2 MARCH 1929, Page 23

The Banking Outlook Its International Aspects Is a subsequent article

in the present Supplement to the Spectator recent developments in the banking position are fully dealt with and figures are given from the most recent reports showing a general growth in banking and financial activities during the past year. Interesting and instructive as these statistics may be, however, I fancy there was never a time when, to appreciate the true position not only of banking but of the general economic condition of the country, it was more necessary to " think internationally." FOr our greatest problems of the past decade have grown out of, and the problems of the future promise to be concerned with, the relative position of our financial and economic strength to that of other• countries.


Bankers themselves would be the first to admit that the public interest in banking as an asset to the country goes a good deal further than the matter of bank shareholders' profits or even the growth in the size and deposits of the banks, important_as these may be as indicating local prosperity and an expansion in liquid resources and purchasing power. Briefly stated we know that during the Victorian era of prosperity in this country bankers and traders ministered together in producing general conditions of exceptional prosperity and. even after all admissions base- been made as to inadequate pay to workeis in many- industries during the last century, the fact remains that the expansion in industiy enormously enlarged the number of workers, ministered to a growth in the population and on the whole raised the general standard of living throughout the country and produced a position of great financial strength. Such strength, in fact, that by reason of our great export trade plus our invisible exports in the shape of our investments overseas, our shipping and our financial activities, we were able to control the foreign exchanges to an extent which made London the undisputed financial centre of the world, the United States itself being one of the most frequent and extensive borrowers here so far as short dated credits were concerned.

For some few years before the outbreak of the Great War the growth in the prosperity of other nations and especially the growth in the shipping and manufacturing activities of countries such as Germany had begun to make their influence felt in the sense of this country having as it were less of a monopoly as supplier of goods to the world. Our preponderance in all commercial and financial activities was such, however, that if the control of the exchanges was a less easy task and one sometimes requiring higher money rates than in previous years, it was one easily within our compass. For although some trades long before the War were undoubtedly hampered by trade union restrictions, it might be said that they were more or less pulling their share in the National Boat.


Then came the four years of the Great War, and while our public newspapers and journals may be guilty Of many shortcomings, they cannot—with few exceptions— be charged with not having placed before all sections of the community_ the great economic changes caused by the War, the enormous losses inflicted on this country and the need for every individual working more strenuously and living more simply for many years if we were to retain our premier pre-War position. The warnings were unheeded by almost every section of the community with the exception perhaps ,of those directly connected with banking and finance. And in making that statement it should be, needless to say I am not suggesting that this particular section was naturally more virtuous or more patriotic than the rest of the community. There were two very simple reasons why they were not affected in the same manner as many of the great industries which are now experiencing de- pression. 'One-was' that by the Very nature of their calling and training they were better able to discover the full inwardness and significance of the situation. The other reason was that, unlike most of the great industries, they were not handicapped by a host of trade union restrictions and trade union political influences involving for years a policy making for restricted production and high prices when the . v.ery .opposite conditions were urgently required. Nor, it is fair to add, were banking and finance afflicted like many industries by War legacies in the shape of profiteering prices, and a general dis- organization resulting from having at short notice to convert their machinery and general activities from the production of war- materials to :manufactured goods. All that, together with the loss of markets suffered by industry either through the impoverishment of their European customers or through the capturing of markets by the United StateS and other countries who were neutral during the greater part of the War, can be admitted. The London money market itself, however, suffered through America obtaining such a control over the world's gold supplies and over the exchanges as to make the task of London recovering its pre-War strength as the great financial centre a supremely difficult one.

A GREAT Nevertheless, it is a task. in Which the banking and financial community have .achieved an enormous measure of success, of which success our return to the gold standard in 1925, following upon a recovery in the sterling exchange, was one of the outward and visible signs. Time and again—such, for example, as during the great coal stoppage in 1926—the sound financial policy pursued kept the credit of the country unimpaired, and protected the foreign exchanges even when by reason of our industrial disputes and frictions our imports were rising and our exports falling. Even just recently we have seen in the figures and estimates published by the Board of Trade how great a part has been played by our financial activities and other invisible exports in con- verting a huge visible trade adverse balance into a credit balance.

