COMPANY MEETING
MIDLAND BANK LIMITED
STATEMENT BY THE CHAIRMAN, THE RIGHT HON. R. McKENNA INSTEAD of delivering a speech at the annual meeting of shareholders to be held on January 29th, 1942, the Chairman has prepared a state- ment, extracts from which appear below.
Anyone whose memory is long enough must have been struck by the differences between the internal financial measures adopted in the two great wars. Most evident is the more extensive and more active official control over financial operations : the capital market is rigidly reserved for Government borrowings and a few other approved issues ; foreign exchange transactions are regulated in the utmost detail ; the Government itself provides direct finance for a large volume of essential war production, and lays_ down the general lines the banks should follow in making advances to their customers. Added to this is a more definite and explicit monetary policy. Here, as in the controls just mentioned, the closest co-operation has come to be maintained as a matter of course between the Treasury and the Bank of England and between the central bank and the commer- cial banks. The task of financing " total war " requires a standard of executive action not easily attained by men brought up in the rightly precautionary methods of the civil service ; but the qualities of understanding and judgement, so well represented in that service, have been brought with conspicuous success into close and constant alliance with the inventiveness and adaptability which have become characteristic of the central bank. Our own part is largely a technical one ; but whenever difficulties have arisen in carrying out directions -difficulties which sometimes call even for modifying the directions themselves-our representations have always been received at the Bank of England and in the Government departments concerned with unfailing attention and resourcefulness.
ADVANTAGES GAINED
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All this, however, is only part of a highly creditable record. Not only has the war so far been financed at an average rate of less than 2 per cent., but the trend of rates has been downward-a striking contrast with experience in the last war.
While we must not overlook the influence of other measures of control, the methods adopted for financing the war have helped to minimise inflation. Indeed, notwithstanding the growth in the volume of money and the upward course of prices, it may properly be con- cluded that there has been little inflation so far, the rise in prices being attributable to non-monetary causes which it would have been almost impossible to offset by monetary means. In any event the rise in the cost of living index number to date _has been much less marked than in the corresponding period of the last war, notwithstanding the incidence of the purchase tax.
The experience gained in the past ten years in currency policy has contributed materially to this advance, which has carried us a long way on the road from a supposedly self-regulating system to one of continuous management. We have only to look at the results in order to see how great has been the improvement upon the methods practised in the last war. Although this time again a huge creation of national debt has been inevitable, the proportion of Government expenditure which has been covered in that way is smaller, and the current rate of charge falling on the Exchequer vastly reduced. More- over, the instrument of taxation has been used more with the conscious Purpose of diverting to the Government a large part of the purchasing Power which, if left in private hands, might be used to bid against the Government for limited supplies of goods and services. Another :neans towards the same end has been the device of " compulsory 2ving," which defers purchasing power until a time after the war Alien it may perform a valuable economic and social function.
POST-WAR PERILS
So far, then, the record-is satisfactory ; but we must not forget that there may be many post-war perils ahead of us. Last time the worst excesses of overspending, inflation, speculation and capital expansion came not during, but shortly after the war, with disastrous conse- quences that are still remembered. The risk of a similar catastrophe after this war may be all the greater in that restrictions have been more severe. Accordingly there should be no hasty abandonment of necessary controls in finance, particularly of the capital market and of foreign exchange transactions. The natural predisposition to get ad of all restrictions as soon as the war is over must be resisted. We Rust profit by experience in using to the full the essential driving force of individual enterprise in the post-war conditions the general thane of which experience may help us to foresee. If we are wise
our perception of the proper limits within which freedom and trol should respectively operate, a financial system can be evolved hich will be a powerful factor in the creation and maintenance of clonal well-being.
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