MICAWBER AND FINANCE

Evening Post, Volume CXVI, Issue 31, 5 August 1933, Page 10

MICAWBER AND FINANCE

Not the least important part of the Chamber of Commerce report on unemployment was the reference to principles of public expenditure. The report noted an apparent tendency on the.-part of some people "to regard public expenditure from a different angle to personal expenditure.", • .- ~ In our private capacity we do not first ,decide to spend a certain sum' of money and then look "around for something to spend it on. .■. . After we have had impressed upon us the fact that we really need aicortnin article, we consider ways and means of financing the purchase. Unfortunately, we have not only spent freely but in the provision of payment we have followed closely the example of Mr. Micawber, who was ever ready to enter the Money Market taking his friends with him as securities. I propose, said Mr. Micawber, when settling his affairs, bills—a eo7ivenience to the mercantile world, for which, I believe, we are originally indebted to the Jews, who appeal- to me to have had a devilish deal too much to do with them ever since—because they are negotiable. But if, a bond, or any.description of. security, would be preferred, I should be happy to execute any such instrument. '.-„'• We too, in financing our public expenditure,, have been happy to execute a bond or any such instfu-' ment. Nor have we displayed greater generosity of mind than Mr. Micawber in our attitude towards those who lent to us, rather less in fact, for Mr. Micawber. was grateful to those who backed his bills. We b^ave adopted an injured tone to-, wards our bondholders,' where we have not actually departed from our contract with them—which proves the truth of Polonius's assertion that "loan oft loses both itself; and friend." ; The error of borrowing was perceived by Mr. Micawber, and most borrowers similarly acknowledge the fault—after they have spent the loans. But will the • borrowers reform without help from the lenders? It .is doubtful, especially when widespread writing- down of * debts has appeared to give an easy -way of escape. There are not wanting signs, however, that the creditors may lake, a hand in the process of reform. Writing last year in "The Times Trade Supplement" on "The Curse of Debt," Sir Arthur Michael Samuel stated:. The fatal ease with which nations, municipalities, industries, commercial concerns have been able to obtain capital and credit is an outstanding cause of the defaults and bankruptcies which have thrown the trade, of the world out of gear. ISTo nation, no commercial undertaking, no man was ever**uined by keeping out of debt. Many nations,

many firms, ninny men have brought ruin upon themselves, and upon those around them, by getting into debt. Sir Arthur held that the blame for the universal collapse of trade ought not to be fixed solely upon the fall in price levels. Part should rest upon the light-heartedness with which, before and after the Wai",! everyone used "credit" and borrowed. All, weak or strong, competent or incompetent, were invited to | follow the fashionable craze to "use their credit." When prices fell, the shock could not be resisted by structures enfeebled by debt. National budgets or commercial organisations built on the quicksands of debt cannot face even tho first puffs of an economic blizzard. - The post-war orgy of borrowing and lending in Latin America furnished Sir Arthur with an illustration of the evils he condemned; but not the only illustration. Australia's difficulties were also quoted. The ease with which she had been enabled to get her borrowings underwritten had tempted her to abuse her credit, and after the price-fall she was embarrassed by the necessity of meeting the obligations on the debt. As a remedy Sir Arthur advised that the banks should remind would-be borrowers that the prosperity of Britain was financed on the principle of the avoidance of debt up till about 35 years ago. He- proposed closer control of lending. The Bank of England should satisfy itself as to the justification, use, and destination of loans, and, at its discretion, arrange with the joint slock banks and financial houses that the securities of those issues which failed to conform to standards should not be accepted as cover for loans and advances. It is significant that a hint of a similar idea was given by the Governor of the Bank of England in an address to bankers when he Counselled that there should not be competition in lending as there had been in the past, but joint examination of the merits of borrowing proposals. Those borrowers who consider that the "overseas bondholder. has done them great harm by lending may yet find that a different policy for the future is proposed. They will then be compelled to observe Mr. Micawber's excellent precepts. Hitherto they have preferred to follow his practice.