FINANCE-PUBLIC & PRIVATE.
[BY OUR CITY EDITOR.]
WHAT IS CREDIT ?
. [To the Editor of the SPECTATOR.] SIR,—Last week at the close of my letter I felt it my duty to emphasize the serious view taken in responsible quarters in the City- with regard to the effect likely to be produced upon the financial situation by the advent of a Labour-Government, or even by the anticipation of such. an event. During -the past week those views have found very practical expression in quite a serious fall in,Stock Exchange. securities, and an unpleasant feature Of the week has been the tendency to exchange from sterling intc dollar securities.
Many reasons might be given for the apprehensions of the City concerning the possible effect of a Labour Government, and those reasons would no doubt • differ in many. quarters. Labour itself, would affirin that the .apprehensions coloa be traced entirely to the fear of those with possessions that they might be called upon to part with a portion of them, and, of course, there. is a, sense in which the assertion. would be true. Others, 'again, .
would maintain—and rightly maintain—that the prospect of a Capital Levy, was dreaded particularly by, reason of the great financial disturbance which would be occasioned. And yet other quarters would assert that the well-known doctrines of the Labour Party- concerning the nationaliza- tion of industry were sufficient to justify acute apprehen- sions if there were the slightest prospect of legislation in that- direction. All, moreover, would also be agreed that lack of knowledge of, to say nothing of respect for, the working of economic laws by leaders of the Labour Party constitutes in itself a formidable menace if the govern- ment of the country were ever to pass into their hands.
If, however,- I- had to-summarize in a sentence the apprehensions of the City at the present time, I should be inclined to say-that One-of the things most dreaded about Labour is its apparent inability to perceive the extent to which the whole .social fabric to-day has been built up upon' and rests upon credit, and the fact that this fabric is one of the most delicate which can be conceived, and one most highly susceptible to- injury. In the desire to deal with unemployment and other economic problems along Socialistic lines, there are two great points which Labour fails to grasp. The first error is, perhaps, more or recognized by the more intelligent in the ranks of Labour itself, but I doubt if the second is ever thought about. The first error is that of supposing that the situation can be relieved by a mere distribution of existing wealth, whereas the prime necessity is to .create new wealth, so that there shall be a sufficient perpetual-annual income- for all. The other error consikts of 'failure -to- perceive-the-extent: to which wealth- is mainly based upon credit. Our certificates of securities really constitute nothing more nor less than an under- taking do the part of the' countries and companies represented by the securities to pay us a certain income, and ultimately a return of * our. capital; subject to the contracts which those countries and companiea have themselves entered into being duly respected. Even with regard to our banking deposits,themselves,running now into thousands of millions, we know that the greater proportion really
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depend for their liquidity upon the whole structure of mutual confidence being undestroyed. I have just referred to the loss in capital value of securities during the past week. If, for example, there had been taken—say, for the purpose of a Capital Levy—in the previous week a valuation of wealth as represented by securities, that valuation would already have been falsified within a few days—possibly to the extent of many millions. What is the reason for the decline ? Simply that, rightly or wrongly, apprehensions of the Socialistic doctrines being applied to our present system have affected con- fidence on the part of holders of securities, and that has found its instant expression in market values. Therefore, Labour leaders are in this dilemma. Unless they have the good sense and courage to abandon doctrines calcu- lated to disturb confidence, they are in the position at the very start of their efforts to govern of having partially destroyed the very sources from which they hope to derive income.
The average wage-earner when drawing his weekly wage has little idea of the extent to which that wage has depended upon the full maintenance of confidence and of credit, although a moment's thought should suffice to reveal the principle involved. Probably, during that very week his wife has obtained credit from the local grocer because the tradesman, knowing where her husband is employed, reckons with confidence that the weekly wage will be forthcoming and the wage-earner has relied with equal confidence upon the ability of his employer to meet his engagement on the Saturday. Equally, however, it must be remembered that the employer has also been relying upon the good faith and the ability of other people to keep their engagements with him, and once disturb this basis of credit and confi- dence and the stage is very quickly reached when the wage-earner is reminded by the less friendly attitude on the part of the local grocer of the extent to which things have gone awry.
As you are well aware, Sir, the very delicacy of this subject of credit makes it a difficult one to discuss freely, even in the columns of a journal whose readers are capable of appreciating the niceties of the position. Nevertheless, I have ventured to touch upon the fringe of the subject in my letter this week, because it is undoubtedly an aspect of the present situation which is troubling the City, and is partially responsible for the present setback in securities. I would also fain hope that the more en- lightened leaders of the Labour Party, who, I fancy, are not unfamiliar with the Spectator, will recognize that the City's apprehensions are not prompted by any personal antagonisms or mere party feeling, but have to do with matters in which all three parties of the State, if truly patriotic, must be gravely concerned.—I am, Sir, Yours
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