THE BANKERS' THREAT.
HE letters which we publish • this week, and in T particular a most important letter from Mr. F. J. Darling, the well-known banker, make it clear that public opinion is not wholly unaware of the danger in which the country suddenly finds- itself. It is not too much to say that its well-being, even its stability, is -gravely imperilled by the renewal of the attempt artificially to force down commodity priCes and fOice •up the price of sterling, by means of a higher Bank Rate. There has, indeed, been a considerable amount of dis- cussion of this proposal in the Press, and a number of writers have supported - the Speetcdor's. view that any proposals which, admittedly, will have the immediate effect of depressing trade and causing unemployment Must be regarded with hostility. - - But we doubt whether some of these writers fully realize the extent or urgency of the issue with which the country is faced. We need not fear the mechanical effect of dear money and restricted credit so much as the incalculable psychological effect, on ordinary business men, engaged in production or trade, of a monetary policy the declared object of which is artificially to reduce prices. How disastrous this effect will be it is not difficult to imagine. Let us not speak of the ocean of human suffering into which another winter of unem- ployment, far more serious than the last, would fling our industrial population: What, we may ask, will be the mood of men who, after having had a few 'months of employment, are thrown back upon an insurance benefit which is inadequate to maintain decent existence and which is always referred- to as a " dole," • made to them by a charitable community ? Already the Labour Press, notably the Daily Herald of Monday, is assuring them that their ruin will be' due to the bankers. When the Conservative workman looks for a refutation of this, what will he find ? He will find an admission, implicit or explicit, that this is .so (cf. Sir Robert Kindersley, " the- hastening of the return 'of the pound sterling to par may involve certain sacrifices by industry in the direction of -lower prices"), His only consolation will be the assurance that it is all for his -Own good. And yet, be he never so loyal a Conservative, will he be able quite to. keep the idea out of his head that if Mr. -Walter Leaf or Sir Robert Kindersley and their colleagues had also to maintain existence on the " dole " while industry was undergoing these " sacrifices," they might at any rate be helped to curb their impatience for a return to gold ?
All Labour leaders will admit; in private, that the strength of their movement still depends on depression and - unemployment. If the bankers want to see an " unemployment election !' this winter - with - the immediate possibility of the return of a clear Socialist majority over all other parties, they are doing the one' thing that can possibly bring it about.. Worse, they will strengthen, even morethan Labour, the Communists who are at present negligible but are always on the lookout for their opportunity. They will, we repeat, go far towards endangering the stability of this country.
But, it may' be objected, all • this is based on the assumption that the present attempt to force up- Sterling' to dollar _ parity, which is signalized by the propoSal to raise the Bank Rate (there are, of course, other less obvious deflationary measures in the background), will in fact cause trade depression and unemployment. -By t' this is merely a theory which is not admitted for one moment by the bankers. This objection would unques- tionably have been valid even six months ago. Then, as our readers will remember, Sir Charles Addis and the other financial authorities denied absolutely that their policy of deflatiOn had in any way contributed to trade depression. It is a mark of the slow but steady progress that the ideas of the newer financial school are making, that the bankers, when they wish once more to deflate, now admit frankly that trade will suffer, and justify their policy by the enormous benefits which will later on accrue, they tell us, from such a policy. As we have tried to demonstrate, the immediate harm that their policy, at the present moment, will do, is so great that it may seriously be asked what future benefits can justify us in running so grave a risk. But we should be wrong if we -did not try to examine what are these benefits which we are promised so confidently when we attain to the promised land of gold. That these benefits are real, if they are attainable by this method, it would be prejudiced to deny. Bankers are neither the fools nor the knaves that they are sometimes called. They are merely a body of men faced suddenly with an enormous number of quite new problems. They are proceeding to investigate, and indeed to solve them, entirely from their own point of view and in their own interests, which, very naturally, seem to them to coincide exactly with the interests of the community. We cannot reasonably accept more from them than this (although, in many cases, such as in those of Mr.McKennai Mr. Darling and, be it hinted, Sir Montague Norman himself, we do in fact get a great deal more. We get an admirable breadth of vision and sense of public service). But we as the public must equally look after our interests and see hOw they are affected. If the public does this intelligently and vigilantly, all will be well.
The goal for which the bankers ask us to give up all hopes of present' prosperity is' that of the stability Of foreign exchanges (see Sir Robert Kindersley's speech and elsewhere). That this would be a real gain few would dispute. There is only one way, the bankers tell us, to achieve it, and the first step must be to put this country back upon the gold standard, and therefore to make the pound worth 4.86 dollars—that is, to attain pre-War parity.
