FINANCE—PUBLIC AND PRIVATE.
DEPRESSION ON THE STOCK EXCHANGE.
[To TER EDITOR OF THE " SPECTATOR.']
SIR,—During the past week the Stock Exchange, with the one exception of high-class investment securities, has been thoroughly depressed, and if excuse were required —as perhaps it is—for so many of my letters to you dealing with economic problems rather than with mere local developments on the Stock Exchange or the Money Market, I think it would be found in the very fact that the depression of the past week has been largely due to the previous ignoring of many of the great economic truths. It may, for example, seem a far cry from the depreciation in German currency to a fall in oil shares, but a good deal of the selling of the latter during the past week has come from Holland, and there is little doubt that the sales from that quarter have been largely due to forced realizations by Dutch interests which have suffered some heavy losses over the slump in the mark. Notwithstanding the admitted magnitude of the oil interests and the great possibilities for appreciation in share values, I have felt obliged ever since I began my correspondence in these columns to adopt a cautious tone not only with regard to oil shares but with regard to all speculative investments • and those who have purchased during the last twelve months must have experienced some nasty losses. The fact is that, although there are no longer ordinary contango facilities on the Stock Exchange, there has for some time past been a large " concealed " speculative dealing in oil shares, the existence of which has made the market sensitive to the adverse influences which have recently operated. By a " concealed " dealing I mean that vast numbers of the public, imbued with the idea that certain oil shares were likely to rise enormously, have borrowed on securities to acquire oil shares, purchasing heavily not simply as an investment but for an appreciation in capital value. To-day, it is probable that a good many of these semi- speculative holdings have been liquidated, and, indeed, so far as the leading shares are concerned, there have been signs of influential purchases at the lower level. In fact, it is the old story of the ordinary speculative investor's extremity being the capitalist's opportunity, and it would be well indeed if the former could realize once for all that his only chance of coming into line (in this matter of purchasing shares for the rise) with persons of large means is strictly to confine his purchases of shares to an amount which he is really prepared to lock up for a considerable period. Nor is it merely the oil market which has suffered from Continental and English realizations during the past week, for most of the influences operating have been of a depressing character. It is now recognized that the disorganized state of the exchanges reflects financial and commercial chaos, which is affecting the very mainsprings of wealth production—a circumstance which is bound, ultimately, to react upon the security market itself, where developments are so closely linked with the volume of surplus wealth seeking investment in securities as distinct from trade. For a time, of course, trade depression, such as that through which we are now passing, may, in a sense, increase the amount of capital seeking investment because the ordinary trade channels are closed, but that is always a temporary influence from which the reaction is generally speedy. Home Railways have of course, been directly affected by the trade depression, and Argentine Railways have been adversely affected by the unfavourable reports of the Buenos Aires and Pacific and some other leading companies. Finally, and paradoxically in a sense, two other sections of the Stock Exchange, namely/ that for dollar securities and that for South African mining shares, have been adversely influenced by those few exchange movements for the week which have been favourable. As expressed in American currency there has been a great rise in sterling during the past week, but this, of course, has tended to depress dollar securities, while it has also lowered the premium on gold in the open market, and that, in its turn, has depressed South African mining shares. Altogether, the week has not been a happy one on the' Stock Exchange, but high-class investment securities have held their own wonderfully well, and this has been the more striking in view of the steady stream of fresh capital flotations and the expectation of further important issues in the near future. At the time of writing the Premier's speech on unemployment has not been delivered, but in financial circles the impression grows that not only will the schemes include some extension of credit facilities for finaacing exports but that there may even be some proposals for guaranteeing Dominion and even some domestic industrial loans by the State when the assurance is given that the proceeds are to be spent in this country, thereby tending to relieve unemployment. I cannot say that the City is very favourably impressed with the idea, but .I am now simply recording the general fact that there are expected to be capital issues on a large scale, and that in view of those expectations the steadiness of the investment market is the more striking.
Briefly, the City's. apprehensions with regard to all these remedial schemes of the Government for dealing with social problems are based on the feeling that not only do they not deal adequately with the cause of the trouble, but that they may even tend to aggravate the situation. No amount of trade subsidies ' will result in an addition to the real wealth of the country as a whole unless we are able to compete with other nations in paying our external indebtedness by our exports with a good margin to spare. At present, we are making no progress in this direction at all, largely because the demands of Labour as regards wages and hours and conditions of working are inconsistent with the conditions of inter- national trade competition as they exist to-day. And above all things is it necessary that in place of the present antagonism between Capital and Labour—or rather the hostility on the part of Labour towards Capital—there should be a clear appreciation of the necessity not for invading and still less destroying, but for adding to the capital resources of the country. In this connexion I would mention that the City has been a good deal impressed by the remarkable article which appeared in last week's Sunday Times by Lord Leverhulme. It is an article well worth the notice of wage-earners in this country, for it gives an admirably lucid definition of Capital and an able statement of what it has accomplished for every section of the community. " Capital," says Lord Leverhulme, " is the surplus saved beyond the immediate necessities of the saver. It is only by self-denial and the resistance of the temptation to spend that capital can be created." Then Lord Leverhulme gives the following example of the service performed by Capital to the community. He says :— " The Chinese coolie can carry on his back a load of one hundred pounds for a distance of twenty miles in one clay, and can live on a wage of fivepence per day. He is the most efficient human carrying machine in the whole world. No one of British stock can in any way compete with him. And yet our system of railways, built with the capital of our frugal, self-denying savers, enables us not only to compete successfully, but to pay over thirty times the coolie daily wage to our railway men, and to reduce to one quarter the cost of transport from point to point. . . The railway companies have accomplished this by borrowing the capital of the frugal, and, as a result, are able to pay to men engaged in railway service not the fivepence per day of the Chinese coolie, but an average of fifteen shillings per day, and yet charge for transport not the fivepence halfpenny per ton per wile, the cost of Chinese coolie transport, but an average for all traffic goods and mineral of about one penny farthing per ton per mile. . . . And what has capital invested in railways done for labour in addition to finding employment for one hundred times as many workers as previously and at five to ten times the wages of the old-time wagoner, groom, and ostler ? It has made it possible for labour to take and enjoy holidays to distant places, and to visit friends otherwise inac- cessible. It has brought greater comfort and happiness into their lives than ever their fathers knew of or dreamed of as possible. As St. Paul pointed out nearly two thousand years ago in his kindergarten lesson to the Corinthians : We are all members one of another.' If one member suffers, all the mem- bers suffer with it.' This is equally true of capital and labour. If capital suffers, labour suffers with it. If labour suffers, capital suffers with it."
I have ventured to occupy your space with these extracts from Lord Leverhulme's article because I am convinced that one of the greatest necessities to-day is for Labour really to appreciate the extent to which the interests of Capital and Labour, and indeed of the whole community, are intertwined, and it is that point which is so admirably brought out by Lord Leverhulme. Just as it would have been impossible to attain victory in the recent war if the nation had not been united, so we shall never achieve economic victory until there is concentration of effort and purpose resulting from a closer understanding between Capital and Labour.—I am, Sir, yours faithfully,
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