Finance—Public and Private
An Economic Banquet ONE could THE MIDLAND MEETING. It has become usual for Mr. McKenna to concentrate in his annual speeches upon one particular aspect of the situation, and he is usually happy in selecting one of the greatest importance and of practical moment. On this occasion his subject was the control of credit and price levels by monetary policy as distinct from a strict control by gold itself, and throughout his argu- ment the great illustration, of course, was the policy pursued in recent years by the Federal Reserve system in the United States. The Chairman of the Midland Bank examined closely the different stages of develop- ments in the United States monetary policy. He showed how during the War period gold flowed into the country and was at first allowed to fulfil its ordinary functions with inflation in credit prices as the result. After the conclusion of the War gold still flowed in and still was used as a basis of credit. Then for a short time there was a moderate outflow of gold, followed by the important period of about four years beginning with the middle of 1920, when although there was a tremendous inflow of gold, the Federal Reserve banks employed a method which might be described as that of temporarily sterilizing the gold. It was not allowed to perform its ordinary function of expanding credit, but was held back (the process, of course, involving pecuniary loss to the Federal Reserve banks) until such time as its effect could be allowed to be felt without causing great inflation. Or, to put the matter in another way, the Federal Reserve authorities commenced a policy of controlling prices by controlling credit. Finally, and by way of summary, Mr. McKenna showed that during the past seven years the United States gained 1,700 million dollars of gold net, of which about only one-third on balance has been allowed to function in the ordinary manner. And after commenting upon the extraordinary financial and commercial prosperity enjoyed by America during this period, the Chairman of the Midland Bank reached the conclusion that, partly by good fortune and partly by reason of the monetary policy pursued, America had reached the point when by monetary policy she is able to control the world price level. " Her gold stocks," he said, " are so great that she can afford to lose large quantities without running any risk of the gold reserve falling below the legal minimum ; in the second place, her central banking system is so constituted that, given her great wealth, she can absorb quantities of gold and at the same time deprive it of its credit-creating powers. In a word, America is rich enough either to lose gold or to gain it." With one important proviso, I consider that Mr. McKenna- does a great service by thus plainly stating the enormous advantage enjoyed at the moment by the United States and, in a sense, the corresponding disadvantage suffered by other countries. Not only is it all to the good that we should clearly comprehend what we are " up against " in this respect, but I believe with the Chairman of the Midland Bank that it is not a matter simply to be considered by a few banking and currency experts, but rather that it is a case where all intelligent business men should assist in discovering the policy which is best for this country. There is one point, however, which I would submit to the consideration of the Chairman of the Midland Bank, and it is this. Mr. McKenna maintains that prices are now adjusted to the level of the dollar rather than the gold standard, and he is probably right in the sense of the special advantages enjoyed by the United States at the moment, but his contention that gold is no longer the determinate factor is surely negatived to some extent by his frank admission that it is the enormous holdings of gold by the United States which give it the power to pursue the very policy which com- mands his admiration. MR. HOLLAND MARTIN. As might have been expected from the sphere of their operations, Mr.. Holland Martin and Mr. R. Hugh Tennant devoted much of their remarks to the general conditions of industry and to the cotton industry in particular. In an admirably clear and comprehensive speech, Mr. Holland Martin, after referring to the important developments in his own institution, which through the absorption of the Lancashire and Yorkshire Bank has led to the establishment of what is now the sixth largest bank in the country under the old familiar title of Martins Bank, Limited, dealt with each leading industry in the country in turn. He agreed with other speakers as to the turn in trade having probably been reached, but he also showed very clearly the varying manner in which different industries are affected. Ship- building and some of the newer industries of the country undoubtedly show satisfactory features, but the same cannot be said of agriculture, cotton or coal. Con- cerning agriculture, Mr. Holland Martin emphasized the fact that re-establishment of agriculture on a profitable basis must come largely from the farmers themselves, and he advocated better organization of the collection of produce, of its grading for market, and of the marketing itself. Similarly, with regard to cotton, Mr. Holland Martin pointed out the extent to which the situation had been complicated, not only by foreign competition, but by the short-lived and false trade boom of 1920, when many of the oldest established cotton mills sold themselves to groups of speculators which resold them to the public at a greatly inflated .price. He was entirely justified in saying that " nothing worse could have happened to the industry." At the same time, Mr. Holland Martin indicated that however depressed the industry, better things might be still secured under determined and skilled organization. THE INDUSTRIAL OUTLOOK. With regard to the industrial outlook generally it was clear that in common with some other speakers Mr. Holland Martin based hopes of the future mainly on the prospects of industrial peace. Undoubtedly one of the results of the rapid growth in the joint stock enterprises of the country has been that there has been a loss of the " human touch " in industry, and with it a loss of that unconscious co-operation which did so much to create the prosperity of the Victorian Era. Therefore, there is a sense in which we have to retrace our steps a little. Nor can we expect to reorganize without some loss. The City will, in fact, agree with Mr. Holland Martin when he says that the cost of pro- duction must be greatly reduced, and to that end there must be stern economies, national, provincial, and domestic. MR. TENNANT'S SPEECH. If the speech delivered at Thursday's meeting of the Westminster Bank -is any criterion, that institution has found in the present Chairman, Mr: R. Hugh Tennant, a worthy successor to the late Mr. Walter Leaf. It was,._ Iktr. Leaf's custom to make the annual. meetings of his- bank the occasion for a very broad survey of the industrial and financial situation, and probably no more exhaustive survey of the position has been attempted than that which was made in Mr. Tennant's speech this week: Concerning our return to the Gold Standard, Mr. Tennant's approval Was emphatic. He affirmed that events had shown that the psychological moment had been chosen two years ago for our return to gold. Concerning the measure Of the trade revival, Mr. Tennant also summed up the Matter very wisely and shrewdly. He did not overstress the extent of the revival, but, having emphasized the Magnitude of the General Strike and coal stoppage tragedy, he expressed the opinion that our recovery from • lhe set-back of 1926 had been sufficient to constitute "4t... a testimony to the economic stamina of the country." HOME INDUSTRIES. As regards affairs at home, every industrial department Of importance was carefully reviewed and I am glad to note that, when endorsing the observations of other bankers with regard to the depression in certain large sections of the cotton industry, Mr. Tennant also empha-. sized the fact that the depression by no means extends to all sections of the trade. Some of the problems, of course, are beyond the control Of industry itself, such, for example, as the political unsettlement in the East. What, however, as the Chairman of the Westminster Bank says, concerns ns more, is to find a solution to the problem of our inability to compete with other nations in markets which are open to trade, but only at a price which for the time being is uneconomic-to our producers in Lancashire. - Also- we are reminded by Mr. Tennant that in contrast to the depression in some of our key industries, newer industries in some of the luxury class have been enjoying great prosperity. And, quite apart from the standpoint of shareholders' profits, it must be remembered that-employ- ment is given by these industries to a vast number of workpeople. Nevertheless, it is common sense, whatever the ultra-optimists may allege, to insist on the fact that the country cannot as a. whole attain to its full prosperity. unless, as Mr. Tennant puts it, "the old trades of coal, iron and steel, -shipbuilding, cotton and wool are also enjoying full activity." Moreover, arising out of the prosperity in some of the luxury trades, there arises the further and somewhat subtle question touched on briefly by the Chairman of the Westminster Bank, namely, as to how far purely domeatic trade; anderilpeciallY the . Purchase of luxuries, can be regarded as really indicative of economic progress or prosperity. In this, as in some other directions, Mr. Tennant's speech is one which stimulates serious thought with regard to the general
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