FINANCIAL INVESTMENT.

Northern Advocate, 22 August 1924, Page 2

FINANCIAL INVESTMENT.

HOME VERSUS FOREIGN,

One of the factors of financial prosperity in the Old Country's relations to the Dominions, the exact reactions of which it is difficult to analyse, naturally comes up for review with the issue of the new figures relating to them. — foreign and colonial loans. Would some definite policy by Great Britain in respect of stimulation of loans to the Dominions be useful in development of Home trade?

On this point the "Tiwies" speaks quite flatly and precisely. Its financial editor affirms "there ift really no difference between foreign and Colonial borrowing, so far as the effects upon our internal economy are concerned. The Colonies are separate political units, with their own individual credit and fiscal systems, the control of which is exclusively theirs. Therefore, if we lent more to the Colonies than we saved, the effect upon prices and exchange would be the same as if we lent too much to foreign countries." The redoubtable Mr Keynes, however, regards it as bad policy not to invest more money in England itself and it is suggested that the comparatively low level of the Xew York exchange rnav mean that we have lent more abroad than avc have actually saved. This consideration does seem to indicate that we are lending too much to foreign countries, for of millions issued this vear the bulk went abroad.

The "Times' " criticism, of the Keynes' proposal to borrow for public works and development in Groat Britain, is that while the Old Country might, gain, "if the opportunities of capital at homo wore considered to bo greater than abroad." Past experience however, it asys, strongly suggests that any extraordinary investment in constructional enterprises, .such as road building, would bring about inflation in prices, a depreciation of the external value of the currency, and. might lead to a financial crisis. During the period of active railway development in this country in the forties there was a very heavy investment of capital at home, j followed by a considerable rise in prices and a depreciation in the ox- - change. This at first mystified the bankers of the day; but inquiry showed j that whereas fifty millions disbursed j in wages by Lancashire manufacturers produced an export to pay for the foodstuffs and raw materials which the wage-earners purchase from abroad, fifty millions paid in wages on the rail--1 ways produced no corresponding export, though the same portion of thoir wages /was spent on imported commodities. ! The historian explains that the exceptional expenditure on railway development had the effect of increasing very much the consumption of all commodities, both of foreign imports and home products, and raised prices. The higher prices of foreign commodities induced a largei , importation and the " active demand at high prices for domestic produce led to a decrease in exports. In this way the exchanges were turned against us. The phenomena continued to manifest themselves for many years. The historian holds that the heavy railway investment in the 'forties, together with a large harvest which brought about a heavy fall in the price of corn, was responsible for the credit crisis of 1847.

The point raised is worth study, tor the issues at stake are so largo that any reorganisation of financial policy must needs be studied carefully before taking risks Involved in change.