NOW MAKING GOOD

Te Awamutu Courier, Volume 72, Issue 6240, 10 June 1946, Page 5

NOW MAKING GOOD

BRITAIN AND HER WAR LOSSES MEETING DEMANDS OF WAR. Official calculations of Britain’s national income for 1945 and the preceding years shows that the net national output of goods and services, after deducting the work done for the maintenance, repaid and replacement of machinery in current use, was 4610 million pounds in 1945. Subsidiary calculations show that, taking the 1938 price level of consumer goods at 100, by 1944 it had risen to 143 and by 1945 to 147. If it is fair to apply these price indices to money values of the national output as given above, it emerges that at the 1938 prices the 1938 output was 4610 millions, that for 1944 was 5880 millions, and that for 1945 was 5730 millions. Express these past three figures in current form, we get output, volume and indices of 100 for 1938; 128 for 1944; and 124 for 1945. That in rough measure shows the extent to which Britain increased her output in response to demands of the most intensive war which she has ever waged. An increase of 28 per cent, may not sound very much, but what it actually meant in hours and conditions of labour and living for everyone in the country and those who experienced it can know. Nor was there much falling off in 1945, although the war had completely ended by August of that year. Nineteen forty-six may be expected to show a further decline. Measured in terms of money, the total national output for the seven years 1939 to 1945 inclusive was 50,400 million pounds. Of this the vast sum of 24,300 millions, or 48 per cent., went to meet the needs of war. The current consumption by the British nation during those years required 28,400 million pounds, or 56 per cent, of the total, and even so in 1944 the volume of personal consumption, after allowing for the war increases in prices, was only 83 per cent, of the 1938 volume. Even in, 1945 this figure had only risen to 86 per cent. War cost and personal consumption totals add up to 52,700 millions, or rather more than the national output figures. There are many items both positive and negative accounting for this discrepancy, but two of them merit special emphasis. First there is “home dis-investment,” namely, the nation’s deliberate decision not to make good its wastage of capital assets apart from necessary repair or replacement of machinery in active use. Next, there is “overseas disinvestment,” incluing the sale of overseas investments and borrowing from overseas countries.

Broadly speaking, and again omitting certain undefined items, the Government, during these years, raised 15,900 milions in taxation and other revenue and borrowed 10,000 million pounds of home private savings. This last figure arose mainly from the nation’s abstention from consumption —from spending all that it earned. In addition, “home disinvestment” provided it with at least 1800 millions. This took the form of further subscriptions to war loans, for people invested money which they would otherwise have spent on making good their capital assets and wastage. “Overseas disinvestment” provided the Government with 4700 millions.

This is a very rough picture of how Britain paid for the war. The bill is far from complete. “Home disinvestment” has still to be made good and I am convinced that the published estimate of its total is a serious understatement. My reason is that it takes no account of the depletion of household stocks, of consumer goods, notably of clothing and house linen. Again “overseas disinvestment,” which includes loans from the sterling area, must be dealt with. Here there may be less difficulty than some people imagine. Creditor countries in the sterling area regard these sterling assets as part of their monetary reserves, namely, as backing to their note issues and reserve which supports their bank deposits. There is no desire to have these reserves liquidated for the result could only be deflationary. Therefore, there is no call for repayment of the loans. Convertibility, of course, is another question. It would be convenient to the sterling area countries if they could at will draw on these sterling reserves whenever they required foreign exchange. But it is generally realised that complete convertibility is not yet practicable. Finally, the cost of the war remains to be met in a more purely financial sense. Britain has come out of the war with a national debt of over 23,000 millions, and the interest on this has to be met. Cheap money has kept this interest cost down and actually it is estimated at 490 millions, equal to an average rate of only 2.13 per cent, on the whole debt.

This is a substantial sum. It represents a redistribution of income, for the bondholder gains at the taxpayer’s expense. However, many people are both bondholders and taxpayers. So here is Britain’s war picture. The task is now to make good the war losses on both the capital goods and consumer goods sides. These figures give some idea of what has been accomplished and lost and what remains to be done.