It is quite time however that we recognized that if this-country is to regain prosperity industry must pull its full weight in the boat, and instead of prating about the purchasing power of those within the country being increased by some process of inflation, it should be recognized that it is not internal consumption which needs to be stimulated but an economy on imported goods and the production of goods for exports on lines enabling us to compete with other nations. To go fully into this great subject within the compass of a brief article is impossible, but let me apply the truth I am trying to demonstrate to the latest development in the financial situation.

Our Bank. Rate was raised recently to five and a-half per cent. because we were losing gold heavily.. Why, were we losing gold ? Because the Exchanges were moving adversely to us. Why were they moving adversely ? The immediate cause was that by reason of the prolonged boom in Wall Street money rates in New York had risen to - a high level attracting money from many centres. " Ah,' says the critic of the higher Bank rate. And so " we have our Bank rate swayed at the will of New York speculators, have we ? " Not necessarily. The Wall Street speculation with its accompaniment of high money rates simply revealed certain fundamental con- ditions which had been temporarily obscured. Long before the boom of Wall Street had commenced, the United States by reason of its great prosperity had attained to such a position of economic strength, backed by phenomenally large gold accumulations, as to ensure a large measure of control over the Exchanges. For some few years, however, that fact had been obscured to those who do not follow these matters closely by the huge loans made to foreign countries by investors in the United States. During the two years which preceded the Wall Street boom, America lent money abroad at the rate of sonic £200 or £800 millions a year, and the result was to offset the effect which would otherwise have been produced upon the Sterling Exchange.

Nor is that the only development of recent years which has tended to obscure the precise economic position of this country as measured by its trade balance. Owing to the tactics employed by the Bank of France in its effort towards stabilization—at a devalued level—of the franc, huge credit balances in Sterling owned by the Bank -of France have accumulated here. Consequently at the present time bankers have to face the fact of this reserve power on the part of the Bank of France to withdraw balances and also the fact that so long as high money rates in New York continue we are confronted with conditions calculated to -move the American Exchange against us to the point of withdrawing gold.


These are conditions which are probably realized pretty clearly by the banking commodity, and, guided by the Bank of England, our .policy will doubtless be shaped to meet the-position. Nevertheless, I hold very strongly the view, as I did at the tine of our return to the GOld Standard, that, great as may be the power of the banks and the financial community, the task of maintaining control over the E.xchangeS is an impossible one unless the entire nation, and industry in particular, plays its part. If we realized the task we were up against, we should perceive that the situation called for effort at aH points—economy in the national expenditure, eennorny in individual consumption (when such consumptiOn stimulates our imports), and increased co-operative effort and efficiency in industry with a View to increasing our exports. - If to the activities of finance and banking we added these essentials, there would be no need to fear for the future, for it would then be well within our power to recover the years which the locusts of war nrid war's aftermath have devoured. - BANEFUL POLITICAL INFLUENCES.

It is, however, impossible when viewing the outlook to. forget that we are approaching a General -Election, when, unfortunately, there is a disposition on the part of politicians of all parties to evade the true facts,-, and, in their anxiety- to obtain power, to pledge the country to policies wholly inconsistent with the requirements of the situation. We have only to recall the famous post- War Election at the end of 1918 to remember that at the moment when the nation. needed to be reminded of the true economic position and the need for effort, politicians under the lead of Mr. Lloyd George prophesied a kind of industrial -millennium of prosperity with the cost of the War to be paid by Germany ! It was in vain for the economists and-the bankers to proclaim that the thing was impossible. The voice of the politician triumphed, and more or less it has triumphed ever since.

- A.• W. -KIDDY: