should be due even in part to competition'from banks south of the Tweed, the Scot is now retaliating in fine fashion by no longer confining his English offices to the City of London, but extending operations to the West End district. Bankers will, I think, turn with interest to an article by Mr. Gregory on " The Banker and the Community," in which, after dealing with some of the modern criticisms of the banker, it will be noted that Mr. Gregory, while by no means supporting all these criticisms, or suggesting that our bankers are to be held responsible, as some would hold them responsible, for being able, almost to control the prosperity of the country at will, makes certain suggestions in the direction of identifying still more closely the responsibilities of the banker in relation to the trade of the country financed by our banking resources.
INSURANCE AS AN ECONOMIC FACTOR.
Finally, as is customary in the Spectator Financial Supplements, especial prominence is given to certain aspects of Insurance, for there has been nothing more remarkable in recent years than the unprecedented de- velopments in insurance activities and in the part played by insurance in the economic and social life of the com- munity. Moreover, a moment's thought will show that by the great broadening of insurance activities, the progress of insurance has become as important a reflection of the financial position of the country as banking itself. Time was when insurance business was mainly confined to the actual covering of protection for dependents in the case • of death, or of actual losses by fire, sea or accident. Now, however, by reason of the endowment policies and limited premium policies, no small proportion of the national savings is effected via insurance companies, so that the growth in the insurance life premiums constitutes perhaps quite as great an index to saving power as the movements in banking deposits themselves. In some respects, the index is even a more reliable one, for the growth in banking deposits may often be due quite as much to an expansion in loans and advances as to the actual saving power of the community.
BANKING LIQUIDITY.
That the general tendencies both in banking and insurance companies from the shareholders' and policy- holders' points of view are favourable may be gathered from the current prices of the shares and stocks of various companies, to which more detailed reference is made in another article,* and, while I do not doubt that by reason of the prolonged trade depression not a few banks will have to make provision for the possibility of bad debts, there are one or two points in the general banking developments even of the current year which arc suggestive and encouraging. One of these is the manner in which the banks have succeeded in gradually disentangling themselves from the involuntary position of Trust Companies which was thrust upon them by the exigencies of the War, so that at one moment of the post-War period the proportion of banks' investments to assets was something like 22 per cent., as compared with a little over 13 per cent. previous to the War. On June 30th last, however, the banks had effected a total reduction in their investments of about £130,000,000, bringing the proportion of assets to a little over 16 per cent., and during the past four months there has been a further shrinkage in the holding ,of investments of just over £12,000,000. In this respect, therefore, the banks are in a freer position for financing the trade of the country, while the profits which have resulted in most cases from the realizations of investments have gone far to offset the effect of increased expenses, bad debts, and so forth. Incidentally it is quite remarkable that such huge sales of investments • This article will be found in the latter part of the current iami under the heading of "Finance, Public and -Private.v • -- • should have been effected by the banks of the country with an almost uninterrupted upward movement in prices. The absorbing power of the investor must have been great, though two possibilities have, perhaps, to be taken into consideration, one of them being the extent to which foreign money has come here and the other being the extent to which the purchases of banks' customers may have been stimulated by loans from the banks, for it is a little difficult to associate the expansion in Loans and Advances by the joint-stock banks entirely with ordinary trade requirements.
THE LOCARNO PACT.
On the whole, therefore, examination of the banking figures for the past year indicates a satisfactory position and one calculated to inspire confidence with regard to the future, and I should be inclined to base favourable expectations with regard to the outlook upon that fact, plus_ the following further considerations : (a) the conclusion of the European Pact ; (b) the successful re-establishment of the Gold Standard ; and (c) the prob- able_ early removal of the embargo on foreign loans. As regards the first of these points, there is, I think, little doubt that the European Pact, if ratified, promises to be the most important development since the .adoption last year of the Dawes Report, and there can be no question that the approval of the Dawes Report and the . gradual improvement in the position in Germany marked the turning of the tide. I do not forget that it may also have brought additional foreign competition, but, taking a long view, I am not at all sure that even that fact, which may, easily be emphasized still further by any general revival, of trade following the European Pact, is not a blessing in disguise. We cannot get far in real trade activity and in consuming power until the costs of pro- duction and transport are lower, and those results will probably never be secured except by the fuller play of competitive influences both local and international. In considering the benefit likely to accrue to trade and industry from the Gold Standard, I do not overlook the fact that, whereas at the date of the publication of the Spectator's last Banking Supplement, the Bank had gained about £9,000,000 since the return to the Gold Standard, there is now a net loss of £5,000,000. But it must be remembered that we have had successive reductions in Bank Rate and that we are at a period of the year when GOld withdrawals are usually extensive. Our present stocks of the metal, however, are large, and-unless with- drawals during the next few weeks should be heavier than is anticipated there seems to be every prospect of the removal ere long of the embargo on foreign loans. Past experience has abundantly shown that while effect may not follow cause immediately, our loans abroad have usually proved a stimulus to our trade operations, and unless there should be some holding up of the European Pact—which at the moment seems unlikely hold to the belief that, while there will doubtless be many difficulties and obstacles to be overcome, a revival in European political confidence will involve a stimulus to international financial and commercial activities, and that there is no reason why in these activi- ties Great Britain should not obtain a full share.
A WARNING.
Nevertheless, I must conclude on a 'note of caution. Granted that there is a promise of a general expansion in international business, are we in a position to make the fullest use of those opportunities ? Our speedy loss of gold, following upon successive &reductions in the Bank- Rate from 5 to 4 per cent., should serve to remind us of the danger spot, namely, the weakness in our export activities. The question would seem to be whether we are going per- petually to protect our gold by high Bank Rates at the expense of the trader, or whether, by an expansion in our export trade, we can hold the exchanges without the application of very high money rates. In the main, the answer to that question must be supplied by our chief organizers of industry and by organized Labour. In to far as in some industries improved organization and methods of working are required to compete with foreign industries, -thereAs.-responsibilit-y...attaching to Capital,: but, in the • light of the experience of the past few years, the Capitalist may well declare that such organization is impossible so long as Labour seems to be organized more with the object of defeating Capital than of obtaining the best results for the workers themselves. In this respect Lord Inchcape in his -article-sounds a direct note of warning when he shows, first, how important it is for the commerce of this country that there should be a maintenance of complete regularity in the matter of service by our great liners, and, second, what serious interruption to that _regularity has been occasioned in recent months by " the arrest through the efforts of Communists of tonnage in Dominion waters." It requires _ no effort of imagination to realize that if this country were engaged in actual warfare nothing could save us from defeat if we had to contend, not only with forces from without,, but with forces " within the gates." Making all allowances for the proper aims and ambitions of the workers, it is the false economic doctrines—apparently supported by so large a section of organized labour— , which more than anything threaten our prosperity at the present time. Nevertheless, it is partly because I believe that, with the replacing of the War spirit by . concentration upon industry and production these economic fallacies will become more clearly revealed, that I have ventured to indulge in a certain amount of optimism with regard to the outlook..
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