FINANCE—PUBLIC AND PRIVATE.
[TO THE EDITOR OF THE " SPECTATOR."]
Sin,—Having written so frequently concerning the necessity for reducing Government expenditure, you will not, I think, suspect me of any weakening in that direction if I suggest that there is something which presses even more for attention at the present moment than the question of economy as expressed in pounds, shillings and pence. Of even greater importance in its connexion with the real solvency of the country than the curtailment of national or individual cash expenditure is the question of whether our adverse trade balance and our industrial prosperity can be re-established if the present policy of rising wages with diminished output is allowed to pursue its course unchecked.
It would, I suppose, be possible for any great commercial undertaking to reach bankruptcy along various roads. To mention only one : the concern itself might be con- ducted on sound lines and have in it all the elements of a paying proposition, and yet, through profligate extrava- gance on the part of the proprietors, there might occur the bankruptcy of the partners of the firm, and at least a temporary bankruptcy of the concern itself. In this case, however, it is highly probable that when the individual partners had paid the penalty of their indiscretions, the business itself might ultimately and without very much difficulty be rescued from its temporary misfortunes, and become once more a concern -capable of producing new wealth.
The difficulties might, however, be of another character, and in addition to or perhaps even without profligate personal expenditure on the part of the proprietors the business might be conducted on such unsound lines, and with such over-paid labour and other wastage, as ultimately to involve the bankruptcy of the proprietors and the complete wreckage of the business itself. To apply this very imperfect illustration to the financial and economic situation of to-day, I suggest that the greatest danger at the moment—greater even than recklessness in cash expenditure—is the apparent inability of the real wealth producers of the country, the wage-earners, to perceive the essential facts of the situation. What are those facts The essential one is that the real cost of the - war and the actual losses arising out of the war cannot be measured in terms of money, and of that truth some evi- dence is afforded in the fact that if we were to be guided by the purchasing power of the community, as expressed in banking deposits, we might imagine that gain rather than loss had resulted, for the amount of those deposits has more than doubled during the war period. The real loss arising from the war, however, is one which has to be measured, not in money, but in goods and services. It is a loss which has resulted from.five years' transfer of productive energy to destructive activities and the permanent removal of an enormous amount of pro- ductive power as expressed in the millions who have been killed or totally disabled by the war. These were the forces which in the pre-war period made for satisfying the needs of the world in food and materials, and contributed through this same process of production to wealth power, as expressed in the savings of the various communities.
It might be supposed, therefore, that immediately after the conclusion of the war the first thought that would have been uppermost in the minds of the community would have been concerned with the great shrinkage in foodstuffs and goods which had resulted from the displacement of productive energies by war activities. And, as a result of these considerations, it might have been imagined that the nation would have been seized with the conviction that the one great need of the situation was increased industry and increased production so as to recover lost time and to make up for diminished productive power as a conse- quence of the millions killed in the war.
Yet, as we know, the actual developments have been on very different lines to these. So far from perceiving that, both socially and economically, the crying need was to increase industry and increase production, it has been a case of ever-increasing demands on the part of the wage- earner for fewer hours of labour, while, as statistics unfor- tunately are showing only too plainly, the tendency has been to work, even during these shorter hours, with diminished energy, so that the output per man is less-to-day than it was during the war. Instead of a perception of the need for goods, and for the creation of new wealth through industry, the cry has been for shorter hours and more wages, although there are, perhaps, signs that the recipients are just beginning to perceive, through the diminished purchasing power of those wages, that they have been grasping at the shadow and losing the substance. The real facts of the situation, however, seem still to be most imperfectly realized ; and, even after making allow- ance for the fact that the wage-earner and the man in the street are not usually familiar with either financial or economic principles, it would almost seem as if there must be some special explanation to account for the extraordinary lack of perception on the part of so large a section of the community. There is, of course, such an explanation. In the first place, during the war when scarcity of labour, ships, &c., and a host of other influences were lessening the supply of com- modities, the situation was camouflaged by such an expansion of credit, currency and wages as not only enabled the community to meet the higher prices, but actually stimu- lated consumption at every point. With credit, currency and wages expanding even more rapidly than prices them- selves, the community might well be excused for thinking that prosperity rather than adversity was the order of the day. A further circumstance which contributed to a misconception of the position was the fact that, both as regards credit and goods, the United States poured into Europe supplies on a scale which could not possibly be permanently maintained, from the standpoint of either the productive power of the States or the power of the receiving countries to make payment for the goods and services rendered. The third cause responsible for mis- placed complacency on the part of the people was the refusal of our spendthrift Government to recognize either the facts of the case or the supreme importance of bringing them home to the general community. To-day we have what may be described as a partial awakening to the real facts of the situation. Responsible Ministers, bankers, economists and enlightened business men know quite well that financial and economic salvation can come only through diminished internal consumption and increased production. The wage-earners, or a great mass of them, however, unfortunately still believe that present conditions can be indefinitely maintained, and perhaps even improved, either by a further transfer of wealth as expressed in money from capitalists to the wage- earning classes or by some further credit expansion. And it is just here, in my judgment, where the whole question of national solvency or national bankruptcy is going to be solved. For, likening the affairs of the country once again to those of a private industry, it is a case, on the one hand, of the continuance of unsound conditions making inevitably in time for bankruptcy, or, on the other hand, of re-estab- lishing sound fundamental conditions which can be relied upon eventually to overtake the losses incurred through temporary excesses or misfortunes, and ultimately to restore prosperity.
I suggest, therefore, that the one supreme need of the moment is to bring home—and it should not be impossible— to the wage-earner the fact that his own material interests and prosperity lie, not in the direction of higher wages and diminished output, but in the direction of increased output and lower prices. We know that in Russia at the present time wages are at a fabulously high level, and • yet the recipients are starving. The control of financial and economic forces has—in that unhappy country—been placed in the hands of the ignorant, and the result has been too appalling for words. Let us beware lest in the passion for democracy and, in the case of the politicians, the passion for votes, the great heritage of wealth which has come down to us through many generations should be irretrievably squandered, not through a mere lavish expenditure of money, but through a sacrifice of the very laws and principles on which all prosperity is based. If only by reason of our great traditions, and in memo-y of the great sacrifices which have been made during recent years, it is impossible to be other than hopeful as to the ultimate successful solution of the many difficult economic problems with which we are now faced. In the greatest problem of all, however—namely, that of labour—we shall do well to remember that the agitator is abroad in the land, and it is for those who know full well how fallacious and how dangerous are the doctrines which he proclaims, not merely to confute them, but to show to the wage-earners the " better way " and the only road to prosperity. When once this fallacy of high wages and diminished output is realized by the wage-earners as a whole (it is already realized by a few), we shall have a return of sounder condi- tions and a fall in the cost of living. But until we reach that point the danger, both fin,ancially and socially, is great, threatening not merely the cash resources of the exchequer or of the individual, but the very power of the community to remain self-supporting, still less to accumu- late fresh stores of wealth.—I am, Sir, yours faithfully,
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