Looking Backward.

Waikato Times, Volume 121, Issue 20183, 1 May 1937, Page 13 (Supplement)

Looking Backward.

TWO CORONATIONS :: 1911 AND 1937.

(A. W. Kiddy, in Spectator)

IT IS IMPOSSIBLE not to recall the great—indeed the unprecedented—changes which have taken place in the world’s history and in world conditions within the quarter of a century representing the period from 1911, the date of the last Coronation, and the coming ceremony. It is indeed the extent and the nature of these changes which makes it difficult to-day to take a clear view of future developments in the banking and business world, though I cannot help thinking that the occasion is one where a clear recognition of the nature of the changes which have taken place should be helpful to a consideration of the future of business and banking. Under normal happenings, the developments from one year to another make for a more or less uniform rate of progress, and where any unsound developments have taken place it is usually possible to apply corrective measures without any undue disturbance of either social or economic conditions. The chief developments of the past twenty-six years, however, have in the main been the outcome of a world-shaking event, in the shape of the Great War of 1914 to 1918, and in much that has happened since it may be said to have been a case of emergency measures to meet abnormal developments and conditions. Moreover, while the War itself produced catastrophic effects upon financial and economic conditions, it also stimulated domestic political forces in the direction of Socialism, and

Something Like a Social Revolution

may be said to have followed upon the Great War, with results which, however beneficial to a section of the community, have seriously affected the upper and middle classes, and have even increased the distress of a large section of the workers who, by reason of the dislocation of industry and the higher wages demanded by those actually employed, have been unable to obtain any work at all. More fully to appreciate the situation with which bankers are confronted to-day, as compared with those which confronted past leaders in the banking world who did so much to create our present banking system, it may be useful to take a bird’s-eye view of some of the chief changes which have taken place even within the comparatively brief space of time represented by the distance of the forthcoming Coronation of King George VI from "the date of the Coronation of the late King, George V. In the year (1911) of the Coronation of King George V the annual expenditure of the National Exchequer was about £179,000,000. For the current year it is estimated at over £800,000,000. The standard rate of income tax, which in 1911 was Is 2d in the £, has since risen to 6s. and now stands at 4s. 9d., with every prospect of a fresh advance in the near future. During the same period, the amount paid annually in local taxation has risen from about £66,000,000 to over £450,000,000. The National Debt, which in 1911 was well under £700,000,000 or about £ls per head of the population, is now over £8,000,000,000, or more than £l7O per head, while the present charge per head of the National Service of the Debt is about £5 as compared with about 10s. in 1911. Moreover, it must be remembered that in spite of the enormous increase in the size of the Debt, the present annual Service contains no provision for a fixed Sinking Fund, whereas there was a generous provision for that object in 1911. Yet in spite of the great expansion in our National income and expenditure and, as will be seen later, in our wealth resources as expressed in the total of banking deposits, the

Foreign Trade of the Country Has Contracted,

and whereas in 1911 the Visible Adverse Trade Balance, as expressed in the excess of imports over exports, was about £20,000,000, it was no less than £348,000,000 for the year 1936. In other words, whereas the real balance of trade, after allowing for Invisible Exports, was overwhelmingly in our favour in 1911, it is now against us Nevertheless, and coming more directly to , the changes in the banking situation, it may be noted that whereas in 1911 the banking deposits were estimated at a little over £1,000,000,000 the figure to-day is not very far short of £3,000,000,000.

And if the few statistics I have cited indicate great changes in the position during the last quarter of a century, what must be said of the changes which have taken place in the monetary system and general conditions under which bankers and business men are working today when compared with the year 1911? In the first place, it is doubtful whether we are any longer the chief creditor nation (even allowing for our Invisible Exports), or whether that position is held by the United States, which country, unfortunately for the smooth working of the international finance system, refuses to accept payment from her debtors in goods and services, thereby failing to fulfil her obligations as a creditor country. In the second place, and largely by. reason of the spirit of economic nationalism'which has increasingly pervaded many nations since the termination of the Great War, countries which used to be large purchasers of our manufactures are now manufacturing in their own countries, thus partly explaining the shrinkage which has taken place in our exports in spite of the expansion in imports. In the third place, we are no longer working under a gold standard, but are employing the system of what is usually described as a “managed” currency, and this in its turn has greatly ministered to what is undoubtedly the outstanding feature of the post-War period, namely the growing extension of State Control Over Industry, Finance and Banking. In 1914, the cause of the Great War was to be found in the quarrels of other nations outside Great Britain, just as to-day the main cause of the rearmament programme, with its prospect of a further increase in taxation, is the refusal of other countries to respond to our appeal, extending over many years, for a general reduction of armaments in the interests of international peace. How far the present situation may be connected with failure on the part of this country and our allies to promote conditions in the post-War years favourable to economic progress and the restoration of good relations between the countries concerned in the Great War is a large subject and beyond the scope of a financial article. But the point I am wanting to make is that, just through political happenings in 1914, the Governments of the belligerent countries had perforce to exercise control over financial, industrial and civilian life generally, so the four years of war were destined to give to these same Govern-

