20 DECEMBER 1930, Page 32

Finance—Palic & Private

The American Crisis and National Economy

QUITE apart from the sudden revolution in Spain, which has not been without its disturbing effect upon the Stock Markets here, there have been at least two events during the past week which may be said to have intensified the general financial depression in the City. One of these features has been the severe liquidation in the American Stock Markets accompanied by bank- ing failures in the States, and the other has been the fiasco of last Wednesday's Debate in the House of Commons on the subject of National Economy. -At first sight there may appear to be very little connexion between these two events, far removed as they arc both as regards place and character. I shall try, however, to show that the connexion is not so remote as it may appear to be.


The present acute financial and industrial depression in the United States and the series of banking and other failures, together with the disastrous fall in securities, marks the reaction from excessive prosperity and the great speculative boom in the United States extending over at least two years. Indeed, it would be true to say that the London market has been sorely tried and strained • for some few years, first by the dear money rates resulting from the American boom, and now, to-day, by the liquidation following the reaction. As regards the industrial depression in this country and also the world depression and the slump in the United States, I have no hesitation in asserting that, among the many causes, one of the chief is to be found in the refusal of the great monetary centres to recognize the economic consequences of the Great War and the need for conserving credit resources to finance productive activities and generally to give financial aid to industrial rather than speculative activities.


Both in the United States and in this country there has been a tremendous waste of credit resources in purely speculative operations, and the consequences, both financial and social, have been disastrous. In America there may not have been the wastage in national expenditure that has been the the curse .of this country, but there has been an equal and perhaps greater wastage in credit resources in consequence of the prolonged Wall Street boom, and it is a wastage which has reacted upon all other centres. In this country, however, also, we have had our Hatry incidents and the flotations of many worthless companies in which some millions of British capital were squandered at a moment when investment resources could ill be spared. In the case of the speculative movement here and the feverish search for appreciation in share values rather than dividend income, some excuse perhaps is to be found in the rapacious demands of the tax-gatherer and the continued high cost of living, but, whatever the excuse, the fact remains that on both sides of the' Atlantic there has been a great wastage in capital and credit resources.


During last week, moreover, the City received a decided shock in the shape of the Economy Debate fiasco in the House of Commons. The situation was very well summarized in a letter from Lord Apsley to the Morning Post. " On Wednesday evening," he says :- "Major General Sir John Davidson, a very popular member of the House of Commons, who is retiring at the end of this Parliament on the grounds of ill-health, and who would have retired before but for the earnest entreaties of his Party and his constituents after having balloted regularly, as he told me, for thirteen years for a Private Member's Motion, was at last fortunate in drawing one. At the Whip's request he put down a Motion drawing attention to the urgent need for drastic economy in all Government administra- tion during the financial difficulties that have beset the taxpayers of this country. During the debate there was not a Minister on the Government front bench, and at 8.15 the House was counted out, as there were not forty members present."

It only required an incident such as this to focus the in- dignation of the City on a matter which has troubled it for a very long time—namely, the wholly insufficient

protection offered to the taxpayers of this country by the House of Commons, which, by long constitutional tradi- tion, is supposed to control the national expenditure in the interests not of one section but of the whole com- munity. Such a protection, going hand in hand, as it was supposed to do in the old days with the other tradi- tion of " No taxation without representation," was always regarded as a safeguard of the utmost importance, and to-day, when, through the heaping of direct taxation upon the few, the power of the electors themselves to control expenditure has been reduced almost to the vanishing- point, this protection by the House of Commons becomes a matter of vital necessity.

And yet, when a member sets out to seriously challenge the extravagance in the National Expenditure, which it is known plays one of the greatest parts in contributing to industrial depression, we find that there is an insufficient number present in the House to form a quorum !


It is not difficult to see why such a state of affairs as is revealed by this particular incident should occa- sion not only indignation but despondency in financial and business circles. It is as though the whole financial machinery of the country had got out of control, and that no means were discernible for arresting the progress of reckless expenditure, the results of which are more clearly revealed every day, and the end of which must be financial chaos. Moreover, this concern is deepened by the fact that, although the leader of the Conseryative Party now refers on occasion to the need for economy in the national expenditure, the fiye years of the previous Conservative administration gave no evidence whatever of a concern for a sound conduct of the national finance. It is quite true that the result of the five years might have been a very different one but for the Great Strike of 1926, but still, that circumstance does not explain the lavish scale of expenditure during the five years and the enlargement of pension schemes.


I suggest, therefore, that there are two kinds of eco- nomy which are urgently needed to bring about the financial soundness and prosperity at many. centres. There is first the economy in national expenditure itself, which is specially applicable to this country, and there is also the economy which should be effected not merely in the matter of gold distribution—a subject to which our economists so frequently refer—but also in everything pertaining to the use of credit. If there were an adequate recognition of the consequences of the War these needs