BANK OF ENGLAND.

New Zealand Herald, Volume LXVIII, Issue 20903, 19 June 1931, Page 11

BANK OF ENGLAND.

TRADE POLICY CONDEMNED.

REPORT TO GOVERNMENT.

CONCLUSIONS OF EXPERTS.

By Telegraph—Press Association—Copyright, (Received Juuo IS, 9.45 p.m.)

IvONDOX, June 18,

Ih° Parliamentary correspondent of the Daily Herald says the report'of Lord MaeMillan s Committoe on Financo and Commerce, which was appointed in November, 1929, will be presented to the Government this week.

Tho writer forecasts that there will bo a majority report severely criticising tho Bank of Engk.nd's policy during tho trade depression, and suggesting that tho bank at present could materially improve trado by making credit more easily availablo and by increasing tho amount of money circulating. 1 his policy should bo carried out in cooperation with tho Central Reserve Bank of America, :;ho Bank of France and the other great central banks.

The report, says the correspondent, docs not advocate a reduction in wages and salaries as ;i practical remedy for the trade crisis, which is diametrically opposed to the view expressed by Dr. Sprague in an address to the Statistical Society, in which ho said the central bankers are of tho opinion that they can do nothing for trado until drastic cuts in wages and salaries are effected.

Tho report is likely to create a sensation, as the Bank of England's policy will be openly condemned by the committee, which includes some of the greatest financial -experts in Britain.

There wilii also be minority reports, one of which wi.ll propose protection and tho establishment of a National Investment Board to issue both short and long-term loans to industry.

The terms of reference of the Committee of Inquiry into Finance and Industry were stated in the Houso of Commons on No\smber 4, 1929, by the Chancellor of the Exchequer, Mr. P. Sijowden. They were " to inquire into banking, finance and credit, paying regard to the factors both internal and international which govern their operation, and to make recommendations calculated to enablo these agencies to promote the development of trade and commerce and the employment of labour."

The members were Mr. 11. P. (now Lord) MacMillan (chairman), Sir Thomas Allen, Mr. Ernest Bevin, Lord Bradbury, Mr. R. 11. Brand, Professor T. E. Gregory, Mr. J. M. Keynes, Mr. Lennox Lee, Mr. Cecil Lub'jock, Mr. Reginald McKenna, Mr. J. T. Walton Now bold, Sir Walter Raine, Mr. J. Frater Taylor gnd Mr. A. A. G. Tulloch.

CENTRAL BANKS' VIEWS.

CREDIT INJECTION THEORY.

FALLING PRICES A SYMPTOM,

An important statement of the views held by oentral banking authorities was made last month, in an address in London to the English-speaking Union, by Professor O. M. W. Sprague, economic adviser to the Bank of England, and formerly professor of banking and finance at the University of Harvard. Ho said I there was, no agreement about the causes of the depression and certainly no ngree--1 ment upen the remedy. There was one , school of thinkers, who exhibited a great | variety among themselves, that might be i styled the monetary school. Tho rest i might bo grouped under tho heading of j industrial, or economic, equilibrium school. The prescription of the monetary doctors was very satisfactory from the point of view of I he patient, inasmuch as the remedies suggested were painless. The monetary doctors prescribed that tho cenJral banks, such as the Bank of England, tho Reserve Bank of New York and tho Bank of France, should get together and agree to flood the market with a great amount of additional credit and currency. They held that in that event prices would ceaso to fall and a large amount of additional investment would take pi ice and people would be set to work. The central banks could do that if they were convinced that it was advisable. 'L'hero was no obstacle in the way on the' grounds of an insufficiency of gold. Unhappily, however, those who were in charge of those three institutions were not convinced that that policy would serve arid meet the exigencies of tho present situation. Ii was not because of any difficulty of securing agreement among tho three banks, but because none of them harboured the belief that it was the appropriate remedy. Curiously enough, all the responsible people connected with tlio great central banks of the world held the industrial equilibrium theory as tho true explanation of tlio present difficulty. It was observed, for example, that although prices had fallen—and falling pricos induced some peculiar and specific consequences—those connected with the central banks were disposed to think that the fall in prices was a symptom in the main and not a thing that they could attack directly. It. was, of course, true that if and when prices did advance, more credit and currency would be employed, but tlicy did not believe that simply by injecting more currency and credit into tho situation they could certainly bring about that desirable riso in prices and activity of business. Tho bankers observed that, although prices had tended downward, there had been a very uneven movement of prices. Somo prices had fallen very sharply indeed, particularly in tho basic industries and agriculture, whero thero was evidenco of a decided over-production on a considerable range of products. Another group of commodities was observed whero prices had not fallen so much and these were characterised by a contraction of prod action. The great tiling was how to get an equilibrium, becauso if they could get that there was no difficulty about an upward movement of prices. In the judgment of the bankers, they would not get satisfactory borrowers in large and increasing numbers for increasing amounts unt I they could, somehow or another, get a better equilibrium of prices and a boll 3r distribution of labour and capital than we now had. Their view was that manufactured costs and prices should come down to an equilibrium level with agricultural prices, rather than that we should try to get agricultural prices up to an equilibrium level with tho higher priiies of manufactured goods. ,