Our fundamental objection to this is, that to achieve the stability of foreign exchanges, the stability of the internal price level must be saerificed, and that, of the two, a -stable internal price level is incomparably the more important (on the most , conservative estimate two-thirds of our trade is home trade and only one-third foreign trade—see Sir Charles Addis's Edinburgh speech). But quite apart from this, we believe that the first step in the bankers' programme—that of restoring the pound to parity—is an impossible one. We ask -our readers to mark carefully Mr. Darling's letter on page 14, for we cannot but • believe that they -will agree with him that as -long as we are making our great debt payments to America the return of the pound to 4.86 is not a practical policy. Indeed, the fall of sterling on New York is the one way in which we can pay the American Debt, for it is that, and that alone, which can help our goods to climb the towering Fordney-MacCumber tariff wall ; for in goods alone can we pay the American or any other debt. Therefore to pour gold into America with one hand, and with the other artificially to force up the dollar value of the pound, is to commit suicide in the pursuit of the impossible. Mr. Darling is absolutely right when he says that the Cunliffe Committee never considered such a possibility. Indeed, we believe that Lord Cunliffe frequently expressed the opinion that his policy should be reconsidered in two years ; it is now four since it was adopted. On what we may expect from a rise in the Bank Rate the Financial Editor of the Observer was most enlightening in last Sunday's issue. What, he asks, will be the effect on gilt-edged stocks " of the dear-money period to which Lombard Street is looking forward ? " Ordinarily, he says, gilt- edged securities would be depressed :— " The present case is not quite ordinary, however. If the views riow voiced by Dr. Leaf, Sir Robert Kindersley, and others are accepted, the object of the raising of the Bank Rate will be, not to meet the demands of trade, but to hasten the return of the £1 sterling to parity. A recovery of trade prosperity is, of course, the ultimate aim, but the immediate effect may be exactly in the opposite direction. Thus, although there would necessarily be some readjustment in the values of gilt-edged securities, it would not be as severe and drastic in character as could be expected were a trade ' boom ' in progress."
The Editor was obviously in a difficult position. He had both to agree with the official policy and also to warn his readers that a trade slump would ensue, and that therefore they need not fear for the value of their gilt-edged securities. In other words, although of course gilt-edged stocks must be adversely affected by a rise in the value of money, industrial securities are likely to fall so much more heavily that relatively gilt-edged stock will hold its own. Must we not own that the Observer's Financial Editor gets out of the difficulty very neatly ? In the next paragraph, however, he gives a little table of " certain standard stocks with their prices in early 1921 and the present day." The last of these " standard stocks " is Bank of England Stock, which in 1921 stood at 1631 and to-day at 258. He then remarks : " The appreciation shown here is extraordinary. It was caused by the severest slump in trade this country has ever known. There is no fear of a recovery at a similar pace."
Any comment of ours would indeed seem to be painting (or perhaps we should say, gilding) the lily. Such devastating frankness must be rare even in financial editors. Really they must not go about saying that an appreciation of 94} per cent. in Bank of England Stock " was caused by the severest slump in trade this country has ever known." It simply will not do. Remember that the currency policy of this country is absolutely in the hands of the officers of the Bank of England, who have unquestionably a responsibility to their shareholders as well as to the community at large. But, according to the Observer, the interests of the Bank of. England shareholders and of the community at large are in exact and direct opposition. No wonder his next remark is " There is no fear of a recovery at a similar pace." As we have said, we are not amongst those who believe that the bankers act in their own interest and not in the interests of the country. But their position must indeed be difficult. At any rate, such statements as that of the Observer's Financial Editor must provide the most wonderful ammunition for Communist and extreme Socialist speakers that we can well imagine.
For ourselves, we do not believe that the situation . is nearly as bad as the Observer would lead us to believe. We know that there is a large body of City opinion against the proposal for raising the Bank Rate We notice, for instance, that Mr. Barrett of the Sunday Times says that the " Westminster Bank Chairman's proposal attracts little support." In a moderate article he comes to the conclusion that, while adhering to the gold standard as an objective, we should not seek artificially to reach it. Frankly, we doubt whether this is ultimately a possible policy. We must make .our objective either the gold standard and the stability of foreign exchanges, or a currency based primarily on an index figure and a stable internal price level. But if we cannot yet nerve ourselves to this great change, then let us adopt Mr. Barrett's intermediate policy. Already we are told that " the proposed acceleration of the process of returning to the gold standard has created some alarm among industrialists, who fear that trade will be even more seriously impeded than ,at present." Therefore we strongly endorse- Mr. -Darling's proposal that an immediate and clear announcement should be made as to whether or not the Bank Rate is going to be raised. The present uncertainty must be doing almost as much harm as if the blow had already fallen. Let us, at any rate, know where we are. If prices are going to be forced down, then, at any rate, our industrialists will be able to cut their losses. If, as we trust and believe, the present position is to be left unchanged, then they can get ahead with their business of making profits, and providing commodities and employment, in the security that they will not be ruined by forces over which they have no control.
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