Finance—Public and Private

Socialists and the Banks—II

THE Report of the Committee appointed by the Labour Party to inquire into banking and currency r policy is an interesting document. It makes, in . my judgment at all events, some unsound recornmendationS, but at least it gives evidence that those-who have prepared it have made a study . of the financial and ..currency developments of the past decade and moreover have not confined their investigations to thiS country, but have duly. noted the - international aspects of the post war problems in so far as they are concerned with cur- rency. So far so good. Unfortunately, however, the committee was so desirous of getting on to its proposals for " controlling " the banks, that the observations upon the ten years developments are crude and one-sided, no recognition being made of the good results of the deflationary period (such for example as the steadier foreign exchanges) or the mischief :,wrought, by the previous years of inflation and for. which neither„ the'' flank of England nor the, other banks-were responsible. •

UNBALANCED REASONING.

It is true, as the Report says, that between 1915 and 1920 there was gross- inflation and a rise in prices and that from 1920 (or thereabouts) onwards the period was more or less a deflationary 'one when prices fell, though not be it noted to the,pre-war level. Why, however, the committee should wax indignant with regard to the deflationary period and assert that " there are grounds for profound disquiet in the fact that during the years 1920-25 the financial interests were able,- almost without challenge, to force- the nation, up the long uphill road -of deflation," and yet at the same time should ignore the fact that for the previous five years, including two of the years following the War, the nation was "forced " down the long descent of inflation, with all the concealed taxation that was involved, is difficult to understand.

The inflation which was primarily the result of State Policy—to some extent obligatory during the War period, but less so from 1918 to 1920—escapes censure from Labour, presumably because it is the State and partly, perhaps, because there real. inability tp pereeive the harm which was wrought by the period of inflation. It would seem that there is either incapacity or unwilling- less to recognize the fictitious and inevitably temporary character of the War prosperity and of the prosperity of the two years following, largely as result Of Govern-• ihent disbursements in one form or another. These dis- bursements could not poisibly continue, though inani,, festly it is the idea of Labour that prosperity is yet to be wooed by a reversion to huge national outlayi. for " social "Imposes ". or at least by some great expansion of credit 41 which the State is to play the leading part.

TRUE WISDOM4 Those who hold-these views might well be referred to no less a source than the Referee of last Sunday (the journal *hick is apparently the mouthpiece of those who would have a still:greater expansion in State Credit), or rather to the admirable article by CalVin CoOlidge, the President ' of the United States, that country so often held up by the Socialists as a model of prosperity. Here are two ektracts from what is described as the " Philosophy of ii,Pesident " _ concerning the wit-triples which should govern the conduct of the national finances. President Coolidge says : • "I am for economy, not. because it saves money, but because it saves people." " The worst enemy of the wage-earner is Covernm'nt ex- travagance."

These are truths which might be commended to our own Government of to-day quite as much as to t4 Socialist Party. • A. DANCER, - For the moment, however, I am only concerned with the fact that this readiness to ignore on the one hand the harm wrought through inflation, where the State through the Government completely controlled the credit policies', and on the other hand the endeavour to attribute all ills in the subsequent period to the policy of the banks, or in other words., of individual enterprise, seriously detracts from the value of he Report of the- LabOur. Committee as ,anything approaching to a_ really impartial investi- gation of the situation with impartial recommendations.' In short we are in danger of one of the greatest of our national assets, and one which has supremely ministered, to our, progress during the past century, being made the' sport of party politics, and the thought is a disturbing one., SUGGESTED CONTROL.

- One- Of the suggestions in the Labour Committee's. Report is that the Bank of England should be controlled " by a public corporation containing representatives of such essential factors in the community as the Treasurys. Board of .Trade, Industry, ,Labour and the Co-operative Movement,' While another - -recommends that there should be " such. changes in the banking and financial system as will secure that the available supply of credit and of savings shall be used for enterprises to national advantage as distinct from those that are useless or socially injurious, and that there shall be an inquiry; into the best Methods of achieving this purpose."

POLITICS A MENACE.

I confess. that I fail to see what possible advantage, would be secured by -Labenr or the Co-operative Movement being concerned with the control of the Bank of England. or,. for that matter, of any other financial institution; Even in this self-aSsertive age 'it is rather extraordinary_: to note how the Labour Party is constantly issuing its challenge to dominate every section. Of the community,: for labour, working, as it does. through its Trade Unions, has become inextricably mixed with Labour in its political sense, and while it would never do, of course, for' Labour propaganda to set out baldly that the Labour' Party must be represented on the Bank of England or: on this or that financial institution, that is what would seem to be involved in the proposals, for already trade: and industry are well represented in the Bank Directorate, UNEMPLOYMENT.

