BRITISH INDUSTRY.

Otago Daily Times, Issue 19505, 13 June 1925, Page 2

BRITISH INDUSTRY.

AND THE EMBARGO ON FOREIGN LOANS. Written for the Otago Daily Times. By Hartley Withers. That lending abroad tends to stimulate exports flora the lending country of goods and services is a commonplace that need not be argued. Apart irom shipments of the precious metals, there is no other way in which the borrower can take advantage of the credit so created except by buying something that is provided by tho industry —using the word in its widest sense—of the lending country. It need not do so directly. For example, if a South American State that is building a railway raises a loan m London, it may spend the proceeds on steel rails made in Belgium and on rolling stock manufactured in the United States; but the Belgian and American sellers of the goods in question will take payment in sterling drafts, because a sterling credit is all that the borrowing Government has got for making payment for them. Either they, or someone else to whom they may pass the credit on, must buy something in England, for England is the country, and the only country, where the particular kind of money that has been borrowed passes current in exchange for goods and services. If it is going to be spent at all—as it certainly is—it has to be spent in England finally, however often it may have in tho meantime changed hands abroad and been converted nto foreign currencies. “In actual practice,” says Mr Hobson, in his work on the “Export of Capital,” “all countries which export capital send abroad a more or less wide range of commodities,” and it is a fact that has often been demonstrated from trade statistics that the years in which our foreign investment has been on the greatest scale have been marked, or followed, by tho greatest activity in our exports of goods. On these grounds there seems to be no doubt that tho embargo on foreign lending, which has been part of the process of raising the value of sterling to something like its pre-wax value as measured by foreign rate of exchange, has had the effect of diminishing the demand for British goods abroad, and so has assisted the depression that has been prevalent in our great exporting industries. And at first sight, if the considerations put forward above are correct, there seems to have been little reason for it. If it be true that foreign lending necessarily means an export of British goods, then the export oi goods must cancel tho credit created by the loan, and there is no offer of sterling to turn the exchanges against London and endanger tho restoration of the gold standard. But, as was shown above, the purchase of British goods, which follows the foreign investment, need not bo direct or immediate; and until it takes place there is a sterling credit on offer. In the long run, foreign lending is implemented by exports. The lender creates a claim on England, and the English seller of the goods meets it with a claim on the foreign buyer of the commodities sold, but it may take many months before the operation is thus completed, and the protection of sterling, which the embargo was intended to effect, was presumably meant to steady ils value during the critical time through which it has lately passed. Those who imposed the embargo could not act on Ermciples based dn what is going to appen in the long run,, but on tho exigencies of the present moment. Nevertheless, one may bo permitted to doubt whether the object desired could not have been secured by some less drastic measure, and by on© which could not have had the effect of checking British exports and increasing her trade depression. If it had been decreed by tho authorities that all money lent to • foreigners, during the present critical period, must be spent on tho purchase of British goods, and must, be held by the issuing house responsible for tho loan until transferred to the sellers of the goods, then the exchanges would not have been affected, and the British exports would not have been checked. It is, indeed, often contended that some snch proviso should always bo made with regard to loans —or at least with regard to part of them—that are at any time raised in England, as ia done in other countries that lend abroad. It Seems to me that in ordinary times this restriction is unnecessary, and “bad business.” Mr Vickers lately put it forward at the annual meeting of Vickers, Ltd., as an assistance to British trade. But since, in the long run, foreign lending moans British exports, and since onr freedom from such restrictions hiis in the past secured us a pood deal of profitable lending business,, the balance of advantage, in times when we can afford to wait., seems to be strongly on the side of freedom, especially in the eyes of those who have a prejudice in favour of freedom for its own sake. But at the present moment, when every stone that can be turned to help the depressed export industries and to relieve the burden of our unemployment in England is well worth turning, there is much to be said for the encouragement of foreign lending, with the condition already suggested. By attaching this condition we should prevent any offers of sterling abroad in consequence of loan operations, and we should at the same time assure that potential foreign buyers of our goods, whose pockets were empty but whose credit was good, could bo supplied by our investors with means of payment. It may be objected that such a restriction would bo an interference with tho freedom of tho English money market. So it would, and therefore to be regretted as on unfortunate necessity only justified_ by the fact that the times are out of joint. But it is not nearly such a drastic interference with its freedom as the present embargo. And if the restoration of the gold standard necessitates protective measures for its maintenance, the milder restriction suggested is surely preferable to the indefinite continuance of the embargo.