That Blessed Word—Nationalization
IT is usually regrettable when matters concerned with finance and economics become the subjects of political propaganda. Unfortunately, however, this frequently happens— It was so in the matter of Protection and Free Trade, and it is becoming so as regards Banking, the extremists of the Socialist party having included the nationalization of the banks as a foremost plank in their electioneering programmes. There is, however, some- thing peculiarly regrettable in this subject of the nationalizing of banks having been introduced into the political arena. There is something to be said for any desire to move for an impartial enquiry into our banking system, but we know that as a result of such enquiry a few years ago by the Macmillan Committee, the findings Of that Committee were certainly _ not in favour of any nationalizing of the banks. Moreover, while there is inuch which might be urged against questions of tariffs being determined by political considerations there is still more to be said against the future of British Banking being made the subject of political controversy. For the power which would be possessed by any political party through the control of the banking resources of the country, presents a picture full of dangers, giving to the State such a control of all the forces which make for our financial commercial activities as completely to cripple or at least discourage individual enterprise, while its effect upon banking depositors might be disastrous. For the point cannot be too frequently insisted upon that the resources Owned by the banks, apart from the small proportion of Capital beloniiiii to the shareholders, are not their own, but represent the liquid capital of the community.
WHENCE COMES THE DEMAND ?
The question might usefully be asked, from what direction does this movement for nationalizing our banking institutions come ? It certainly -does not come from the mass of banking depositors themselves, for financial journalists can testify to the anxious en- quiries they receive from time to time from banking depositors, whether there is the slightest danger of nationalization. It does not even come, so far as may be gathered, either from the Nationalist, Conservative or Liberal party, but in the main the demand is urged strongly by extremists of the Socialist party. Not that it follows because a measure is advocated by anyfpolitical party, that the motives behind the agitation may not be quite legitimate. There may be, and doubtless is, a genuine belief on the part of some Socialist leaders, that if the whole of the banking resources were controlled by the State,- and if joined with such control there were also to be complete control'of monetary policy, the result would be beneficial for industry and for the whole country. Unfortunately, however, it so happens that up to the present the financial record, of those advocating the nationalization of the banks is an unhappy one, for the financial crisis due to the alarm felt, both here and abroad, on account of excessive spending on the part of the last Socialistic administration, is still fresh in the memory.
THE BANKER ON DEFENCE.
Unfortunately, too, bankers themselves are somewhat handicapped in the matter of opposing schemes for Nationalization, first because all that they may say, either in print Or on platform is too often regarded as mere special pleading, and secondly, because, for the most part, the agitation for Nationalization comes from those who are ignorant of the functions of banking and who, as a recent writer in the Bankers Magazine said, " are befogged by the paradoxical combination of a plethora of credit with inability to acquire that credit on the part of people who could use it. After years of depression, disillusionment and despair, it is not difficult to make such people believe that those who are custodians of the money and credit at the country's disposal are primarily responsible for the present situation, or at least, for our not getting out of it." Among the more recent endea- vours of bankers themselves to try to enlighten the public with regard to the actual facts and the functions of banking I do not know of one clearer and better than the address given recently by Mr. C. T. A. Sadd, an Assistant General Manager of the Midland Bank, and I would recommend those who may be interested in the matter to try to procure the full text of his speech. I cannot, however, forbear from quoting his playful introductory remarks referring to criticism of the banker of today. For years past, Mr. Sadd said :
" English Bankers have been denounced as guilty of every sin of omission and commission, and it is not long since that Mr. Maynard Keynes, that brilliant and eminent economist, amiably described them as deaf mutes because they did not conceive it to be their duty, or politic, to ascend platforms or to dictate to manufacturers the way in which they should conduct their business.
In lighter vein a well-known journalist remarked some time ago : ' So far as I can make out, all really well-informed economic opinion is agreed that banks are the root of all evil in this country. They lend too much money or they don't lend enough, or they absurdly insist on wanting it back again. if there is anything wrong anywhere, a bank either did it or stood idly by and watched it being done. It does a man no good to hold overdrafts from half the inhabitants of this country if all expert opinion regards him as a betrayer of the national resources. Perhaps the trouble is that banks do not advertise in a really bright and attractive way. Nobody wants to know how much money a bank is sitting tight on ; what they do want to know is how much money the bank is prepared to cough up.o
NATIONALIZATION AND THE DEPOSITOR.
