A Priesthood Without A Revelation
BY J. L. BENVENISTI
THE speeches of the Bank Chairmen this year tended in the main to
sound a definite note of optimism. The growth of unemployment (by some 360.000 in four months) gave, they assured us, no ground for alarm, and the prospects for the future are distinctly rosy.
The speeches were not remarkable though Mr. Edwin Fisher's words, " If in the future we are to avoid deficits on our balance of international payments, it seenis that we must endeavour to narrow the gap between imports and exports of merchandise," should prove a mild addition to the gaiety of nations. Alone Lord Wardington said something that really badly needed saying about Municipal borrowing and the
huge growth of Municipal debt. Unfortunately his presuppositions were so faulty that some of the criticisms he has met with were not unjustified.
THE SUPREME QUESTION
There is however one question with which a thoughtful observer of current economic affairs in Great Britain must necessarily be concerned. It is the question whether Great Britain is eating into her capital. Is she or is she not, weakening her creditor position and offsetting it by a considerable degree both of short and long term indebtedness? On the answer to that question everything depends. If it is in the negative, then internal economic difficulties may still hope for successful resolution. If it is positive then all reflections on increasing internal prosperity and improved standards of living and all anticipations that are similarly coloured are not so much irrelevant, they are actual negations of the thesis they seek to support. In such circumstances the rate of domestic consumption is merely the measure of ultimate nemesis.
Surely then the answer to this question is of supreme importance, and it is an occasion for uneasiness that only three of the chairmen of the big five should have alluded to it in a manner which suggests that they realised its gravity.
FOREIGN LENDING VITAL
Let us get one fact quite clear. Foreign lending is vital to Great Britain. You may not like the foreign lending game -I myself have intermittently had something to say about the " something for nothing" principle in Capitalist Economics which is its essence. Bin you are on the back of that particular elephant and until you can get off with safety and decorum you had better concentrate your efforts on staying where you are. As the Economist phrases it, " not even the richest country can remain a Creditor Borrower for long, as the slow consumption of Capital will leave it without resources to which its economic structure has grown accustomed." i.e., a country which is organised to live by exporting capital cannot become for long a substantial importer of capital without disastrous results. It can no more do it than a man accustomed to a normal beef and beer diet can become a fruitarian overnight.
Moreover the need to maintain a strong creditor position will become even more pressing in the near future, when owing to the falling birthrate, the nation's age composition will be considerably altered and there will be a far greater proportion of old people for the community to support. It is imperative if this burden is to be borne that the present generation should not dissipate its revenue producing patrimony but should increase it.
Now there has been considerable evidence of late that the opposite is happen
ing. Foreign borrowers have been redeeming their indebtedness, and the Economist recently inclined to the view that the wastage of British Capital overseas is not being repaired. Further (and most important of all) the growing adverse balance of payments (to say nothing of huge gold imports on the top of it) has clearly been paid for by the inflow of foreign funds and by the consequent increase of short and long term obligations to foreign nationals.
WHEN THE INFLOW ENDS . . .
But if this is so, then a very considerable part of the recent business upswing is due to the temporary influx of foreign wealth. Rearmament is being indirectly financed out of it, and a shrinkage of business activity together with the imposition of a greatly lowered standard of life, is inevitable immediately this inflow comes to an end. This is not all. The fact that Britain needs a strong creditor position is fully realised by the authorities, and if British financial policy in the past is any guide a desperate effort will inevitably be made to create an export surplus for lending. Some productive power may be released when rearmament conies to an end, but if rearmament is being made possible only through foreign finance then it is obvious that this residue of productive power is not really there at all, or is at best only partly there.
WHAT McKENNA SAID
Now I have said that only three Bank Chairmen seemed alive to the gravity of this question, but even these three did not deal with it particularly well. This is partly due to the fact that annual meetings of the banks are held before the figure for the year's invisible expores has been assessed, so that the various Chairmen find themselves in the position of a priesthood without a revelation. Perhaps that is fortunate for them. For a revelation might at this moment be inopportune. Even so, however, the performance was unsatisfactory. Mr. Edwin Fisher's allusion to the whole matter, though clear, was brief. Lord Wardington was concerned with the problem largely as a banking technicality. Mr. McKenna spoke at somewhat greater length and I will quote his actual words.
" The official estimates of the balance of payments for 1932-36 show a net deficit for the five years approaching £50 millions. To this we must add at least an equal amount for last year, making an aggregate of over £100 millions. The figures prepared by Sir Robert Kindersley indicate that we have drawn to some extent upon our long-term capital abroad, a fact which would fit the supposition of a deficiency on current account. But in these six years we have 'spent on the purchase of gold now held in the Bank of England and the Exchange Equalisation Account an amount approximating £600 millions. If the official estimates be accepted, this expenditure could have been offset only by sales of British securities to foreigners and by an increase in our short-term liabilities. No evidence has been adduced of sales of securities on such a scale or of any vast increase in short-term liabilities, and it appears in consequence very doubtful whether our capital position has moved against us in any degree comparable with the addition to our gold reserves. On the evidence of gold and capital movements, the contention that over the past six years we have been living upon capital does not appear to be well founded."
It is of course possible that Mr. McKenna is right, and that the adverse balance of payments has been exaggerated. But his way of looking at things gives ground for
alarm in a different direction. Mr. McKenna says that it is incredible that the country's entire gold holdings should be wholly offset by the increase in liabilities. But he seems to contemplate with equanimity the possibility of those liabilities, which are quite possibly largely short term, offsetting considerably more than the holdings of the Exchange Equalisatipn Account. He merely says that they do not equal the total gold holdings including the Bank of England's holdings. But these last are now the first drawer in the nation's war chest, and should therefore be free of any lien. Even however if the liabilities are long term liabilities and it' the question of a mortgaged war chest does not arise, the question of the capital position still remains. That position may not have moved against Great Britain to the full extent of her gold holdings, but it may still have moved against her to an extent which gives grounds for great uneasiness. Indeed if Mr McKenna's skilfully chosen words are carefully studied it will be seen that they are not inconsistent with such a view.
DARE THEY TELL THE TRUTH?
Does it not seem as though the Bank Chairmen have shirked a straight answer to this all-important question? Does it not seem as though they dare not tell us that given the present organisation of. national life, Great Britain is living hopelessly beyond her means and must sooner or later face a period of agonising readjustment? Is not the real truth that people are beginning to rebel against the miserable alternation of boom and slump, and that the principal officers of our present system of maldistributed capital wealth, which we loosely call capitalism, dare no longer confess that this boom slump alternation is inherent in the system? Dare they perhaps not tell us that thanks to that systern's incredible wastefulness, even the boom periods can be no more than a transient glimpse of well-being?