PRINCIPLES INVOLVED—AN INSTRUCTIVE ANALOGY —SOME PRACTICAL LESSONS—THE CHANCELLOR AND THE
OUTLOOK—STRENGTH OF INVESTMENT STOCKS—BANK RATE PROSPECTS.
[TO THE EDITOR OF THE " SPECTATOR."] SIR,—There is one aspect of the City's view of the Irish crisis which I think has a practical bearing upon many other problems with which the country is confronted. Setting aside the respective merits of the " Diehards " attitude and the attempts of the Government to secure at all costs (it might be added at all risks) a peaceful settle- ment of the Irish crisis, the City's disapproval of the Government is mainly based upon the policy, extending over a series of years, which has led to the present impasse. I know that at a moment when issues of peace and war are at stake it may seem unpractical and unlike the City to use the occasion for indulging in useless regrets over past errors, but the point with which the City is concerned is really a very practical one, because it affects not only the Irish crisis, but many other problems.
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Neither the Irish crisis nor the present economic depression has sprung up in a night. Both were foreseen by many critics, and on both matters the Government had abundant warnings that their policy, if pursued, must ultimately produce certain results. Concerning Ireland, the Government were told that unless true liberty, and not the abuse of liberty, were adequately defended and safe- guarded the result must be civil war. Concerning financial and economic conditions the Government were also told, shortly after the Armistice, and repeatedly thereafter, that if the policy o wasteful national expenditure and pandering to the demands of the Labour agitator were pursued much further, disaster must overtake the national finances and the commerce and industry of the country. I will revert to the national finances. in a moment, but as regards Ireland the point of the City's criticism is this :—By the disregard of honest and patriotic criticism and counsel i situation has been produced in which the Government finally secure a kind of unity in the Commons and consent by the country to certain measures, not because the measures in themselves are approved, but because the Government have raanceuvred themselves into a position giving to the avowed enemies of England certain strategical advantages impossible to ignore. Therefore, while the CityLs– ready now, as always, to support the Government in the hour of crisis, business men refuse to forget the forces which have produced that crisis.
This would be the general attitude of the City even if the Irish crisis were the only outstanding example of the terrible results following a prolonged period of " expediency " government. It is felt, however, that just as the Irish problem has been allowed to drift to a point where the integrity of the Empire itself is threatened, so the extravagant and socialistic financial policy of the Government has been pursued to a point where Ministers are almost within sight of national insolvency. From the moment of the Armistice down to tho present time the Spectator, in common with most of the responsible organs of the Press, pleaded for a strong Government lead in economy in national and individual expenditure, and for greater strenuousness in everything pertaining to our industrial and productive activities. Not only did the Government not give this lead but, as a matter of fact, their " lead " was in the opposite direction, both as regards their own expenditure and as regards the encourage- ment given to demands of Labour which the Government must have known to be wholly inconsistent with the requirements of the situation.
Not only so, but whenever critics endeavoured to rouse the nation to a sense of the seriousness of the position they were—until quite recently—treated with scorn and contumely by the Government on every occasion when the subject was discussed in the House of Commons. The Government paid lip service to the cause of economy, but the critics who may occasionally have had to use forceful language to bring home the facts to the community were invariably held up as mere opponents of the Government and unpatriotic defamers of the national credit. Successive Chancellors of the Exchequer dwelt complacently upon the great financial tasks we had accomplished, and so long as enough money poured into the Exchequer the Government cared not whether the excessive taxation-- as a result of the expenditure—was strangling the industries of the country or whether? through the upholding of uneconomic conditions as regards the scale of wages, hours of working, and incessant strikes, we were paving the way to a great industrial collapse.
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Then, when the inevitable trade slump and declining revenues, with their accompaniment of unemployment on an unexampled scale, have become self-evident, we find the counterpart in finance of the tactics governing the handling of the Irish problem. The community is invited as practical folk not to discuss the courses which have produced the crisis, but to deal simply with the hard facts— a decline in revenue, two millions of unemployed. And the cry is, How shall the situation be met ? With scant regard as to how the situation has arisen, the Prime Minister, who in previous financial debates had held up to scorn the warnings of the critics, comes forward and, by way of prelude to his demands for authority for un- employment relief schemes, announces that the country is faced with the worst economic crisis in its history for a century, and, of course, immediately attributes everything to the war. And whereas less than a year ago the Chancellor of the Exchequer produced a Budget anticipating a huge surplus, he had to refer in the House of Commons during the past week to the " appalling prospect when we have to consider the Budget of next year." As with the Irish crisis, so with finance ; the City is prepared to join with the nation in aiding relief measures without undue recriminations, but nevertheless the City believes that there are two great lessons to be drawn from these two crises. Cone is that, unless the Government of the day is to be the defender of true liberty and equity and not of the abuse of liberty, we shall soon reach conditions of anarchy. The other lesson is that defiance of economic laws, if continued, will lead to anarchy in finance and industry--in other words, to general insolvency.
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I should not like, however, to leave this question of public finance without acknowledging that the present Chancellor of the Exchequer, Sir Robert Home, is showing some sense of the seriousness of the position? and evidence of that fact was afforded by his courageous resistance to pressure in the House of Commons in the matter of enlarging the grants to dependents of the unemployed. He recalled Bagehot's remark that " if one wanted to gain the cheers of the House of Commons, all that one need do was to make a general speech in favour of economy ; and if one wanted to make himself hopelessly unpopular, one should propose a practical measure which would place a restriction upon expenditure." Sir Robert Horne, in justification of his resistance to the further demands on the national purse, then emphasized, as I have already stated, the great problem presented by the forthcoming Budget and the fact that the nation has still a Floating Debt of something like £1,400,000,000.
The influences operating on the Stock Exchange during the week have been conflicting in character. The Irish crisis and the uncertainties of the political outlook generally have restricted business and occasioned dullness in some directions. On the other hand, these very uncertainties have again driven investment resources into Government and other gilt-edged securities, and evidence of the volume of these resources is afforded by the remarkable success which attended the issue of local loans stock for £20,000,000, the lists being only open for a day and a half. A further favourable development of the week to be noted is the fact that the weekly revenue statement showed that the Government had succeeded in repaying the Bank of England about £22,000,000 of advances.
* Arising to some extent out of these same developments, the Stock Markets, moreover, have begun to talk again about the possibility of a reduction in the Bank Rate. As you know, for some weeks past I have had to describe these expectations as premature. To-day, I am less inclined to take that view. In the first place, the easier tendency in money rates in America, apparent some weeks ago, has become still more pronounced, and it would not be surprising if very shortly (perhaps before my letter appears in print) there were to be some further decline in the rediscount rate of the Federal Reserve Board in that country. If that were to happen our rate here would, of course, be quite appreciably higher than on the other side of the Atlantic—a circumstance in itself tending to justify a lower Bank Rate here.
* * * A further point, however, to which I attach importance is the greater tendency on the part of the investor to acquire the Government's Treasury Bonds. For the week ending October 22nd the sales of those Bonds amounted to £2,500,000. For last week the total was about £11,000,000, and the total next week will probably be much greater. This means that, while we may regret the magnitude of the Government outlays, it is good that the funds should be provided by the investor rather than by sheer creation of credit through borrowing at the Bank. If, therefore, the Federal Reserve Board in the States should further reduce its re-discount rate, it is felt that the way will have been paved* for an immediate reduction in our own Bank Rate to 5 per cent.—I am, Sir, yours
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