EMPIRE’S FINANCIAL POLICY

Dominion, Volume 25, Issue 272, 12 August 1932, Page 11

EMPIRE’S FINANCIAL POLICY

Pronouncement from Ottawa to the World REPORT WITH TREMENDOUS IMPORT Immediate Effect on Market Prices Expected DRASTIC MEASURES TO DEFEAT THE DEPRESSION By Telegraph—Press Assn. —Copyright. (Rec. August 11, 7.45 p.m.) • Ottawa, August 10. What is described as the Empire’s financial pronouncement to the world is embodied in a report submitted by a sub-comm’«ee of t Imperial Conference’s Committee on Monetary Policy and adopted ly the main committee this afternoon. . This report may at first reading be regarded as innocuous, nevertheless it has tremendous import. English and Dominion bankers and economists have drawn up the report after most mature consideratio - Mr. Neville Chamberlain, British Chancellor of the Exchequer Mr. H H. Stevens, Canadian Minister of Trade and Commerce, Mr. S. M. Bruce (Australia) and Mr. J. G. Coates (New Zealand) were among the members of the committee which to-day agreed upon a policy. This represents the utmost that Britain can say or do. ine Dominions, particularly India, take the view that the Ottawa Confe - ence should have gone slightly further, indicating a fixed policy, for at least a year and so giving a sense of stability.

The committee’s report is as follows :— (1) It is desirable to raise the general level of wholesale prices. (2) The best plan would be byraising gold prices. This- can be done only by international action. (3) The monetary factor was not alone responsible for the fall in prices. Other factors, including political, had their effect, notably reparations, which Is being dealt with elsewhere, but which Is beyond the scope of Ottawa. (4) The British Commonwealth’s monetary policy should be on sound lines toward raising price levels by low interest rates and a plentiful supply of short-term money. This should not take the form of financing public expenditure, but should be directed towards stimulating industry and reviving confidence in business. (5) Efforts should be made to stabilise exchange between the various countries. (6) The committee refrains from proposing any machinery for this purpose and merely suggests that there should be co-operation between the countries. (7) The committee also advocates International co-operation to this end. (8) The stability of International exchanges can best be obtained by' a metallic base to the currency? While some experts on the subcommittee have expressed definite views on gold as the only sound base, the report refrains from expressing any opinion on this subject In' view of the world conference which is to be held shortly. .... Britain’s Attitude. The British representatives are convinced that the present agreed statement will have an immense psychological effect There is no mention of an Empire bank, no mention of a London clearing house for Dominion trade balances, and no specific steps for the stabilisation of exchange. Britain as the leader of the world’s finance now says: “Our financial position is steadily improving. Money is cheap and therefore there is no need for radical action." Publication of the report is expected immediately to improve prices all round. It is anticipated that the stock markets will instantly respond, reflecting a new wave of confidence and resulting in higher commodity prices. immediate Effect on Prices. According to information from a source of the highest authority, the decision will probably have an immediate effect on the world’s markets, although Dominion delegates consider that Britain might have agreed to a firmer declaration that her policy of the past few months would be a stable policy, say, for the next twelve months. It is considered in Dominion circles that the mere statement backed by the British Government that prices should rise is in itself sufficient to make prices rise. The report means that Britain says:—“We will do everything possible to foster and stimulate better prices. We are determined that prices shall rise, and we shall take drastic measures to defeat the depression." The bare official announcement from Ottawa that the Empire is determined on higher prices will have a stimulating effect. Mr. Bruce and Mr. Coates spent the greater part of the day on the Currency Committee, and therefore had no contact with the British delegates, but the negotiations are being resumed tomorrow with the prospect of an early agreement ... ' . Mr. Bruce substantially approves of the cutrency declaration in the compilation of which Mr. Frederick Phillips, Deputy-Controller of the British Treasury, Sir Henry Strakosch, Sir George Schuster, and Mr. Melville played a prominent part It is unlikely that the Introductory speeches of the Dominion’s leaders at the first currency session will be published simultaneously with the report, because they might divert attention from the importance of the actual findings, which represent the. Empire’s financial policy formulated at Ottawa. ■ “REFLATION” What the Policy Implies A CONCERTED EFFORT Credit and Confidence Can we raise prices by monetary action enough to restart economic activities and without destructive reactions? This question is raised in a special article in “The Times” by Sir Arthur Salter, formerly director of the Economic and Finance Section of the League of .Nations. I believe, he says, that we can do so by a “concerted policy of controlled reflation”; and that is is one of the most urgent and vital tasks to which we should devote our energies. By this policy I mean, of course, the raising of the general level of wholesale prices, by concerted monetarv action, to u selected level »ot higher than that of the beginning ul the world depression in 1929, and its maintenance at that level thereafter. Separate national action is not impoe-

