THE SKELETON AT THE BANKERS' FEAST
By NICHOLAS DAVENPORT
WITH the biggest-ever surplus on our international account to serve up as an appetiser it was a ravishing bankers banquet at the Mansion House last week. It was only typical of honest Mr. Heathcoat Amory to remind the Lord Mayor and his well-satisfied guests that there was a skeleton in ihe cupboard—in the shape of 476,000 unemployed. Only a Ev now, he said, when the world had been going through a phase of recession, unemployment was a little over 2 per cent., a far lower figure than Practically any other industrial country today with the exception of France. To have achieved a surplus of £334 million in the first half of the Year with an unemployed total of only 476,000 waS, I agree, wonderful—we could no doubt have cured a surplus of £668 million by doubling the ,unemPloyed—but it would be a more wonder- MI thing if we could manage to have a comfort- able surplus with not so many workless besieging
e labour exchanges. I believe we could—if only 0 ktne 044.Treasury would play its economic cards more
The Mansion House diners probably went home Fonvinced that our record surplus was due to the brilliant economic management of the principal rests—the Chancellor and the Governor of the
Ink. That bright idea was actually spread by
T. E. S. Simon, the Financial Secretary of the :teasury, in Middlesbrough last week when he told the Institute of Bankers there that the resolute Ineasures of last autumn were 'painful and un- rPular but as a result the gold and dollar reserves increased month by month.' In point of fact 'Ile stern monetary measures of last September, cahninating in the Bank rale of 7 per cent., were inikainly responsible for the unemployment, not for stirPlus. As everyone knows, the large surplus -as due mainly to the fall in import prices and the st:rength of exports: the unemployment helped Y preventing a rise in the volume of imports. 'We ,'annot expect these conditions to last,' Mr. Amory !old the banqueting bankers, 'indeed, our exports to already falling.' They were down 4 per cent. cri the first nine months of the year and the ques- ,kell is Whether they will fall sharply enough in `itile next six months to drive production down and 2en1Ployment up to an undesirable level. The mists are already talking of three-quarters of 41, Winn unemployed before Christmas. 4 I am not inclined to take so pessimistic a view- ' see, were the businessmen reporting on the eration of British Industries questionnaire in :Ile first ten days of October—but I find it hard subscribe to the extraordinary optimism of Mr. the Financial Secretary, who looks for a \Osurned expansion of the economy 'in the not ..erY distant future.' Mr. Simon's case is that the w‘Merican economy had recovered earlier and 4 Ith more strength than most people expected ,.11(1 that this would give a powerful impetus to 7orld recovery; that .commodity prices had mopped falling and that this would maintain the tPrttrohasing power of the primary producing coun- ‘rie:s; and, finally, that all these factors would be ,rnforeed by the expansionist measures taken at irecent conferences at Montreal and New r„elht: Mr. Simon forgets, first, that the American b'eeasion in itself had little effect on world trade 1,e,c,„ause American imports were well maintained ht.' the outflow of American gold helped to rengthen world reserves; secondly, that the
sterling-area countries suffering from the fall in commodity prices (which preceded the American recession) kept up their buying power by drawing on their sterling balances (to the extent of £225 million) in the last part of 1957 and by attracting foreign capital (to the extent of £171 million) in the first half of 1958. But they may run into an awkward gap before the Montreal decisions begin to take effect. We must not forget that the rest of the sterling area overseas had a trade deficit with the UK and the world of no less than £475 mil- lion in the first half of 1958, which must be a very restraining influence upon their outside purchases. Fortunately sterling-area exports are less than half our total and it is possible that in- creasing exports to America and the rest of the world will make up for part of their decline. It all depends on the outcome of what the directors of the International Monetary Fund call the downward cyclical movement now in progress.
The reason why I attacked Mr. Thorneycroft's 'crisis' Bank rate of 7 per cent, so ferociously was because it was dangerous to use such harsh mone- tary measures of deflation to kill a wage-cost infla- tion when there was already a world trend towards recession. Could not foreign confidence in the £ have been restored equally well with a Bank rate of 6 per cent.? In the six months to December, 1957, we had a surplus on our international account of no less than £154 million. Could not the trade unions have been induced to show the restraint which the Prime Minister has lately com- mended equally well with a Bank rate of 6 per cent. Mr. Amory is now appealing for modera- tion in wage claims, which, he says, are still causing him 'a good deal of anxiety,' but there is no evidence to suggest that the recent settlements in the mining, engineering and shipbuilding in- dustries were any less reasonable because Bank rate was not 7 per cent. but 4f per cent.
There is no question in my mind that Mr. Thorneycroft overdid it, that the unemployed are now suffering for it, and that Mr. Amory is being over-cautious in his gradual little-by-little approach to re-expansion. It was not until July that he put an end to the credit squeeze, and Sep- tember before he relaxed the hire-purchase con- trols. But he still requires a deposit of 331 per cent. on motor-cars. TV and radio sets, most domestic appliances and shop and office fittings. These restrictions should be swept away. It is something that he has now raised the 1957 ceiling from pub- lic investment, but by how much? The £100 mil- lion suggested is not nearly enough. Demand, surely, can be increased appreciably in view of our existing surplus capacity without generating another scramble for labour and reviving the wage-cost inflation. If Mr. Amory lets unemploy- ment rise to three-quarters of a million the Tory Party will undoubtedly be accused of liking it that way.
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