NO PANIC

Evening Post, Volume CXXVI, Issue 156, 30 December 1938, Page 7

NO PANIC

FINANCE IN CRISIS

OUTLOOK FOR NEW

YEAR

WARNINGS FROM 1931

(Written for "The Post" by H. V. Hodson, Editor of the "Round Table.")

The past year has seen so much political turmoil that in looking back over, twelve months of world economic affairs it is difficult to keep a sense of perspective. Yet it is just this study of economic affairs that best enables us to do so, since it-puts politics in its rightful place, as a means of defending and improving the ordinary life of the ordinary man. During the past year that ordinary life has become even more onerously burdened with war preparations than .before. The cost merely' of the crisis precautions, both public and private, ,in Great Britain has been estimated' at £30,000,000. The cost in Germany, where the whole military machine was mobilised, must have been many times that figure. Since the crisis, already huge armament programmes have been inflated once more. Except in' the small degree in which the extra outlay on armaments can absorb unemployed labour and capital, all this extra expenditure has to come out of , the standard of living of the ordinary man. At the same time, because j unbalanced budgets upset business sentiment, and because the load of armaments upon the economic system weighs down its natural power of recovery, this enlarged spending on arms is likely, in the long run, to increase unemployment and make the motion of the trade cycle more sickening than ever. NOT WHOLLY BAD YEAR. And yet, despite the political turbulence, 1938 has not proved by any means a wholly bad year for world trade and industry. When it began, recession seemed to be steadily gathering momentum, nere were no signs of recovery from the slump in the United States. Unemployment was rising ominously in Great 3ritain. Although primary-producing countries like Australia and New Zealand were still enjoying a substantial degree of prosperity, in spite of lower prices, their friends nevertheless felt sure that before long they would be oblifed to deflate in face of world conditions. ( This "is indeed no time for glib optimism, but the general momentum of world economic affairs does appear to be'upward for the moment, and the economic mishaps of 1938 were certainly much less calamitous than seemed possible when the year began. Since June there has been a distinct and sustained revival in the United States, and 'this in itself may be enough to save some of the primary-producing countries from the ; harsh deflationary adjustments that were otherwise inevitable. Great Britain has also seen a halt to recession and the beginning of a definite upward movement. POLITICAL INFLUENCES. The more hopeful outlook of today is all the more remarkable in that politics appear'to have dominated economics at every turn. Fouf phases of world economic affairs in 1938 can be distinguished, and each of them was associated with political changes. The first phase occupied most of the first half of the year. The general trend was downward, and the economic machine, though temporarily resisting I a series of political shocks without disorganisation, showed little / power of recoil. The Austrian crisis, the Czechoslovakian crisis iof May 21, and the overthrow of two successive Governments in France —these formed the political background of what may be termed the phase of degeneration. The nexjt the phase of Tea'ssurance, was marked by the early financial successes of the Daladier Government, after the revaluation of the French franc,- and by the setbacks suffered by President Roosevelt, notably the defeat of his Reorganisation Bill. Foolishly or otherwise, the American business world had fixed upon the personality of the President as the main hindrance to economic recovery, and his occasional reverses helped to engender a 1 much more optimistic psychology. That the revival was largely psychological was shown by the fact that stock market prices rose distinctly in advance r commodity prices or the turnover of industry. A brief interlude ,of two months' uneasy calm reigned in European affairs. NO PANIC IN CRISIS. The next phase was the phase of the crisis, It began with the German Army manoeuvres early in August, and lasted of course.until after the Munich Conference. Economic affairs were dominated by the ever-growing fear of war. In view of the immensity of the dangers, the economic"world stood up to this trial with quite amazing resilience. There was no financial panic. At the height of the crisis, gilt-edged bonds in London fell by a few points. The exchange 'management funds showed themselves well able to take care of the international movements of shortterm capital and gold that naturally took place, without exceptional measures. In the two months ended October 6, the United Kingdom lost £150,----000,000 of gold while gaining £62,000,000, and the main difficulty experienced was in quickly off-setting any resultant internal stringency of money. Even in France there was no chaotic rush for shelter from the storm. Much .the most violent pre-crisis slump occurred, significantly, on the bourses o1 Germany. In the financial and industrial world as 'a whole, the main effect of two months of fear of war was simply a limitation or suspension of new commitments or enterprise. The fact that during the period of the crisis new deposits in the British Post Office Savings Bank exceeded withdrawals is specially remarkable, because it suggests a combination of inner national confidence with a reluctance to attempt anything speculative. This goes far to account for the sudden strength of the phase of revival after the crisis. Retarded investment was now accelerated, suspended commitments quickly taken up, more hopeful lines of spending embarked upon. This in addition to the enlarged spending for armaments and their kin. The swift turning of first feelings of relief into anxiety or even remorse, as far as international politics were concerned, had little effect on financial recovery. The characteristic political events of this period, from the] average business man's point of view, -were not the anti-Jewish crimes in Germany nor the anti-French agitation in Italy, but the introduction of the Reynaud plan of economic reforms, the sober determination with which Great Britain set about improving her defences, the defeat of the French general strike, and .the Republican gains at the American elections. It is still the fact that the world as a whole is run on the capitalist system, and depends to a doubtless highly regrettable degree