FINANCE AND TRADE.

New Zealand Mail, Issue 1717, 25 January 1905, Page 74 (Supplement)

FINANCE AND TRADE.

In a letter to the “Spectator” Mr Austin Taylor, M.P., shows how a shipping trade can be killed by tariffs. Notwithstanding he points out that shipbuilders have received more protection than any other industry in America, it is a vanishing industry. One witness before the commission testified: “The limit has been reached. Every shipyard in the country has a similar tale to tell. Some ruined and in receivers’ hands, others closed and the remainder running at a loss.” Instead of American vessels carrying 92.5 per cent, of tlie American trade, as in 1826, they now carry no more than 9 per cent. The case is thus summarised by the Maritime Association of New York: “The most of the higher expenses in the course of construction are the outcome of conditions resulting from the policy of high protection that has obtained in the United States practically during the same period that American shipping engaged in the foreign trade has been declining.” Another advocate for protection explains: “The American citizen must be made to understand that the American tariff which protects American labour and

American products within the boundaries of American territory cannot protect the American-built ship when she passes out into the blue water beyond the confines of the tariff barrier.”

Over the signatures of A. H. Gibson and N. E). Willis a letter appears in the “Elconomist” setting forth various considerations for the belief that there is to 'be a serious diminution in the deposits of the banks of the United Kingdom, that money will become scarce, and that in consequence foreign capital will be imported into the provinces. The significance to us (“Sydney Morning Herald”) of their letter, to which some importance is apparently attached, from its insertion in such a quarter, lies in the fact that we are indebted to the United Kingdom, and if its predictions be verified we shall be prejudiced, unless, like the provinces, wo too shall have to look to other countries for financial assistance. However, the letter may be given to speak for itself:—

The two most serious questions of to-day which confront bankers are undoubtedly, first, their decreasing deposits ; second, the cash reserve. It is quite conceivable that the present total of 830 millions of bankers’ deposits may decrease to 700 millions within the next 10 years. Any drain of investment capital naturally first affects the lowest interest-yielding securities, i.e., commercial banks. This is the keynote of the situation in which the large provincial banks find themselves at the present moment. The drain has been due to many causes, paramount among which stands out the competition of corporations, and the temptation to invest in securities at their present low prices. Owing to the ever-increasing responsibilities of corporations, their outstanding debt must ever grow larger. They will require at least 20 millions per year for the next ten years. To deny them access to tlio open market is directly to materially affect the health of future generations, which is the main fahrio of any nation’s prosperity, as its effect is cumulative. The high prices of 1896-7 were artificial and unhealthy, and we cannot hope, or even wish, for a similar return of the market. The decreasing deposits of the banks will have the following results: —

1. Decreased dividends to the shareholders.

2. Deci’ensed percentage of liquid assets. 3. Increased advance rates. 4. Curtailment of holdings in the Short Loan Fund.

5. Flow of foreign money into the Short Loan Fund.

6. Eventually foreign money wilJ reach the provinces. How long it will be before foreign banks open provincial branches extensively in this country will depend on future events. At the present time their agencies here are chiefly engaged in international banking. The possibility, however, may become an accomplished fact in tho near future. It is a national danger, to stem which the shareholders’ dividends of English banks must first suffer. It seems to us that bedrock is not struck by these critics in their diagnosis of the situation. Though the corporations have been eager borrowers, they do not represent tho paramount cause of the drain of money within the last few years. The Boer war stands out conspicuously in this connection, having absorbed over £100,000,000 of loanable capital, and increased the annual taxation of the United Kingdom by £30,000,000 to £40,000,000. Beside the £20,000,000 a year talked of as re-quii-ed by the corporations, the addition to the public requirements is a large sum. And as to the future of the money market, much will depend on tho continuance of the demands of the British Government for naval construction or military exnenditure. Russian, Japanese, and other national loans to meet the demands of war, and expanded ideas of empire that have come into vogue as a consequence of the political conditions of the past few years, have also contributed to this paramount cause of drain. And but for the possible developments along this line, we do not. see any likelihood of the realisation of the views of tile correspondents. No doubt the production of wealth has been restricted to some extent by the diversion of a considerable number of the world’s industrial population into the work of preparation for war or into the actual conflict. Still there is an immense annual production of wealth, especially in the United States, where, despite European demands, money has become very cheap. While the gold mines of the world are yielding so heavily their is a force in operation neutralising the tendency to an advance in money market rates from the causes assigned. Nevertheless, until the war is over and the ends of its exhausting demands are clearly .seen, our legislators will do well, to recognise all the caution that the considerations making for clear money fully warrant. If Australasia keeps off the London market for fresh loans it will greatly lelievo the situation, and permit of the renewal of old loans on more satisfactory terms than will otherwise be possible.