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Welsh outlook


Vol. 12, No. 9 Sept. 1925

The financial & economic situation

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The Financial and Economic
By W. Tudor Davies.
NO apology, I think, is needed for a return
to a comment on the vexed question of
the gold standard on account of the wide-
spread misunderstanding which prevails
concerning its effect. What actually happened
when we returned to the gold standard is a ques-
tion often asked. It amounts to this-that by
artificially reverting to the gold standard when
actually the pound was still ten per cent. short of
full value we have added just that percentage to
the cost of our industrial products. This in-
creased cost of our products to be exported has
accentuated our difficulties in the world's markets.
Of course, the return to gold has one big advan-
tage. We require less wherewith to meet our
American debt payments. This is counter-
balanced by the fact that the taxpayer has less
to meet his internal obligations. The Chancel-
lor's decision to resume gold payments was in
keeping with Britain's traditional policy in
finance-namely to wipe off as soon as possible
all external indebtedness. Of course, this has
not always been, regardless of the burden it placed
upon the citizen. It may be that the Chancellor
of the Exchequer is placing rather too heavy a
burden upon the present generation and relieving
posterity too much.
The grant of a subsidy to the coal industry is
only a truce in the unfortunate struggle between
capital and labour. To many it appears only as
the acute phase of a general depression extending
over our export industries. In the attempt at
diagnosis of our industrial and economic diseases
one realises that we are still in the period of post-
war lassitude and in the position of a debtor in-
stead of a creditor nation. We have also stressed
the question of finance instead of paying equal
attention to our industrial situation for the both
are inter-dependant, though historically the latter
preceded the former.
Since 1920 we have had alternate periods of
deflation and inflation but the latest period of
deflation has brought heavier consequences in the
matter of trade depression and unemployment
than was anticipated. We have looked the dollar
in the face but has the price paid been too heavy.
Coupled with the determination to bring the
dollar-sterling exchange to parity has been the
fixed idea of bringing prices down. The problem
is how to bring prices and wages down simul-
taneously. What the workers object to is that
the attempt to lower wages is made before an
endeavour to reduce the cost of living or in other
words prices.
Already two steps which will go far to ease the
Situation have been taken. Firstly, the embargo
on foreign loans is being gradually lifted and
secondly there is a greater endeavour to free our
finance from the shackles of American influence,
of which the recent lowering of the bank rate is
evidence. Easier credit must be the slogan for
the next twelve months and a further reduction
of the bank rate would be most salutary or as it
has been put-" absolutely readiness of the State
and the banking system to take any reasonable
form of business risk. In a word, the present
restriction and caution must give place to elas-
ticity and courage." In addition the inflow of
gold has compelled the Bank and the Treasury to
review the situation and the first remedy of the
reduction of the Bank rate has been quickly
applied. In the long run the right policy of facing
up to the situation has been pursued. The
trouble lies in the tremendous difficulties in which
industry and trade (both employers and employed)
have to endure. Can they weather the storm
is the question?
The Government has undertaken to carry out
an economy campaign and a new "Axe Commit-
tee, consisting of such eminent men as Lords
Colwyn, Bradbury, and Chalmers, has been in-
stituted to find ways and means of economy in
the Services. The pressure of taxation is felt in
every walk of life. We are the heaviest taxed
nation in the world. The amount per head in
taxes has risen in eleven years from £ 3 11s. to
£ 15 18s. Government expenditure has risen from
less than 200 millions to nearly 800 millions. The
premium we pay for our national safety has in-
creased since pre-war days.
Mr. Philip Snowden has done a national service
by calling the attention of the United States of
America to the fact that the restoration of the gold
standard gives at least a moral claim to Great
Britain on America for a reconsideration of our
debt to that-country. When the question of
the settlement of the debts of France and Italy to
Great Britain and the United States comes up for
definite consideration the matter of scaling down
these debts, in accordance with the fall in prices
and the rise in the purchasing power of gold since
1918, will no doubt be raised. In that event, it
is only fair to ask that any concession which may
be made to France and Italy should be extended
to the British debt to America. But failing that,
and assuming that the present funding arrange-
ment with America must stand on the terms
settled two years ago, we may ask whether there
is any step which could be taken by Great Britain,
within the terms of the bond, which would relieve
the burden of her annual to the United States."
During the last months there has been much
discussion with regard to the financial facilities
offered to British trade, both internal and exter-
nal. It has been contended that the existing
bankers do not use sufficient imagination in assist-
ing trade in fresh markets that they are prin-
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