Financing a Trade Revival •

Are we Prepared ?

IT is indicative of the optimism which is inherent—or should, be—in the temperament of business men that even in the midst of industrial depression there is a ten- dency not merely to look for a " turn in the tide " but to anticipate that the " turn " may lead on to fortune ; in other words, that there may be a trade revival of so pro- nounced a character as to retrieve the years of depression. And for very many years of more normal character than those through which we have recently been passing such views and hopes' were supported by experience, and so- called " cycles of trade depression and trade " booms." had come to be recognized as almost a part of economic development and progress.

The working out of these laws—if so they can be described—of trade cycles has, so far at all events as this country is concerned, been rudely disturbed first by the Great War with its general upheaval of trade and credit, and second, by 'the 'particular nature of the after-effects of the War upon conditions in this country. Or, in the matter of this second influence, it might be more correct to say by the stimulus given by the War to certain political -forces which were already working for some years previOus to the 1914 conflagration.

THE COAL STOPPAGE.

In this short article kis my intention to deal with the question of financing increased activity of trade rather than with the impediments in the way of such a revival. If only in partial explanation, however, of the prolonged character :of the present depression and the freptency with which hopes have been damped, I would draw atten- tion to the valuable article from Mr. Frank Morris, which appears in the present issue of the Spectator, in which he deals with some of those hindrances to a revival arising out of what may be termed the political and social aspects of our industrial problems. At the beginning of the present year it was possible to discern some -signs of im- provement in trade as a whole, and certain opportunities were presented to us. All such possibilities were, how- ever, swept away by the Coal Dispute, and not only have :unemployment and - depression increased, but valuable :markets have been lost . Lonly. refer. to this in passing *or two reasons:, -The first- is that not the most perfect curreneraiidliaiilatiffreffiliahe World *can licipe to be effective if the full measure of human effort and efficiency is unobtainable. The other reason is that the point is of some moment, as we shall see later, in determining the power of the banks to finance any marked increase in commercial activity.

Let us now assume for the moment that the worst of 'the trade depression has passed, and that in the near -future there is to be a real improvement leading later to at least normal, and possibly to more than normal, com- mercial activity and prosperity. In such an event it is clear that demands both for currency and for credit -facilities may increase rapidly, and inasmuch as the pro- portion of bankers' loans to their resources is already about equal to that which usually characterizes periods of great trade activity, will it be possible to afford further facilities, should they be required, without undue strain ?

WHERE CO-OPERATION IS NEEDED.

If all is to go well in the matter of the smooth financing of active trade, co-operation is needed on the part of at !east four sections of the community, namely, the Govern- ment, the Banker, the Capitalist or Employer, and Labour. And as regards this last section, I suppose that as it is organized labour we have-to deal with nowadays it is the Trade Unions we really mean. If we are to have the ignaximum amount of industrial activtties with the mini- inum amount of financial strain" it is above all things necessary that there should be enlarged and cheapened production, and. that' There should be a 'check upon all Wasteful and unproductive expeliditure.. And for these conditions the co-operation .of all .the four sections Mentioned is essential.

GOVERNMENT EXPENDITURE.

{There must be a check to much of the present unprol- ductive and even wasteful expenditure of the State with a lowering of taxation, otherwise purchasing power on the part of the public .will be restricted,' savings required for the financing of industries will be discouraged, and, individual effort in private enterprise will continue to be checked by the weight of State expenditure and the consequent burden of taxation.

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Finance Public & Private

Financing a Trade Revival Are we Prepared ?

Two other sections of the community where co-operation is essential to the easy financing of -trade activity may perhaps be usefully considered together, namely, the capitalist or employer, and organized labour. It is this sedtionrwhich, unitedly, can largely determine whether there is to be Mass production with advantage to the consumer, increased employment for our population and increased power to compete with the foreigner, or whether there is to be restricted production and high prices, with a consequent limitation of -consumption, restricted employment and difficulty in financing ern this limited and circumscribed revival in trade because of high prices. To attain enlarged and cheapened production it is not, of course, sufficient that Labour should be willing to work longer hours or to increase output within the present prescribed hours, if there is deficient organization or inefficient plant or machinery, and these are matters where the responsibility of the capitalist and the employer come in and where co-operation between labour and capital are essential if the . desired results are to he obtained.