ments almost an automatic control when the War came to an end. , _ _ , , By that time Government debts and Government borrowing became the determining factor in the respective money markets, and that power has remained and has steadily increased in the intervening years, so thaV today we not only have credit conditions in the leading countries controlled and determined by Governments, but latterly, by the use of Exchange Equalisation accounts, the Foreign Exchanges also and the course of international money rates are dominated more by Government operations and controls than by the ordinary play of forces represented by individual commercial and financial operatlon And even apart from the outstanding feature of the post-War years in the shape of the extension of State control, there have been changes within the country itself which have a material effect upon banking conditions and the nature of banking operations in the future. _ it would perhaps be hard to say whether the amalgamation movement in the country began in banking or in industry, but the movements to a large extent were contemporaneous. Foreign competition, labour’s demands for higher wages and shorter hours and a host of other influences combined to reveal the need for the reorganisation of many of our industries, and this reorganisation included the combination of a number of private enterprises into huge industrial combines. These combines undoubtedly

Stimulated the Movement for Combinations

amongst the joint stock banking institutions, which during the early part of the post-War years were called upon to make advances to the larger industries of such amounts as to demand still larger banks with increased resources. Accordingly we find that even as compared with 1911 such important banking institutions as the Capital and Counties the London and Provincial, the London and South Western the Lancashire and Yorkshire Bank, Beckett s Bank, the London Joint Stock, and Parr’s Bank, have all become absorbed in one or other of the great banking institutions of to-day. ... Nor, of course, have the changes in banking been confined merely to the absorption of a host of banking institutions by the Big Five, but as compared even with twenty-five years ago the nature of banking business has changed in many respects. Banking has become more centralised, while as far as mere routine work is concerned, it may be said to have been very largely mechanised. Moreover, one has only to glance at the balance-sheets of to-day and note the high proportion of investments to deposits and the low proportion of loans and advances to deposits as compared with twentyfive years ago to appreciate the change which has taken place, especially during the last few years, in the character of banking operations. The decline in the proportion of loans and advances is, of course, largely associated with the falling off in trade itself, though it is undoubtedly also connected with the formation of big industrial combines, which by reason of their large resources are no longer dependent to the extent they were dependent some twenty-five years ago upon the banks for loan facilities. . In the matter of the high proportion of investments to deposits, we have, however, a reflection of Government policy in the matter of cheap money, a circumstance which, although contributing to a rise in the market value of Government securities, has also been a force Driving the Banks Into Investments through inability to obtain profitable employment for their short-term money in the usual channels, and credit expansion on the part of the authorities has, in its turn, been responsible for the great rise in deposits which the banks, in their turn, have found the utmost difficulty in using to the best advantage consistent with a liquid bal-ance-sheet. In fact, when considering the developments of the past quarter of a century from the standpoint of the banking outlook to-day, undoubtedly the outstanding feature is the ever-increasing control of finance and industry by the State, and we now have the official programme of the Labour Party promising its supporters, in the event of the establishment of a Labour Government, public ownership of the Bank of England, control of monetary policy “to give prosperity and full employment, public control of transport, including the railways, public ownership of the coal industry and gas and electricity services, “a good wage for miners to be the first charge on the mining industry,” a shorter working week, etc. Now in all these post-War developments and in those which might be visualised in the years to come, it would seem as though bankers may find it difficult to shape a definite policy either in their own interests as profitearning institutions or in the interests of their depositors, for as regards the latter point it is simple justice to the bankers to say that they have always set in the forefront of their policy the security of the depositor and the maintenance of a thoroughly liquid position, and the result has been the unshaken confidence of the public in our banking system. It is, however, already becoming a nice question how far the maintenance of these principles is being Endangered by Government Control of credit and monetary policy. We know, for instance, that the cheap money policy of recent years has enabled the Government to borrow at low money rates, but we have also seen that it has led to a somwhat unwieldy holding of long-dated Government stocks by the joint stock banks, while we have yet to discover what will be its effects upon prices of commodities and the general cost of living. . . We have occasional declarations on the subject ut monetary policy by the Chancellor of the Exchequer and other politicians and we have our economists constantly uttering views—usually of a most divergent character—upon the problems of the day, but on many of the economic problems of the day our barikers are, for the most part, silent. To a certain extent, no doubt, the silence is—wisely or not —dictated by motives of discretion, but I believe that one of the many dangers of State control of everything pertaining to monetary policy, finance, banking and industry is to lessen the sense of individual responsibility, and to restrain energy and enterprise. If, on the other hand, neither enterprise nor industry is lacking, there is too often a feeling that Government and bureaucratic control constitute a force against which opposition is vain, or, perchance, imprudent.