I want, however, in the closing part of this artiek tc■ raise a few simple points concerned with this question of Nationalization of the banks which, I think, go to the root of the matter. To nationalize the banks in any effective manner must, of course, include the nationalize ation of the Bank of England, which is the pivot of the whole banking system, and I suppose the idea is that shareholders of the joint stock banks would be paid an adequate price in Government stock. Doubtless such a plan would include the retention of present bank staffs, but the entire control would be in the hands of the State represented in turn by all shades of political parties. How would this change affect the bank depositor ? At present he knows that however much bankers may be criticized, they have hitherto recognized his claim for safety by keeping themselves very liquid, and he knows, too, though the fact is not sufficiently recognized by the public, that the evenness of their dividends has in part been due to this same " Safety first " principle which has been responsible for the building up of huge reserves. Not only so, but the depositor fully realizes that the safety of his deposits is further secured by the bankers' fear of the consequences which would - follow to his bank if liquidity were not the first consideration. In times of crisis there might be Government assistance, but woe to the future of the bank if the crisis revealed shortcomings in its operations.
SECURITY OF THE STATE. _ Yes, but it may be urged—what greater security could the depositor have than the security of the State ? Do we not in the last resort come back to that, and is not that proved by the fact that " Consols " are the last refuge of the Investor ? Now that is a point which requires to be frankly faced, and I am glad to face it. If the expe- riences of the post-War years have shown us anything they have surely taught us that States and Banks alike can become bankrupt. In this country we have been spared either experience, but it has not been so elsewhere. And what is the important fact to be learned ? Surely this : that States and Banks alike must not have un- fettered power but nuist have the constant _restraint of " fears of consequences." Evidence of unsound banking may require State legislation, and an unsound conduct of the national finances may require the restraint of public opinion as expressed by bankers and other sound financial experts. Let us suppose, for -example, that a political party is in power and is indulging in prodigal expenditure or in legislation which is affecting business adversely. The tendency for withdrawal of deposits would at once be quickened. . True that the State would be behind the deposits, 'bid confidence in the State would be lacking. The depositor might know that at all costs the State would supply the currency to meet his demands, but he would also know what would happen to the purchasing power of his pound.
How THE PRESENT SYSTEM WORKS.
Now under our present system it seems to me that we have just the kind of double check which is so necessary for the maintenance of confidence. Monetary policy and the working of the banking system are really controlled by the Bank of England, which is and always has been in (lose co-operation with the Treasury. I do not suppose their ideas of policy are always identical, but I do assert that there is a mutual recognition of the advantages arising from the absence of actual control or ownership by the State. The authorities at the Treasury and at the Bank would, I venture to say, be the first to recog- nize the need for the " double check " I have referred to ; while if proof of its benefits were required we have only to glance at the experience of this country during the past decade and contrast it with what has happened elsewhere. Fear, of the consequences to the banks themselves - of unsound banking and for the State of unbaidled -opportunities -of - utilizing- the liquid, resources of the country are among the safeguards of ow r resent banking system, and we shall abandon them it our peril.
FINANCING INDUSTRIES.
But, it may be said, granted . that these safeguards arc needed for the depositor, would trade be helped if the policy of the banks were controlled by the State ? I think not. At the present moment, as I have hinted earlier in this article, the public mind is somewhat confused by the fact of a superabundance of credit, accompanied by no response in bankers'. loans. In this matter of superabundance of credit, however, it, is actually the hand of the State. that we see to have been during the past two years largely responsible for a con- siderable expansion of credit, and this, because of other, influences, has entirely failed to stimulate a demand for, loans which the banks would have been only to, glad to grant. In an article which appears on page 116 of this issue I refer at sonic length -to an experiment which is being tried to see whether the 47)1411 trader: is really in lack of adequate banking facilities.; but when we come to the ordinary large demands for industry it is being abundantly proved that causes other than lack of credit or banking facilities have been responsible for the world industrial depression. - Indeed, if there is one truth which is becoming clearer every day, it is that more and not less liberty is needed for will and industrialist alike ; _ and I fancy that it will not be long before to that word Nationaliiation' some other description than " Blessed " will be accorded, by universal acclamation.
ARTHUR W. KIDDY.
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