Finance
The Business Outlook
WAIL' it is fully recognised that economic rather than political factors may be said to exert an enduring influence. upon the course of financial and business activities, it is nevertheless true that at the moment the prime factors are political, both, the outcome of the Abyssiinaii crisis and • the impending General Election. Now there. is one point which is common to both of these political factors, namely, a tendency to distort facts according to the views of the individual upon the main point's at issue.; . In this article I am chiefly concerned with the extent to which the outcome of the forthcoming General Election must be regarded as a prime factor in determining the course of financial and business activities in the near future. And on this particular subject all kinds of wild statements will doubtless be made during the electoral campaign.' The "outgoing GOvernment will naturally emphasise. these directions in which there has been great improvement in conditions during the, past few years, including the partial revival of trade and • the decline the numbers of unemployed. Equally, the opposing parties will,- no doubt, stress the idea that much more might have been done. for the distressed areas and alSO the fact that even now the numbers of unemployed are very little short of two million. • • The great rise which has taken place over a period of 2 years in Government and other securities will probably. be claimed by the National Government as entirely owing to the revival in confidence since the National Govern- ment came into power and the situation will be,contrasted With the unsatisfactory conditions which prevailed in 1981. All of these statements will, of course, present a somewhat distorted view of the real facts and in this brief article I want to try, if I can, to present some of theM in a clear, impartial fashion.
• • • • ' THE RISE IN SECURITIES.
There is, of course, no question at all that the past four Years have seen a remarkable rise in Government securi- ties, and equally it is beyond question that this rise has been of benefit not merely to those who. happen to have held the securities but to the community as •a 'whole. The first statement is obviously 'capable of proof and the second, I think, is not difficult to demonstrate. With regard, then, to the first of these points I would refer those who may desire to obtain details of the rise in public securities to examine the monthly valuations made by the nankers' Magazine. That journal • values each month 804 representative securities and on this list alone the appreciation in market values between mid-September, 1981, and those of August of this year (just before the Market was acutely affected by the European crisis) was no less than £1,490,000,000, of which £987,000,000 was in British Funds and other fixed-interest stocks and £507,000,000 in variable-diVidend securities. So much for the fact of the appreciation, but what ab6Ut its effect upon the general community ? There Can I think, be no question that it has played an important Part in the increase both in purchasing power and , -a readiness to purchase, of which there has been ample evidence in the statistics of retail sales, the• 'expansion in some of our leading industries, the rise, in ',banking depOsits, and the great increase in the Active Note. Circulation of the Bank of England. Even in those castes where there has been no actual taking of profits, the knowledge that their wealth as expressed in securities WEI'S rising and becoming more . liquid—that is, securities. becoming more saleable—would give. to holders a sense of well-being and increased purchasing power calculated to 'stimulate buying' activities. Of this, I think,, there Van.' be no doubt, any more than, that a fall in Securities m woUld probably cause a great many of those pcissessing them to draw in their horns in the matter of spending.
CAUSES OF RECOVERY.
But HOW 'What about the cause of the advance itself? IS that to be attributed entirely to the substitution of a Nationalist for .a Socialist' Government ? I think not. In part, of course, it is, and especially as regards the recovery which took place between the closing months of 1981 and the period some months later when the conversion of the 5 per cent. War Loan was effected. There is no doubt at all that the lavish expenditure of the ,previous Socialist Government and some of its forms of legislation had, justifiably or not, weakened confidence not only at home but abroad, with the result that the crisis of 1931 was accentuated by heavy withdrawal's of gold for export, and the Report published in the snminer of that year by the May Committee constituted • in itself a sufficient indictment of the state of the National . finances without any further comment here. Therefore, wh4n it became kntimhi not merely that the SocialL'st Party had been rejected at the Election of 1981 but that the nation was united in appointing a Government pledged to economies, the effect was to occasion a revival in confidence.
EFFECT OF CHEAP MONEY, As regards, however, the further remarkable advance in 'securities which immediately. preceded and then followed upon • the conversion a the 5 per cent. War Loan, the , departure from the gold standard must be regarded as a prime factor. In spite of certain advan- tages which may have accrued from our departure from gold, I am among those who believe that it must still be regarded as a grave misfortune and, indeed, it 'has undoubtedly been largely responsible for intensi- fying the chaos in the exchanges and the consequent restriction of international trade. Nevertheless, the fact remains that ,but for this departure from gold it would have been quite impossible for the monetary authorities here to have proceeded on a deliberate policy of making. money extremely easy. And it was this ease of money, coupled with the fact that the authorities no longer had special need to protect gold reserves, that made the conversion of the 5 per cent: War Loan possible, and also made it possible to continue the policy of case in money, with the result on public securities that I have already 'described. Of course; it is only fair also to say that the upward movement in stocks has been assisted by balanced Budgets and general confidence in the conduct of the National Finances.
ESSENTIALS FOR RECOVERY. . Combined, however, with the influence of easy money hits been the feeling that with Mr. Neville Chamberlain as Chancellor of the Exchequer there was less fear of easy money being abused by anything in the nature of inflation or of unnecessary, public expenditure, and this feeling has, no doubt, helped the recovery in home industry, a recovery which has resulted in a substantial diminution in the numbers of the unemployed. There is no reason, of course, why this policy should, not be continued under a Government other than one character- ised by the term " National." Unfortunately, however, the Socialist Party, instead of recognising the actual facts of the situation ' and supporting the programme of , balanced Buidgets and economy in the National EXpenditure, usually seems constrained in making its appeal to the electorate to put forward a programnie which, justifiably or not, is calculated to alarm the minds of 'business men.
The Election campaign has not yet started, and it would be well if all the parties to the contest could realise that the nation as a whole is convinced that economy in the National Expenditure and legislation calculated to retain confidence in financial and business circles are, essential for sound, 'financial and economic recovery. , Therefore, I think the effect of the result a the Election Upon the future of business and finance must be determined, to sonic extent, by the character of the electoral campaign itself. If either parties make an appeal to the electorate which seems to involve a policy contrary to sound financial principles, there must in the opinion of the City necessarily be anxiety with regard to, the result ; it could not possibly be otherwise.
ARTHUR W. KIDDY,' (Financial Notes on Page 704.)
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