And finally, there is the responsibility which attaches to the banker in promoting, so far as may lie in his power, the conditions _calculated to bring; about a trade revival on sound lines, always, of course, remembering that above and beyond all other considerations the first duty of the banker is to the depositor in preserving a thoroughly sound and liquid position. Nor is there any likelihood of bankers failing to fulfil this particular responsibility, for the traditional soundness of our banking system in this respect has come to be almost an instinct with the banker of to-day, and even in the difficult years through which we have been passing the soundness of bankers' balance- sheets has been consistently remarkable. Indeed, a good deal of judgment and foresight has been displayed in recent years by the timely sales of long-dated invest- ment stocks and, as we have seen in a previous article, it is largely due to these sales that bankers have been able to aid the industrial situation during a particularly trying period. CONSERVING BANK RESOURCES.

Nevertheless, and while we fully recognize the skill with which bankers conduct their operations and also the services rendered by them to the trading community, it has always to be remembered that banking, like all other industries, has its competitive aspects, and while competition is in itself an excellent thing, tending to stimulate efficiency, it is not without its drawbacks and even its dangers. To create ideal conditions for a long spell of active trade with full employment it can readily be conceded that in addition to such influences as Govern" ment economy; efficient business organization and intense effort on the part of Labour, ample loan faciltities arc required, if possible on terms which will compare favourably with those obtaining in competing countries. To that end, however, it may frequently be necessary that there should be a- conservation of loanable resnaee,s, if trade activities are not to be hampered by tuiduly_big,' loan rates. If, for example, bankers are top-110'1'S committed in the matter of financing -activities- on the Stock--Exchange or the financial or commercial activities of foreign countries, it is clear that someone will have to go short or will have to pay a heavy price for accommoda- tion. Or, it may be, as was indeed the case in 1921-22, that although commercial interests are large-borrowers, it is with the object of carrying raw materials and-goods for higher prices rather than for immediate• production on a large scale. That is why it is useless to utter text-book platitudes about expansion in bankers' loina .necessarily bivolving no .inflation beeanie the supply of goods is so increased as to keep down prices,,when, under a system of short--iighted profiteering,. the increased, _production of goods bears no kind of fair proportion to the expansion which has taken place in loans.

To AVERT HIGH BANK RATES.= .

And yet in these matters it is only fair to recognize that the banker is in a difficult position. It may easily happen that, judged from the standpoint of security, a Stock 'EXcharge loan or a loan to hold up goods may be of a more desirable character than an advance to trade with the direct object of putting up new machinery and plant for increased production. And because bankers no more than any other individuals are in business for their health, and because, moreover, there is intense com- petition in the' matter, it is not always easy -or even possible for bankers. to divert their loan activities into the channels which they might themselves desire, or which might be most beneficial for the country as a whole. At the same time, and because what is ultimately best for the whole community is also in the long run best for the banking industry,,. it. could be wished that there were as much co-operation between the banks in matters of this sort as in, sair, for example,. their united action with regard to interest allowed to the small depositor. For such co-operation would undoubtedly act powerfully in the direction of conserving banking resources for com- mercial as distinct from speculative purposes, and would often be the means of averting the high Bank Rates which have to be imposed to safeguard the situation, even though the cause may be very far from over-production or any kind of excess of commercial activity.

- HOPEFUL OUTLOOK. • These, in my judgment, therefore, are the really prac- tical essentials for insuring that a commercial revival shall impose no early and undue strain upon our banking resources. Granted that they are fulfilled even in reason- able or moderate degree, there should be little cause for anxiety with regard to the financing of a trade revival. In its e:arlier stages it is ,quite conceivable that -bankers aught`have to extend the proportion of their lOana beyond the usUallimits, but they would know that'within a' feW months relief would. come automatically through' the re- payment of elxisting frozen_ credits, and the very fact of the industrial and economic position of the country being unproved would also Still lurther strengthen the banking W position.' We ShOuld, no doubt, hive to be prepared for increased deinands for "currency if there Were to be full employment of the pOPulation, and I believe that ,pdri iskystA with the amalgamation of the CUrrency and Bank of:England Notes it would be well that greater eIasticitY. 'Withregard to the currency shoidd be proVided-soinewhat on thelifies of the' Federal-Rerve system in America and the 'system WhiCh LAS been adopted under the Dawes. Sebeme in the case of the IleieliSbank. On the other hand; even increased currency and credit requirements in con- nexion with fuller employment need not be too strongly emphasized, for with a-return to such full-employment the many millions disbursed in the dole " would presumably no longer be required for that purpose; and- the State. would be repaid -the huge-loans-temporarily - borrowed --by- the Employment Insurance Fund.