WAR AND MONEY

Dominion, Volume 12, Issue 203, 22 May 1919, Page 5

WAR AND MONEY

THE ECONOMIC OUTLOOK

THE IMMOBILISATION OF CREDIT . In an address on "The Economic Out/look," delivered at the Institute of Bankers, London, recently, Mr. Edgar Crammond drew attention to the fact that all tho important wars 6inco 1793 had been followed by periods of increased production and intense economic expansion, and he gave reasuns for believing that the same sequence was now in process. Wars, as he showed by a detailed analysis, had been the principal influence which had determined tho course of commodities and prices. In the Napoleonic wars, the index number rose 72 points in 20 years. In the Great War of 191-1-IS, there had been a rise of 108 points in dj years—a movement for which there was no precedent in point of rapidity or magnitude. Mr. Crammond estimated the direct cost of the war to the Allies at 28,368 millions sterling, and to the Central Eiiroysan Powers at 13,675 millions sterling; and including indirect losses, ho estimated the total cost of the war at 52,000 millions sterling. There had been nothing, lie said, approaching this destruction of capital wealth in the history of 1 the. world, and this stupendous conflict had produced tho greatest economic revolution of which there was any record. The immediate manifestation of this upheaval, Mr. Crammond .continued, was to be found in the rise in the cost of living and a universal increase of wages. Other economic consequences wers being unfolded more gradually, 'i'he wages bill of tho United Kingdom for 1918 was about J000.000.000 more than in 1913 —'an increase of over 100 per cent., but owing to the rise in the cost of living, which was estimated at 70-S0 per cent., real wages had not increased to anything liko tho same extent. Judging ■ merely from past experience, people might look for a fall in tho price of commodities and wages as the result of peace, but there were now in operation soveral factors which he thought would itend to' make the fall only a very gradual one. These were:—(l) The vast increase in the amount of paper money; (2) the, huge addition to the amounts of the public debts of the belligerents: and (3) the determination of labour to maintain wages'at a higher level than before tho war and to improve tho standard of living. These factors, taken in.conjunction with tho rise in wages and tho priceof commodities, had a tremendous significance, and, in his judgment, implied that we were in the presence of one of the greatest and most far-reaching economic movements in the history of the world. : More Money and More Production. Through all the economic records of tho past it was possiblo to trace an advance in the standard of living lor the miassea concurrently with an ■ increase in' tho amount of money ill circulation and a decline in the purchasing power of money. The great waT had enormously increas. Ed our own power of production, and, from a close examination of the subject, he was convinccd that this was r.ow at least 50 per cent, over the production of 1913. In the light of these conclusions ho was quite unable to see any real grounds for, the depression and anxiety manifested in certain quarters as to our economic future.

Taking first our internal position on February 1, 1919, Mr. Crammond estimated the not amount of our National Debt lis 11,099 millions sterling, on which tho interest and sinking fund charges might bo estimated at 350 millions per annum. In August, 1914, the debt was t £050,000,000 and the interest and sinking fund charges were ,£24,500,000, so that the. war had added £b,450,000,'000 to the capital debt and 325 millions to tbo annual charge. He estimated that after the war our Peaeo Budget might stand at .£825,000,000, In 1913-14 the national income was about 2,400 millions, and the cost of tlifj ■ Imperial Government was 198 millions. If the national wealth and national inoomo had remained at that level our economlo position would indeed be serious, because the increased national debt would bo 30 per cent, of the national wealth and tbo peace expenditure would lie 33 per cent, of the national income; but auch was uot tho case. Our 'assets must' now be .measured in the same monetary values as our liabilities—in 1919 money value* and not in 1914 monoy values. Revised Estimate of National Wealth. In 1911 lie had estimated the national wualth at J81G,400,000,000 and the national income at J51,440,000,000. At the present time, however, the national wealth of tho United Kingdom might safely be computed at .£24,000,000,000 and tho national inoome at G00,000,000. In other words, if we accepted and stabilised the newvaluation of money, our post-war national debt would bo only equivalent to a sum representing 20 per cent, of the nationai wealth and the post-war Budget would not amonnt to more than 22 per cent. OS the national income. Commodity prices would, of course, fall, but it was'of vital importance that the fall should be gradual and that it should be balanced by an increased production, so that tho national, income might be maintained at a level of at least 50 per cent, higher than it was before the war. As to the external financial position, ho saw no grounds for pessimism. At the beginning of-the. war British investments abroad were valued at 4000 millions, of which we had • realised about 1000 millions; wo had borrowed abroad about 1400 millions, but we ourselves had made new loans of about 1800 millions, and even if allowance were made for a certain proportion not being repaid, lie estimated that we remained a creditor ration on balance' to the extent of about 2640 millions. British credit really rested upon our power of production, and ho had sufficient faith in the common sense of the British people to believe that tile necessity of adopting a policy of increased production would be generally recognised, bijt it seemetl to him thatwo were confronted with a danger which was greater than the restriction of output, and that was in the restrictions of credit. One of the most urgent needs of tho moment was a courageous financial policy, and there never was a time in the his tory of this country when bold economic leadership was more urgently needed. • for Investment, Before the war, out of a national income of 2400 millions per annum, we saved about 400 millions.. Of these savings, about 200 millions were invested in this country in new houses, extensions of works, etc., and about 200 millions were invested abroad—say, half in tho British Empire and half in foreign countries. But witli a 50 pea l cent, increaso in production, and the revaluation of money, our' post-war position should be roughly asj follows:— National income, say .£3,600,000,000 Cost of living, say, 50 ■ per . cent, increase on .1914 figures 2,700,000,000 Available for depreciation, ■renewals, and repairs, and ' new investments abroad and at home .' 900,0011,000 It would be a great advantage to our manufacturers in planning their post-war scheme of production to know that there would bo a .huge markot for their output, and ho suggested that the next (en years should bo regarded as a transition period, during whicli time we should endeavour to invest abroad at least 500 millions each year. This might be provisionally allocated as follow:—100 millions in India, 100 millions in Africa, (including Egypt), 30 millions in Australasia, 50 millions in Canada, 20 millions in tho rest of the Empire, and ;!00 millions in foreign countries. Any such scheme must obviously be elastic,' and the amounts invested in the different' piirts of the Empire and foreign countries must bo varied in accordance with the How of emigration and other conditions, but tho provisional adoption of such a programme would give great confidence to our. manufacturers. It would quickly react upon the foreign exchanges and turn thcin more and more into our favour because, at tho end of ten years, our income from I investments abroad could be increased by 250 millions per annum, making a total income from this course, of say, 400 millions per annum, and the knowledge that wo had undertaken such a programme would be immediately reflected in tho international money market and capital would be attracted here for investment.