LETTERS TO THE EDITOR.

THE BANKERS' THREAT.

[To the Editor of the SPECTATOR.] SIR,—It would be of interest to know how long it takes before a natural sequence becomes generally accepted as such. How long elapsed, for instance, before the human race ceased to find matter for surprise and dispute in the fact that even the brightest day is succeeded in a few hours by the night. Data on this subject might serve to indicate when it will be generally recognized that a high bank rate is naturally followed by industrial distresiand unemployment and produces increased banking profits.

That wise cleric, Bishop Berkeley, asked in the Querist " whether money circulating be not the life of trade and whether the want thereof doth not render a State gouty and inactive." It seems certain that the Bishop would have found it impossible to believe that nearly two centuries after his death the system of raising the price of money-- thereby retarding its circulation and artificially rendering the State " gouty and inactive "—should have become more completely incorporated in his country's monetary policY than ever.

The discovery that banking profits are proportionate to the industrial distress caused by the Bank's policy was first publicly announced by Edward Cayley in 1858—in the minority report he submitted as a member of the Parlia- mentary Committee of Enquiry into the cause of the panic of 1857. Cayley declared " The panic, in fact, has its origin in the Bank parlour" and "The rate of interest rises and falls with the ebb and flow of bullion ; the dividends of the pro- prietors of the Bank rise and fall in sympathy with such rate. In the last half of the year 1852 the rate of discount was 2 and 21 per cent. The dividend of that half-year was at the rate of 7 per cent. The last half of 1857 the rate of discount ranged from 51 to 10 per cent., and the dividend declared in March, 1858, was at the rate of 11 per cent."

The effect produced on the dividends of the Bank of England by the two other great panics of last century which necessitated the suspension of the Bank Act—in 1846 and 1866—are equally instructive. For the eight years ending 1846 the Bank proprietors received yearly dividends of 7 per cent., The industrial disaster enabled the rate to be increased to 9 per cent. for 1847. For the latter half of 1865 the dividend was at the rate of 5 per cent. ; for the first half of 1866 it was at the rate of 51 per cent., and, when the Bank Rate of 10 per cent. had driven every capitalist who was a free• agent out of industry, the Bank dividend was raised to 61 per cent. for the half-year.

The two years following those in which the Bank rate reached double figures are the first two years on record when unemployment among the " aristocracy of labour," i.e., the engineering, shipbuilding and metal trades, also reached double figures (1858-12.8 per cent., 1868-10.4 per cent.).

The year 1920 provides perhaps the best example that sport for the banks means death for industry and the earners. Within three months of Mr. Chamberlain's announcement that the Government proposed to adopt the recommendations of the Committee of Bankers, presided over by Lord Cunliffe; the Bank Rate was raised to 7 per cent., with the result that literally millions of people were thrown out of work and the market valuation of the leading industrial shares feff on the average more than 25 per cent. The profits of the " big five " banks for that year surpassed by /1,600,000 their previous highest record, and the average enhancement of the market value of their shares was nearly 80 per cent It is not commonly understood to what extent the banks' benefit is the direct result of industrial disaster.

As soon as a ,high Bank Rate shows signs of becoming, in the widest sense, " effective," the alert capitalist sells his industrial interests at almost any old price. With the proceeds he buys those securities in which the banks' funds

are very largely invested. Remembering that prosperous trade is dependent on confidence in industrial conditions, it would be interesting to know how many hundreds of millions a year the lack of confidence in industrial conditions that caused the rise of prices of gilt-edged securities shown in the following list cost the community at large !

War Loan (3I%) (44%) (5%) 4

Funding Lo(an%)

Victory Bonds Consols

Price in October, 1920.

.. 814 78 • • 844 • • 944 .. 674 .. 734 464 Price in January, 1923.

• • 964 • • 954

• • 100 fir

• • 4 • • 102 884 • • 904 • . 504

Perhaps the most noteworthy of all alterations in prices during this period is that of Bank of England shares, which in October, 1920, stood at 168, and in January, 1923, at 242.