25 OCTOBER 1930, Page 25

Banking, Politics, and Industry

TIIF. occasions must have been few when political, finan- cial and economic problems were more closely intertwined than at the present time. Be the causes what they may, the world-wide financial and industrial depression which is, however, of longer standing and more acute here than in any other country, is constantly compelling a search for possible causes and likely remedies. And for the reason that the causes are numerous it is not difficult for eager critics to suggest that if this or that particular one were dealt with all would be well.


Socialist extremists are fond-of attributing a large share of our troubles to the capitalist system, leaving, however, curiously enough, out of consideration the fact that the depression of recent years has coincided with the crippling of capitalist control by labour restrictions and by the diversion of funds formerly employed in - industry, to national expenditure of an unproductive character. Until quite recently, too, there has even been a disposi- tion among the Socialists to charge the banks with a large measure of responsibility for industrial depression, the assertion being that scarcity of credit facilities or dear money rates have had a cramping influence upon indus- trial enterprise. Now, however, that many months have elapsed with. money rates at abnormally low levels, with the banks finding' it-difficult to' obtain employment 'for their funds in industry even at low rates, the idea seems to be dawning that after all some other causes than lack of ability or willingness on the part of the banks to aid industry must be responsible for the prolonged depression.


Elsewhere we have the Protectionists asserting that the main cause of our troubles is to be found in the tariff-aided competition on the part of foreign nations, and that we can never hope to pull round without a measure of Protection. On the other hand, we have extreme Free Traders of the type of Mr. Snowden who maintain that while it is true that we may have suffered to some extent from tariffs of other countries, we have benefited, or shall benefit in the long run, by a strict adherence to Free Trade principles.


Another section of critics maintain that most of the present industrial depression—apart, of course, from the ill-effects originally produced by the prolonged Great War—can be traced to the enormous growth in the national expenditure. Speaking at the Mansion House a short time since the Chancellor of the Exchequer reminded his hearers that he was called upon to provide for an expenditure almost ten times as great as that which Chancellors but a few years ago had to meet, and unless it can be demonstrated that this enlarged expenditure has been of a character adding to the wealth of the country, it looks very much as though we were getting very near to one of the causes of prolonged industrial and financial depression.


Yet, again, there are those who would desire to esta- blish a close connexion between present depressed condi- tions and the growing power of labour, as expressed through Legislation and Trade Union regulations which have lessened the power of the employer to control the methods and details of the operations of his firm or the company with which he is connected. It is pointed out that uneconomic wages and conditions of labour in some Of the sheltered industries play a great-part-in. preventing the reduction in the costs of production which might otherwise take place, and in particular it is maintained that for the continued high cost of living, notwithstanding the great fall in wholesale prices of commodities, the demands of labour arc largely responsible.


Again, there is yet another group of critics who would urge that world-wide depression is closely connected with the scarcity of monetary gold—that is, gold employed as a base for credit, and that for stability in prices, for confidence in trade, and for an increase in buying power, economy in the use of gold is one of the urgent needs of the moment. Indeed, these financial and currency experts regard the situation in this respect as sufficiently serious to involve the necessity for international co- operation with regard to this economy in the use of gold.


Many other alleged causes of industrial and financial depression could be enumerated, but with regard to those which have been specified, I suggest that there is one point common to most, if not all of them, namely, that while we are supposed to be dealing all the time with financial and economic problems we find ourselves at every point up against Party politics.

I have emphasized this obtrusion of politics into financial and economic problems for the definite reason that I want to refer to the part which it is sometimes asserted that the joint stock banks should play under conditions such as those through which we are now passing. Surely, it is sometimes said, if the problems of to-day are financial and economic rather than political, the word both of protest and of guidance should come front our banking and financial experts.. Indeed, I am some- times 'asked why it is that, having regard to the views which it is known that bankers hold with regard to some of the causes -adversely affecting the country at the present time, such, for example, as high taxation, a much stronger line is not taken by them in public protest. Those, • however, who make these suggestions fail to recognise the extent to which the solution of our financial and economic problems are dominated by political expediency, thus making it inadvisable for bankers to pursue a course easily open to misconstruction.


Not only so, but while politics have always played some part in these matters it must be remembered that during the last twenty-five years two most important factors have been introduced ; one of them being the great enlargement of the franchise and the other the extent to which the basis of taxation has been narrowed. Twenty-five years ago the weight of voting power was fairly heavy on the side of those who were able more or less to follow with intelligence the general facts of the financial and economic situation. To-day, notwith- standing free education, voting is in the hands of many who not only have no understanding of, but who have no desire to have an understanding of, economic problems. Contemporaneously, moreover, _with this extension of the franchise has come not only the enormous expansion in national expenditure but ,the heaping of taxation upon the few. Thus, comparing the situation with twenty-five years ago we have two arresting facts, the one being the extension of the franchise and the growth in expenditure and the other being the declining power on the part of capital, heavily taxed, to express its criticism–in voting- strength. The old motto of " No

Taxation without Representation " has, in the true spirit of that motto, disappeared. The results are such 4, might have been expected.


That these two factors have had a great influence in everything pertaining to the control of the national finances and that they offer the chief explanation of the unchecked growth in the national expenditure there can be no question, but in addition the growth of democratic control has also exerted a great influence upon financial and business activities themselves. Sometimes the development has possibly made for improvement, while in other directions the reverse has been the case. How far the extent to which unwise industrial expansion in the years immediately following the War—when prices were at too high a level—was financed by the joint stock banks can be attributed to the strong spur given by the Government of the day to banks to embark on " adven- turous " banking, I should not like to say, but those who were present at the Mansion House at the recent dinner to the bankers and merchants of the City of London had no difficulty in comprehending the meaning and significance of the remarks of the Governor of the Bank of England when he recommended that bankers " should avoid adventurous banking and stick to the traditions of banking which we had carried on for one hundred or two hundred years."


Those, therefore, who would insist that it is the duty of the banks to bring forcibly before Governments their views concerning the economic problems of the day are, I suggest, unmindful of the extent to which those problems have become dominated by politics, and that is a realm which bankers, as bankers, have no right to invade, nor, indeed, have they any desire to do so. Nevertheless, I think . the desire on the part of many who are concerned with the growth in our national expenditure and the state of our great industries that banks and financial institutions should take some kind of action in itself reveals one of the great .short. comings in the situation, namely, the lack of a strong and effective Second Chamber. The extent to which we have suffered by the removal of this great element of stability making for the preservation of confidence, even in times of political crises, it would be difficult to measure, bUt I venture to think that in these days, when the swing of politics is mainly between a Conservative and a Socialist Government and when unusually grave issues are the subject of legislation, nothing would so greatly contribute to a feeling of confidence as the steadying influence of a strong Upper House, democratic in construction, but endowed by the nation with large pOwers.


I have emphasized in this article the extent to whic:i economic and financial problems to-day are entangled with Party Politics for two reasons only. The first is in order to make plain the powerlessness of the banks to take part in the controversies even though they may be concerned with matters on which they have expert knowledge. The moment has not yet arrived when the politicians of either party are prepared to sacrifice political expediency to the economic requirements of the situation. Therefore my second reason for emphasizing the extent to which the present depression may be connected with political policies is that a recognition of the fact should make quite plain the need for every public speaker and for every journal to firing home in simple fashion to the man in the street and to every worker that his or her welfare, even more than that of the capitalist, is concerned in securing instant economy in the National Expenditure and a form of government which shall ensure—so far as government can ensure—the maximum amount of effort and industry on the part of every member of the community—the maximum amount of reward for the willing and able worker and the maximum penalty for the slacker.