(Continued from page 2).
A particular case of some importance concerns the part played by bank advances in the financing of recovery at home. Thus the Chairman of Barclays Bank, after complaining of certain innovations in the conduct of foreign trade which, by approximating to barter, reduce the opportunities for commercial lending, went on to mention a recent tendency for industry to finance itself internally, without recourse to banks. Some industrialists are selling investments in which they held their working capital during the depression, others are making large profits and reemploying the funds, others are in a position to borrow direct from the public by new issues of shares. These proceedings, together with the repayment of earlier overdrafts long " frozen," have brought about in some cases an actual reduction in the total of industrial advances by banks —in particular, to the heavy industries which are benefiting most from rearmaments!
In other words, at a time when industrial working capital is increasing, the amount that consists of debts to banks is actually decreasing and a good deal of the increase is not debt at all.
From the point of view of industrialists this is highly satisfactory, but bankers inevitably find it depressing just as pawnbrokers would lament if housewives found themselves in a position to tide over awkward moments with their savings.
They have, however, been able to find some consolation in the increase of overdrafts allowed to private individuals. A notable number of these are to enable customers to buy or build their own houses, and in this case what pleases the banker probably represents a higher standard of living in the general community, as more than one of the Chairmen claimed.
Fears of a Boom One mark of increasing sensitiveness to public discussions of economic questions is the fact that all the Chairmen touched rather gingerly on their plans for checking a prospective " runaway " boom. With only one exception they took the line that there was no need for action yet. Nevertheless, all made it clear that they held in reserve, and meant to use, the weapon of credit restriction when they should judge that the time for it had come.
But Mr. McKenna further suggested that in due course the banks should impose a special restriction on loans for speculative purposes. City editors and their kind have frowned on this suggestion, but it is notorious that what turns legitimate expansion into runaway booms more surely than anything else is the swelling of nominal money values by speculating in shares beyond their real industrial basis. The disastrous American boom of 1929 was an example of this on a fantastic scale—largely financed by the creation of bank credit.
What Should be the Test?
The trouble is that neither Mr. McKenna, nor the Chairman of Lloyds who talked vaguely of " a new responsibility . . . to the whole body politic," gave much ground for thinking that bankers would exercise this control suitably or even that they were the right persons to attempt it. The criteria that they gave for judging whether expansion was becoming excessive were not such as to inspire confidence in those concerned primarily for social welfare. They all feared " the vicious spiral" or rising prices leading to higher wages and so to inability to compete in foreign markets, but none of them pointed out that a principal factor in driving up commodity prices faster than wages in this country now is the fact that so many of the wageearners arc .producing armaments, which they cannot eat or wear. Nor did they note that there are still vast unused resources for the production of food and home necessities. They were more concerned with the shortage of skilled men at certain key points in the " heavy " industries. For small-scale production for domestic needs is scarcely within the
bankers' field of vision there are not enough separate monetary transactions involved in it.
The Consumer's Standpoint
Not one of the bankers made the consumer's point of view the test of legitimate expansion, as it should be. They were quite prepared—indeed eager—for industry to turn to foreign markets (financed by the City) even before those actually earning wages in England are supplied, and altogether regardless of the privations of a million and a half unemployed on the dole.
Yet, so long as there are able-bodied men without a sufficiency and land and materials are available for production, there is necessarily a home market for the staple commodities and there can always be new production to back new money issued to would-'be consumers in order to make their demand effective.
Only there will not necessarily be any room for paying usury on that money over and above feeding the hungry. That is why the topic has no interest for bankers and why it needs to be made a principal concern of statesmen.