MONEY AFTER THE WAR

Dominion, Volume 12, Issue 154, 25 March 1919, Page 9

MONEY AFTER THE WAR

HOW CAPITAL WASTAGE CAN BE SAVED

THE BANKING POSITION

The report of the committee on fhe Provision of Financial Facilities for the Trade after the Wnr, which was appointed by the Chancellor of tho Exchequer and tho Minister of Reconstruction just over a yenr ago, van recently issued by tho Ministry of Reconstruction. Tho committee, of which Sir Richard Vnssaj'Smith was chairman, expresses the emphatic opinion that the primary faotor in repairing the wastage of capital caused by the war lies mainly in increased production and actual saving. It is pointed out by tho committee that the ability of industry to cope with the unusual financial problems (luring the reconstruction period will bo meet limited in the case! of entirely new ii''ms, which' have come into existence owing to tho demand for war material It has been urged on the committee that every inducement should be given them to continue in business, even,to,the extent, if necessary, of granting State financial assistance. The committee exnress (!ho opinion tihat it might he regarded as unjust to eiuiblo such firms,' by meaas of State aid, to. compete with old-established firms, in the same industries and. also.that it would be- very difficult, if. not to guard against wastefulness and inefficient management.. The' solution in these oases appears to them to lie in., the establishment of new.industries, I ,the oamtal for which should be furnished hy the investor or by the individual partners in the business. ...

' : Rationing Raw' Materials. • The committee fonthev points out that it would be of great assistance to manufacturers in making plans for the'future, if- the future polioy..pf, the Government wefo made known as. early,as possible in regard toi; ,--?:■ .'; v- '• ".'. ■■" (a) Fiscal) policy.- : ■■•.■: (b) Rationing.of raw. materials.-■ :• .(c) The break cliuiso in connection with, termination, of- munition contracts. (<lj .The disposal of national factories and surplus stores. After explaining our credit system before the war, the committee points out that the position to-day is entirely different; '■■ As there'.is'no froo international market in gold'the operation of-tho foreign exchanges .has been interrupted, while at the same .time the-internal B°M circulation has. bean replaced by a currency'noto issue..;. As there'is no legal limit to,the amount, of, currency notes which may. be issued, there is, therefore, no automatic, check upon the expansion, of credit.. The very .large-.extent to which ■expansion has" taken place ie shown-by the faot that whereas the total deposits at the banks of the United Kingdom, ■eccclusiye of the Bank-.of: England, amounted; at tho ond of. 1913 to JE1.070,000,000, tho amount ;of deposits is now nearly ,$2,000,000,000. The enormously increasing purchasing power thus created has, in tho committee's opinion, boen ono ■of the main-, factors contributing to the general rise in price's. '■"' '■'•" •' ■ • ■ •.-' Cessation:of. Borrowing. '' As. to ; the ". position after L the -war,'. the ' committee expresses the .opinion' that it is'essential for tha reconstitution of industry and'comiherce''to ''impose Testrictiors.as soon as.possible upon the creation' of additional credit by.the restoration of an effective gold standard. The committee accordingly recommended', tho- cessation.of State borrowing as early 'as possible,- all 'available money being required for the financing of commerce and industry. It is also recom-. mended, with a,; view- to the gradual reduction of credit inflation, arising from the. enormous volume of short-dated Government debt, that the State should undertako funding operations at an early :date for this purpose. ; To enable the hanks to give facilities for extended credit it is recornmendod that C'very facility should be given by the' Government to enable the' banks to issue'any new, share, capital which may be found necessary .to strengthen, their, position." . It is'th'ousrht.thai. ihn ration-, inirof available- supplies of Taw materials will provide'a valuable sui* to the banks in selecting,the direetionsin which loans will be best secured and are uwt urgently, required The of (rude organisation which is, now in .existence is welcomed by the committee as furnishine *i sound lM'is for' the- granting .of credit facilities to. industry; •