24 MARCH 1928, Page 40

Finance—Public and Private

• Where Does the Money Come From ?

THERE is, I know, always something unsatisfactory, not to say irritating, in propounding a riddle without giving the answer. Nevertheless, at the risk of incurring the displeasure of readers of the Spectator, I propose to take that course, and, if any readers of this column will suggest an answer, I can assure them it will be very welcome.

For the last few years, complaints of industrial depression, or, at all events, of depression in our key industries, have been constant. Moreover, practical expression of the depression has been furnished in the case of railways and many other big industries where dividends have fallen to a low level in most cases, and in some cases have disappeared altogether. During this same, period, taxation and the high cost of living are supposed to have strained the resources of all but the wealthiest classes very severely, leaving little margin for saving. Our foreign trade, too, has been greatly curtailed, so that the visible adverse balance would seem to have left us no margin for lending abroad, while even when allowance has been made for invisible exports, the small estimated favourable balance remaining has given little indication of power to grant credits to foreign countries.

A FINANCIAL PARADOX.

And yet, in the midst of these conditions, we know that during the last two years, especially, there have been other developments of a -character suggesting almost a plethora of money available for investment or speculative purposes. During the past three years, for instance, the joint stock banks must have sold in the aggregate something like £250,000,000 in high-class investment securities, all of which have been steadily absorbed either by other financial concerns or by the general public, and, so far from investment stocks having suffered, prices have been firm throughout. During last year fresh issues of capital in this country amounted to £315,000,000, being a great increase over the preceding year, and for the most part the new issues of capital were eagerly applied for. During last year the appreciation in Stock Exchange representative securities selected by the Bankers' Magazine was no less than £269,000,000, and during the first three months of the present year the rise has been even more pronounced.

PUBLIC INTEREST.

In the last issue of the Spectator I dwelt at some length upon the growing extent of gambling operations in certain securities on behalf of the public, and during the last few days I notice that certain journals, which are noted for having their ear to the ground to anticipate public demands, are now instituting daily competitions with prizes to those who will send in the best suggestions for likely speculative investments. Many who were never accustomed to turn to the financial columns of a daily or weekly paper are now doing so, and probably not a few City editors are being conjured to remember that their columns are read not merely by those with an intimate knowledge of finance, but by those who are hungering to make a little money by a-judicious purchase of shares.

LAVISH EXPENDITURE.

Moreover, it is not merely in response to new capital issues or the rise in securities that evidence is to be found of apparent prosperity in the midst of alleged commercial depression, for we know that .the general rate of family expenditure is very much higher than it was before the war. It is not merely that prices of the necessaries of life are higher, therefore- involving greater expenditure, or even that the general standard of ordinary comfort in the working classes has been raised, but that, in addition to all this, the luxury trades are among the, most prosperous at the present time. The smallest house has its motor garage, and motoring, with all its attendant expenditure, is overcrowding the streets and lanes. That more time and money are expended in dancing and other light amusements since the War few will deny, and however much such recreations, &c., may conduce to the happiness of those who indulge in them, they can scarcely be classed among the productive or wealth-producing activities of the country.

IGNORANCE IN HIGH QUARTERS.

I can quite imagine some readers having got thus far suggesting that surely the key to the mystery is to be found in the City.? There, if anywhere, in the inner sanctuaries of the Bank parlours will no doubt be found the answer to the question, " Where does the money come from ? " The Stockbrokers who handle the orders for investments and speculation, the Bankers who receive the applications for the new Loans and, indeed, who hold the entire liquid resources of the country, these surely will be able to tell us whether we, are really pros- perous or not, and whether this great response to new issue's and this rise in securities represents the great driving force of accumulated savings, or whether it is

for the most part a movement based on borrowed mon.ey. The fact remains, however, that the question I have placed at the head of this article is asked quite as insistently in the City and in the innermost Bank parlours as it is by the intelligent man-in-the-street

A SECONDARY INFLATION.

show how the effects moment's thought will show ho in a sense the . effects of the inflation Period of the War can linger and even Minister to further credit expansion. During those four years of War, our own Government Debt itself increased by something like 27,000,000,000, and it must be remembered that those securities in their turn consti- tute a further base for credit expansion. To take a concrete example, we will suppose that Mr. A. during the War period, either out of War profits or out of savings, obtained £10,000 in Government securities, and is now desirous of " bulling" the shares of some artificial silk company. In the first place, unless the shares- purchased are of some inferior concern, he will probably get a substantial advance from his bankers, who may. be satisfied by requiring a large percentage margin on the actual shares . themselves, plus a small part of the Government stocks deposited as security, which will thus constitute a basis of credit for the new transaction.

SUGGESTIVE POINTS.

Nor, perhaps, must it be foregotten that one or two circumstances have conspired to make bankers desirous of fields for employing their resources in the shape of loans for short periods. In the first place, the absence of the usual activities in the key industries of the country have lessened ordinary trade demands, while in the second place, we have during recent years had an exceptional amount of Foreign money here deposited for short periods, and the sum total of these considerations suggests that while the prosperity of the country may be a little better than is suggested by visible trade figures, it is scarcely as great as might be supposed from the financial activity in the City, both as regards new capital issues and the rise in existing securities. These, however, are merely suggestive points and by no mean's constitute an authoritative or sufficient reply to the main -questiort asked at the beginning of the article.