sible, and should perhaps in any rase be pursued to a certain extent. But the limits of such action are narrower, and the dangers and difficulties greater than if a number of countries simultaneously aim at the .same objective. A world policy would be desirable and may ultimately be secured. But time is short; and a specific policy initiated and formulated by this country and concerted with America (which is already working in this direction but without a clearly defined objective) with the Dominions, and with sterling area countries” would be effective. That such an Increase in prices would bring great advantages needs no argument. It would make profitable enterprises to which present prices mean a loss; it would revive purchasing by those who, while prices fall, hold back in expectation of a further fall, and so restart the whole machine; it would reduce without injustice the real burden of all fixed obligations (public debts, mortgages, etc.),wmcn has become Intolerable. Credit and Confidence. To increase prices requires two things—an Increase of the available sources of money and credit, and a responsive demand for it. The measures to secure the first of these are simple, but they depend largely upon confidence and in particular upon a belief that they will be carried through with determination. _ After dealing briefly with the reflation policy of the United States, Sir Arthur Salter says the following monetary measures could be taken In Britain to Increase the supply of The Bank of England could continue to press further the present cheap moneys policy based on a rate. It could next proceed much farther in purchasing securities, and so throwing additional Hfluld resources on the market These two measures, apart from their effect creating extra money, would have the further advantage of raising the pri*» of Government securities and taring conversion. Next, it is extremely desirable that the joint stock bankj now that they are paying only I per cent .on deposits, should charge less than the present 5 per cent, for their accommodation to industry. Slmul taneously, the building societies might by agreement reduce the rates they “(e’gbU to Mr depoltor. (« gr cent.,H per cent, and even 5 per cent., free of Income tax, with the right of almost Immediate withdrawal), and at the same time give some encouragement to building by reducing the chlrges to their clients who want houses. The building trade is always“ key point in the economic structure, and any Improvement there would quickly radiate. Resume Useful Expenditure. The next need is to stimulate demand and maka monetary through to the prices of Co ““ <>dxt A?J and increases the volume of t™ l ®- Arthur supports a bold reversal of th present policy of discouraging the moat useful forms of public < ? xpenxiit ? r ?r_ fi _s* e “Then let u# hava dear and definite advice from the Government to the priva™ citizen as to the resumption of normal, useful expenditure within the limits of What he can afford. Cessation of buying necessarily means reduction of selling and earning. This does not meaAeither that we. should encourage wasteful or luxurious «P«“ding, which is always to be de P re ? a ‘ ed '. let the patriotic citizen realise that he s doing more of a public service in resuming normal and reasonable personal expenditure and maintaining or increasing his subscriptions to chanties and institutions than in increasing his depjsits at the bank. . . . The _ for public economy are to avoid unmanageable deficits (and their conseouenras) and increased taxation (which reduces, the taxpayers purchasing nower). The reasons for private economy are to avoid bankruptcy and destitution. Where and so far as these reasons do not exist, spending on reasonable purposes (directly or throagh . port of charities, etc.) is now better th Sk*A!thir Baiter believe, that the process of reflation can be held within safe limits and stopped at will— if th® objective is concerted, is ed, clearly conceived, exactly defined, and consistently pursued, and if the Budget position is firmly held. Ottawa, he holds, affords a goodl opportunity for at once making a definite step forward. Impressive Support. On the day following publication of the article the following letter, signed by sixteen well-known .public men, appeared in “The Times”“Sensible of ?he immense gravity of the present economic and financial situation of the world, we. the undersigned, sinking minor differences of opinion on points of detail, wish to express our wholehearted support for the P° llc J cated by Sir Arthur Walter in his admirable article in your issue of yesterday’s date. We urge the Gov«rnment to take steps to put this policy into operation at the earliest possible moment.” The signatories were Lord D’Abernon. Cyril ■ Asquith, Abe Bailey. Maurice Bonham-Carter, O. R. V. Contis.; .Tames. Currie. William Cecil Dampier, Oswald T. Falk. Edward Grigg, J. A- Hobson. K. S. Horne. Oliver Lytteltijn. Eric Macfadyen. Geoffrey Marks, W. S. RobinsoUt and Hartley Withers. _____

The Monterey will sail from Suva to-d.'vy for Sydney, taking t-wo blocks weighing 143 ounces of fine gold of a value of £BOO in Fiji currency, the product of the Mount Kasl Mine at Savii Snvu, in the west of the Island of Vunua Levu. This is the first gold exported from Fiji., The . company is optimistic, but is still In a developmental stage. Fiji is no. place for the small prospector.