Politics and Banking
A Study in Contrasts
WHETHER regarded from the standpoint of profit earning or of strain upon world credit the past year has probably been one of the most difficult which bankers of the• present generation have been called upon to face. And yet, as will be seen in a subsequent article, another year of ordeal has been triumphantly survived so far as British banks are concerned. Profit margins have been encroached upon, partly, however, because of the determination of banks to maintain and even increase . the liquidity of the balance-sheets. And because that fact has been recognized confidence not only on the part of depositors, but even of bank share- holders themselves has been well maintained. On another page I deal with the story of the banking year as told by the balance-sheets, but I suggest that there are a few main facts emerging from the past year's events which deserve emphasis, affecting, as they do, not -only the banking but the- general financial and industrial interests of the country.
If reasons had to be sought for the fact that in spite of the many vicissitudes of the year the banking position here remains unimpaired, I think it would be found that one explanation is to be found in political rather than in economic developments, and if I am right the point is of importance when comparing conditions here with those prevailing in the United States and also when considering what is to be the way out of the tangle of conditions- and circumstances responsible for the pro- longed world depression. It is not so very long since there was a lack of confidence in this country reaching even to the length of a small exodus of capital to other countries. The main cause was the gross extravagance of the Socialist Government, accompanied by alarming Budget deficits. Confidence in British finance was shaken both at home and abroad, and the disturbance was the greater because all political parties were disposed to ignore the stern facts of the situation.
. Then came the political crisis and the formation of a National Government pledged to economy, which, although it came too late to prevent our departure from gold, nevertheless steadied public confidence in domestic finance, and while in the background there has been a continuous rumble of the Socialist threats against the capitalist and banking system of the country the decisive opinion expressed by the electorate on these matters -eighteen months ago has exerted a steadying influence. Moreover, while the National Government may have committed errors in this or that direction, on funda- mental questions such as the striving for a Budget equilibrium and the maintenance of sound principles in banking and finance, the present National Cabinet is united. Another event of the past year which has tended to increase confidence has-been the successful conversion of the 5 per cent. War Debt.
CONDITIONS IN THE STATES.
In contrast to these conditions in Great Britain the 'past year has been one of financial disaster in the United States; and my purpose in pointing certain contrasts I between the two countries is certainly not by way of glorification of our own banking position or of con- ditions here generally, but simply that in this contrast certain important truths emerge. One of these is that however sound may be the basis of industrial, financial and banking enterprises they are more or less at the mercy of political influences. This has been proved again and again in this country and never more so than in 1981 when at one time it seemed almost as if the politicians would bring the country to bankruptcy. In the United States it is probable that the banking
system is not established on such sound lines as in this country, and it is probable, too, that if the Federal Reserve Board had acted more promptly in raising its Rate during the earlier stages of the activity in Wall Street the boom both in mass production and in securities might never have assumed such disastrous dimensions.
Even in that respect, however, there seems good reason to believe that whereas the Federal Reserve System, which was established just before the Great War, was intended to be free from political influences, those influences have nevertheless been increasingly exerted with the passing of years and, so it is believed, to the detriment of the sound working of the banking system.
SHORTSIGHTED POLITICAL POLICIES.
For what have been the main influences operating upon international conditions during the past decade ? For the chaotic conditions in Europe following upon the Great War, the gigantic reparations claims and possibly some of the political provisions of the Treaty of Versailles must be held responsible, but here again we come up against political rather than financial influences. At a later stage we know that the main influence throwing completely out of gear the working of the exchanges and also the free working of the inter- national credit system has been the political policy of the United States as expressed in high tariffs, subsidizing of shipping, and other methods designed to secure the maximum amount of prosperity to the States, no matter how serious the difficulty imposed upon its debtors in discharging their War Debt and other obliga- tions through an adequate export of goods and services.
REFUSAL TO FACE FACTS.
The advent of the Hoover administration coincided with the early stages of the collapse of the Wall Street boom, but the Republicans had prophesied still greater prosperity under the new regime and the collapse was treated as a mere temporary reaction. From that time down to the present, politicians in America have steadily refused to face the stern facts of the situation. Budget deficits have been allowed to accumulate, unsound inflationary methods have been applied, and as the time approached for another Presidential Election the political party in power seems to have redoubled its efforts to conceal the true state of things from the electorate. This, perhaps, has been all the easier to accomplish by reason of the ignorance prevailing in so many parts of America with regard to international conditions, and although many attempts have been made from this country to convince the authorities in America of the impossibility of expecting a revival in international trade until there was real international co-operation with regard to American debts and other problems affecting world conditions, such efforts have been made in vain.
It is probable enough that there are inherent defects in the banking-system in the United States needing to be rectified, but the trouble at the moment on the other side of the Atlantic is that' political influences have so dominated the situation that the American public has now lost confidence in its administrators, so that in spite of plentiful supplies of gold the American nation is faced with, perhaps, the worst financial crisis in its history and one which must leave its mark upon social and political as well as economic conditions for many 'years to come.
DEFYING ECONO3IIC LAWS.
Throughout these years of difficulty and of mistaken political policies in the United States leading bankers on both sides of the Atlantic have been more or less agreed with regard to the policies which should have been pursued, and it can only be hoped that both in the United States and here there will have been learned the important truth that while, of course, banking no more than political systems are perfect, there are two points in their favour which should be considered when great economic and financial issues are at stake. One of these is that political parties are consistently changing, while financial institutions have to hold the fort all the time, and upori them and upon the country must fall the brunt for good or for evil of the political policies pursued. The other point is that so long as bankers are concerned with maintaining sound financial and economic principles they are proclaiming truths which no political party can defy with impunity. Unhappily, however, those truths have been defied during recent years by many countries, including both Great Britain and the United States, and in the fact of defiance is to be found the explanation of most of the troubles from which the world has suffered, while, as I said at the beginning of this article, the greater measure of financial confidence in Great Britain during the last eighteen months is directly traceable to a belief, or at all events to a hope, that the present National party is pledged to uphold sound financial and economic
Previous page
