The Daily News. FRIDAY, FEBRUARY 24, 1922. CHEAPER MONEY.

Taranaki Daily News, 24 February 1922, Page 4

The Daily News. FRIDAY, FEBRUARY 24, 1922. CHEAPER MONEY.

The lowering of the Bank of England discount rate to four and a half per cent, last week was a move that had been expected to take place a week or so earlier. Tn anticipation of the event a more than ordinary activity in gilt-edged securities was evinced, and, as usually happens under such circumstances, there was an increased demand for foreign stocks paying a higher rate of interest than British, together with an appreciable expansion of business on the industrial share market. The extraordinary activity which took place last week on the London Stock Exchange affords convincing evidence that mdney has become more plentiful, and this is coroborated by the prompt action of the banks in reducing interest on deposits to two and a half per cent. The outstanding feature of this welcome movement is the enormous amount of money which awaits profitable invest ment in London—and elsewhere. Under normal pre-war conditions much of this idle capital would have been invested in industrial concerns that promised high returns for money invested. At the present time, however, it would seem that much caution is being exercised over such investments, the reason probably being the high cost of production of manufactures. It is worthy of note that the metal markets are reported as being dull, chiefly because the visible supplies of the raw material are unusually large. It is obvious there must be some adverse cause for these large quantities of raw material not being utilised by manufacturers, hut have become such a glut that, in some cases, a curtailment of output will most likely result. Yet there is abundance of capital to stimulate industry and a large unmet demand for finished commodities. The barrier seems to be that the cost of manufacture is such that it kills the demand, the result being that inquiries for investment purposes are limited to firstclass industrial debentures. The deduction is that nothing but a lowering of wages will restore industrial activity to anything like what it should be. The danger is that if this industrial slump lasts for any length of time, that foreign competition may seriously cut into British trade. It is most undesirable that the outlet for the rapidly accumulating unemployed capital in Britain should be’ through the channel of speculation in gilt-edged securities, although there appears one redeeming feature of such operations, namely, raising values of those stocks to such a level as will permit the flotation of a big funding scheme in connection with Imperial war loans—another creation of consolidated stock—and when that is accomplished it may fairly be considered that, finances and exchange will no longer constitute a, problem, but once more resume normality. Cheap money will not alone readjust matters so as to make the purchasing power of the sovereign regain its value. During last year the cost of living in Britain fell from 169 points to 99 per cent, above the level of July, 1914. the index figure being calculated by taking the average level of retail prices—food, clothing, fuel, light, also of rents. Changes in wages during 1921 showed a net of mo”e than £4,3/0.-

000 in the weekly earnings of nearly 6,800,000 work-people, representing a saving to industry in twelve months of over 227 i millions, which is a big item in regard to the further cheapening of production. If the process continues during the current year, and there is a lessening of taxation, it should not be long before a fair portion of the capital which is awaiting investment should find a profitable outlet in industry, and as the lowering of the bank rate should be accompanied by a similar drop in the charge for advances by the banks, there appears to be a better outlook than has been in evidence for a long while past, though it will take time to develop.