FINANCE—PUBLIC AND PRIVATE.
BANKERS ON THE SITUATION.
ET° THE EDITOR OF THE " SPEOTATOR21 SIR,—May I commend to your attention some of the speeches which have been delivered at the recent annual meetings of our great banks 4 Time was when the meetings of our banks were mere perfunctory affairs, attended by a handful of shareholders, when chairmen confined their remarks to a few bald statements about the accounts, with perhaps (if they were exceptionally enterprising) a passing reference to the general course of money rates. The first banker to break through this deadly routine was Sir Felix Schuster, who something like twenty-five years ago enlivened his speeches with instructive references to the general economic situation at home and abroad. He was quickly followed by the late Sir Edward Holden, and nowadays the speeches of our bank chairmen are looked forward to each• year as quite an event, furnishing an opportunity for leading bankers to express their views with regard to the general situation. The limited space at my disposal makes it impossible to deal in detail even with the more noteworthy speeches which have been delivered during the past fortnight, and instead I will give you what I might describe as a rough impression of what the City thinks about _ the salient points of a few of them.
Although not first in order of delivery, I will deal with the remarks of Mr. McKenna, of the London Joint City and Midland Bank, because it was a speech which, although admirably lucid and forceful in character, dealt with a point upon which there is much active controversy at the present time—namely, the queition of the wisdom or otherwise of the dear-money policy. With a logic that was almost irresistible, Mr. McKenna demonstrated that at the present moment, and until the prime cause of inflation (Government borrowing) could be corrected through a gradual repayment of such loans *through a surplus arising out of economy in national expenditure, deflation was almost impossible and was wholly undesir- able. In the same vein Mr. McKenna urged that " dear money and a rigid restriction of credit, so far from. proving an effective means of restoring trade to a satisfactory con- dition, would only aggravate our evils." Finally, he dwelt upon the importance of deflation, so far as commodity prices are concerned,being reached along lines of increased production, this bringing about a decline in prices and a fall in the cost of living through the volume of goods having increased. He also emphasized the supreme necessity for economy in national expenditure in order that funds might be set free for productive and wealth- creating purposes. For the most part Mr. McKenna's pronouncement on the situation was received with enthusiasm in commercial circles, where the high rates paid. for loans are felt to be a double burden in these times of depression. In banking and financial circles, however, it was felt that, while Mr. McKenna's calm and courteous presentment of a contro- versial subject was quite exceptional, it was nevertheless open to criticism on one or two points. Granted that, other things being equal, cheap money is a help to the manufacturer, stimulating .enterprises and production, is it not also a fact that until the 7 per cent. Bank Rate was imposed, manufacturers, while working under the 6 per cent. Bank Rate, were grievously handicapped by the high prices paid for raw materials ? For the moment, the "handicap " may have escaped sufficient recognition, because the need for goods immediately after the Armistice was so great all over the world that buyers were ready to pay almost any price for the finished goods, while Labour clamoured for higher wages with each rise in prices, thus aggravating the situation. Such conditions, however, could not have continued indefinitely, and shrewd and impartial observers believe that the higher Bank Rate undoubtedly brought down wholesale prices—a circumstance to which Mr. McKenna scarcely gave sufficient public recognition—and now that wholesale prices have been reduced (with wages and retail prices still, however, standing at a .high level), those who are slow to adopt a policy of cheap money maintain that the policy would not be justified until retail prices and wages are at a lower level. It must not be forgotten that more than six months ago, when trade activity was at its height, bankers were sorely put to it to finance the traders owing to the great demands for accommodation necessitated by high prices of commodities; and the question which arises is, if cheap money were adopted and there were to be an immediate revival in consumption demands, how far the movement could go with prices even at their present level ?
The address delivered by Mr. F. C. Goodenough at Barclay's meeting was noteworthy for its broad view of the whole international financial situation. Mr. Good- enough, in fact, took the line that it is impossible to antici- pate a restoration of sound conditions at home until sounder conditions prevail in the European markets. He pointed out that in the case of some, at all events, of the distressed countries of Europe actual bankruptcy is threatened; and on the principle that reconstruction before bankruptcy is better if it could be achieved, Mr. Goodenough dwelt upon the necessity for dealing with the root trouble of many of these countries? -namely, the inability to meet national expenditure out of revenue. There- fore he suggested that some at least of these distressed countries should be helped boldly—that is to say, they should have the benefit of State assistance from the countries in the position to render it, enabling them to obtain the necessary goods and machinery required to set things going again, and that the method of financing should be by means of the Assisting States concerned in the matter issuing some kind of international security as a basis for banking accommodation. Mr. Goodenough, of course, recognized the necessity for the borrowing countries being willing to accept control for a time over their fiscal and currency arrangements, while in the case of the debts to us of some of our Allies he suggested that a policy of leniency on our part, if not actual forgiveness, should be adopted. In fact, boldness was the leading characteristic of Mr. Goodenough's speech, and as such it commanded admiration, though at the same time it uveked criticism. With regard to the question of international securities as a basis of credit, it was felt that the proposal was hardly practical ; and while there are many who endorse Mr. Goodenough's recommenda- tions with regard to our attitude towards the debts of onr Allies, it was felt that for the moment, and in view 'of our great liability to the United States, we were . scarcely free agents. At a meeting of the London County Westminster and Parr's Bank Mr. Walter Leaf also dealt in bold fashion with another striking conundrum of modern times. He discussed the question of assisting the distressed nations, and after making some reference to the methods for paying the German indemnity, he made some very strong observa- tions with regard to the suggested legislative proposals in the matter of anti-dumping. Any interference with natural laws in the matter of free exchange of goods and services was, in the opinion of Mr. Walter Leaf, likely to lead to nothing short of disaster. I do not propose here to recapitulate the divergent views of the City with regard to this part of Mr. Leaf's speech, because those criticisms are affected a good deal by what may be termed Free Trade or Tariff Reform considerations. Why, however, I have emphasized these remarks of the chairman of the London County Westminster and Parr's Bank is because, as the City itself readily admits, they forcibly remind us of what is going to be the greatest economic problem which the world has ever faced—namely, that of determining how the debtor nations shall be able to discharge their enormous external debts by an export of goods and services running to thousands of millions of pounds without creating a great financial, economic, and social upheaval. How closely this problem is linked with Labour was well emphasized in the speech delivered at the annual meeting of Lloyds Bank by its veteran chairman, Sir Richard Vassar-Smith. By reason of his double connexion both with banking and industry, Sir Richard's views on industrial questions are always read with considerable interest, and the more so because he is no extremist and is known to be thoroughly sympathetic with what may be termed any kind of legitimate forward movement in the ranks of Labour. Nevertheless, Sir Richard took the occasion of his annual speech to impress upon the com- munity the harm which had been done to trade by the recent coal strike. " It is scarcely exaggerating," said Sir Richard, " to describe it as the deadliest blow apart from the war that has been struck at the prosperity of the country for many a day." Finally, Sir Richard, in dealing with present trade depression here and in Europe, reminded his hearers that there had recently been an economic conference at Brussels at which, with remarkable unanimity, the delegates had demonstrated the only possible remedies for the situation, amongst which foremost place was given to the necessity for immediate drastic economy in national expenditure so that Budget equili- briums might be established and funds set free for indus- trial activities. The disinclination on the part of all nations, including our own, to act upon these recommenda- tions was, in the opinion of Sir Richard Vassar-Smith, a matter for grave consideration. His views find general acceptance in the City.—I am, Sir, yours faithfully,
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