It is clear, however, that the Labour Party which soT far has failed to secure: the nationalizing of certain indus-, tries by 'the State is now desirioui of achieving its ends' by securing control for the State of banking and finance„; knowing that in so doing it would hold a key to the position which might secure the -nationalization ofi industry at a later period, and„because there is at the: present time-a serious condition as regards unemployment, the attempt is made to prove that this unemployment is directly traceable -to banking aril .monetary' policy. The audacious effrontery of the tactics almost, but not quite, compels admiration.

TRADE Nov WHOLLY DEPRESSED.

To what is the unusually large volume of unemployment at the present time due, and, is there general industrial depression ? Replying to the questions in their reverse order it will be found that trade as a whole is not abnor- mally depressed and that,. in the main, the depression is connected with certain heavy industries such as coal, iron and steel, and rail and shipping transport as distinct .from motor. Further, it will be found that while the unemployment figures arc much above the pre-war level, so also are the figures of employment. That is to say, including women and girls, the numbers at work to-day and receiving wages are much oreater than in 1914, while, owing to that fact and that the scale of wage is so much higher, increased purchasing power has greatly stimulated many trades in the country. Presumably there would be no desire on the part of the Socialists to attribute these increased figures of employ- ment or the increased purchasing power either to banks or to monetary policy, and 1.am not constrained to make any claim on their behalf. When, however, trade depression in certain industries with consequent Unemployment is laid at the doors of the banks it becomes necessary to protest, not so much on the grounds of justice, but on those of truth, because not only do such suggestions divert attention from the real causes of the trouble, but they suggest a preparation for worse things to come.

ACTUAL FACTS.

The causes of trade depression in certain of the heavy industries are many, and I am not in the least concerned to disprove that difficulties in some industries may have been temporarily slightly increased by the return to gold before the exchanges had completely reached parity, any more than I will stop to demonstrate that any ill effects produced in particular industries by the movement and the methods of our return to gold were fully offset by gains in other directions: • What, however, is fundamental to the issue is that certaikfacts, mainly responsible for the present situation, have characterized the decade examined by the committee appointed by the Labour Party and that net one 'of them is referred to. Here are a fewto enumerate them all is impossible=- (1) As a direct consequence, of the War our industrial activities for four years were so rudely disturbed that even when the War was over some of the heavy industries; and notably armament -companies and iron and steel works, found their business either gone . or radically Changed in kind and requiring in many instances a complete change in machinery and methods: - (2) - As a further direct consequence :of the War Many countries Were so impoverished as no longer to have their pre-war purchasing power, and in the; case of many countries; including Russia, that truth holds good to-day. (3) As a further direct cOnSeqUenc'e of the War certain of the neutral countries and our the . United States-. established a hold upon our markets very hard to shake., (4) As an indirect Consequence of the War andthe nature of the peace arrangements, . many foreign countries Changed their activities frO,na agriculture -to manufac-,. truing, and in particular, to the manufaeture of goods: previously supplied e These . were. developments- for which neither banking nor monetary' policy were responsible. - ' . . '

THE REAL TROi:BLE.

How were these developments met in this country ?

It might have- been supposed that :they: lave been met by- the Governinent effecting-such-rigid esoirOmy as to cause -a speedy and drastic reductionTin taxation. Was it so It might also have been Stipiwised that having regard to thiete _ same Td-eVelopnients the ,needs for cheap production rcndCred necessary -.bp fediroZd' purchasing power and foreign competition would -have been so keenly perceived as to cause the Labour Unions - for a - space of a few. YearS to agree that' there must be longer hours of labour, more intense efforts, and a relaxation of Union .restrictions whenever they were found to hinder the vital work of industrial and financial recuperation. Was it so ? Or; rather, was it not a case of determining that the fictitious prosperity of the inflation period should be maintained for as long as possible, and all costs, even if amidst such critical conditions there should be strike after strike culminating in the great effort of 1926 with its eight _months' coal stoppage, the effects of which are with us to-day. One is reluctant to recall these things at this moment, and it would not he necessary if the Official Labour Party were not endeavouring to place the blame for unemploy- ment on the wrong shoulders. That in the face of such facts there should now be an attempt to lay our industrial troubles at the doors of the monetary and banking system, which as a matter of fact has been the one factor saving us from the full consequences of our follies, may be a testimony to the audacity and the ingenuity of those responsible for the "Labour Report on Banking and Currency Policy, &c.," but it constitutes a poor estimate. both of the memory and the intelligence of the British people.

Next week, in my third. and. final -article on this subject of Socialists and the Banks; I shall hope to deal with the fallacy of State credit as applied to banking enterprise. - - - -

ARTHUR W. KIDDY.