FINANCE—PUBLIC AND PRIVATE.
THE ECONOMY CAMPAIGN.
[TO THE EDITOR OF THE " SPECTATOR.")
SnA,—I am writing this letter before the much-discussed Economy Debate has taken place in the House of Commons, and it remains to be seen whether the tone of that debate will rise to a higher level than in the autumn of last year. On that occasion it will be remembered that, although a few months earlier Ministers had appeared to take a most serious view of the position, when it came to the "full dress" debate the Prime Minister, and even the Chancellor of the Exchequer, adopted a tone almost of levity, ill- befitting the actual conditions at the time, and still less those which have subsequently arisen. Moreover, on two occasions during recent weeks thoughtful men have been gravely disturbed by further utterances from Government quarters with regard to the national finances. A few weeks ago the Ministerial Whip issued a statement in defence of the present scale of national expenditure which by its feebleness occasioned almost as much uneasiness as the expenditure itself. Still more recently, when speaking as the chief guest at a gathering of the Federation of British Industries, the Prime Minister struck a most unfortunate note when he declared that it was up to the people of the country to give the Government a lead in the matter of economy. Not only is it the duty of govern- ments under any circumstances to give the lead, rather than to follow, but in the present instance the obligation of Ministers in that respect is enormously increased by the fact that admittedly the lead in the direction of extrava- gance was given by the Government and the Spending Departments.
Therefore, it is certainly in no spirit of over-optimism that the City is awaiting the result of Thursday's Economy Debate, though by reason of the rising tide of public opinion against Government extravagance it seems pro- bable that there will be an absence of the levity which characterized the debate of last year. Meanwhile there are one or two points connected with this question of national economy which are specially discussed in City circles at the present time, and I am placing them before you because they are at least practical, and it will be interesting to see whether they play any part in Thursday's debate. I am inclined to think that for the very reason that they are practical, and go to the root of the matter, they may not arise.
The first point is, in a sense, one in favour of the spenders rather than the economists. It is this : That those who demand an immediate cutting down of expenditure to, say, 1E00,000,000 are practically asking the impossible, and to that extent are really furnishing the spenders with an effective reply. In other words, it is well to recognize that for the moment, at all events, the unavoidable expenditure must surely exceed the sum named. There are many items of expenditure concerning which opinions may differ, but to deal for a moment with those items which are beyond dispute, it may be recalled, in the first place, that, as the Times has quite properly pointed out during the past week, allowance must be made for the diminished purchasing power of the L In other words, if we were to take the normal pre-war expenditure of £183,000,000 (L208,000,000 less £25,000,000 for debt service), and allow for a rise of not far short of 200 per cent, in prices, we should find that, without any special extra expenditure, outlays for supplies on the pre-war basis would reach a total of at least £530,000,000. In consequence, however, of the enormous increase in the Debt, we have a total new debt service of 1350,000,000, while in addition we have an item under the head of Pensions of £150,000,000. If, therefore, those two items are added to the total of £530,000,000, we get an aggregate total of £1,030,000,000, which seems for the moment to be almost the irreducible minimum, so long as the price-level of commodities and wages is maintained. On the other hand, there is, of course, all the greater reason to reduce the expenditure which at present is far above that level, because in addition to the actual amount saved, the effect would in all probability be to occasion a decline in prices themselves and a gradual restoration of the purchasing power of money. In other words, national economy of the right kind will mean is freeing of industry from bureaucratic control which cramps progress at every point and, as has been said a thousand times, stimulates non-productive at the expense of pro- ductive activities.
Nevertheless, even when allowance is made for these items of inevitable expenditure—for itis irnpossitde to challenge either the amount for debt service or the amount for pensions—there still remains an ample margin for drastic economy in expenditure which only the strong force of public opinion will obtain. The next point, there- fore, in which the City is interested is whether those who take part in Thursday's debate will really get to close grips with such items of expenditure as Mesopotamia, the costly scheme of education, and above all, the new depart- ments as represented by Transport, Labour, &c., and whether there will be a bold demand for the de-control of industries. With regard to these items of expenditure, it is essential that the facts should be boldly faced, and that the maxim of cutting the coat according to the cloth should be constantly kept in mind. Already the City notices that in some quarters there is a disposition to regard the item for education as something which on no account must be touched. That, however, is not the opinion of business men at the present time. Not only is it a question of whether we can afford for the next few years to maintain the cost of education at the huge amount which is entered in the balance-sheet, but also whether it is desirable that many of its rigid regulations with regard to the age for leaving school, &e., should apply.
There is one matter, however, in which the City is par- ticularly concerned, and it is this. It is common ground that there should be a cut of at least 000,000,000 in the expenditure as it stands in the current balance-sheet. That being so, the City wants to know why it is that an extravagant Government should be allowed to bring in each year some hundreds of millions (repre- senting the proceeds of realized assets) as ordinary revenue. Those assets were purchased out of loans, and their pro- ceeds should be strictly allocated to debt-redemption. Moreover, the City's cnticism is based not simply upon academic considerations, but on the practical point that power to use these sums constitutes a constant menace to the cause of economy. Whatever may be the result of Thursday's debate, it will only be a short episode, and some other great matter of public interest might easily arise, diverting the attention of the public mind at the moment from the question of the national finances. On the other hand, the Government are faced all the time with having to establish an equilibrium in their balance- sheets; and therefore the question is whether, when they are framing their estimates for the coming year, there should be this great temptation to defer a drastic cutting down in expenditure. If the House of Commons were to insist upon the proceeds of assets being allocated to debt redemption, Ministers would then be faced in their turn with the straight alternative of cutting down expenditure or of imposing in the new Budget still more drastic taxation. The latter course they know to be virtually impossible, and economy would have to come. If, however, they were able, by means of the use of these assets as revenue—and they still amount to many hundreds of millions—to present a Budget with a comparatively small out in expenditure, but with perhaps some concession to the taxpayer as regards Excess Profits Duty, at all events, public opinion for the moment might be soothed, though the cause of real economy would have been still further impaired. If the Government are in earnest in their determination both to redeem debt and to effect economy, they will impose no obstruction to proposals for allocating these proceeds of assets to their proper use. If, on the contrary, unnecessary spending departments are prepared to fight for their existence, and the Government are determined to support them, we shall find that on this important practical question, to which the City attaches the utmost importance, little will be heard in Thursday's debate. It is in fact a crucial test of sincerity.—I am, Sir,
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