FINANCE-PUBLIC AND PRIVATE
REACTIONARY MARKETS—A BANKER ON THE GOLD STANDARD
By ARTHUR W. KIDDY Fon the stagnation and comparative dullness of the Stock Markets during the past week or two there are three simple explanations. The closing days of the year on the Stock Exchange are usually characterized by considerable optimism concerning the coming year, while there is always a tendency to support securities in view of the positions to be disclosed in annual balance-sheets. With the turn of the year, what may. be termed the balance-sheet factor ceases to operate, and optimism gives place to more reasoned calculation. At the end of last year optimism was all the more pronounced because developments during the preceding weeks, such as the result of the political election at home, and the outlook on the Continent as affected by the acceptance of the Dawes Report, together with the rise in sterling, had been of an exceptionally favourable character.
CAUSES OF REACTION.
Nor need it be supposed that the recent moderate reaction means that the previous optimism was not justi- fied or that there have been any important developments in the meantime of an unfavourable character. The three causes to which I have referred as chiefly responsible for the reaction are : (a) the fact that these favourable developments were somewhat over-discounted in the end-of-the-year advance in stocks, (b) the unexpected large issue of Conversion Loan in January, and (c) the uncertainties with regard to the Gold Standard.
As regards the first of these points it may be said that while at the end of the year there was a certain amount of indiscriminate buying of stocks on the idea that the influences operating were calculated to affect favourably all markets, the tendency during the opening weeks of the year has been to examine the situation more attentively and to find some difficulty in determining the manner in which the different sections of the Stock Markets may be affected by impending developments. This uncertainty• has led to restricted dealings and, consequently, to realizations by weak purchasers in December who had hoped to get a quick rise after the turn of the year.
EFFECT OF CONVERSION LOAN.
So far as the Gilt-edged section is concerned, however, there is no doubt that the sudden sale of about £48,000,000 in 3f per cent. Conversion stock had a rather damping effect upon the Market. It has meant rather a large absorption of investment resources, while the effect upon the Money Market was the more pronounced because payments on the new stock could be made as early as January 16th, whereas the GOvernment's repayment of maturing Exchequer Bonds, amounting to about £50,000,000, does not take place until February 1st. Meanwhile, the Money Market is affected as usual during January by the ingathering of the Tax Revenue. Conse- quently, there has been a certain amount of monetary stringency which has affected high-class investment securities and has occasioned some uncertainty with regard to the future value of money.
GOLD STANDARD UNCERTAINTIES.
This uncertainty, moreover, has been quickened further by the doubts which exist as to the nature of the decision to be reached ere long with regard to the Gold Standard and also as to the precise effect likely to be produced upon the situation and especially upon the course of money rates if the Gold Standard is again made operative. Naturally, there is now considerable interest in the City in the• return this week of the Governor of the Bank of England from New York, while there is also keen interest in the impending speeches by our leading bank chairmen at the forthcoming annual meetings, as it is felt that they can scarcely refrain from dealing with what, although a controversial subject, is, nevertheless, the topic of the hour.
VIEWS OF BARCLAYS CHAIRMAN.
Indeed, we have already before us the speech of one of our leading bankers—Mr. F. C. Goodenough— which was delivered at the meeting of Barclays Bank to-day. From the report of this speech, which appears on a later page of the current issue, it will be seen that Mr. Goodenough deals with the matter in sound and common-sense fashion. On the one hand he undoubtedly expressed the opinion of the majority of bankers in de- claring boldly in favour of the ultimate readoption of the Gold Standard with all the responsibilities attaching to a free gold market. On the other hand, however, he wisely deprecated any undue forcing of a decision, believing that it will follow naturally upon the economic factors now working in our favour. While recognizing the importance to be attached to the precise trade position at the moment, and also to the question of respective price levels in America and this country, Mr. Goodenough goes straight to the root of the matter when, in effect, he raises the question of whether we are or are not a creditor nation. This is a point not entirely to be determined by the facts that within the past decade we- may have had heavy adverse trade balances and that we may have parted with nearly £1,000,000,000 in American securities and in addition have incurred a debt to that country of almost the same amount. The fact remains, as the chairman of Barclays Bank points out, that we have probably still over £3,000,000,000 of capital invested abroad, and Mr. Goodenough maintains that " these foreign investments and our export trade are the best guarantee for our being able to maintain a free gold market when once it has been established." At the same time and bearing upon the co-operation which it is believed America is ready to offer in connexion with our 'return to the Gold Standard, Mr. Goodenough recognizes in such co-operation no indication of a financial dependence on the part of this country upon the good will of America, but simply a common-sense • arrangement, having for its object a proper economy in the use of gold as a means for settling international balances.
There is one further point in Mr. Goodenough's able speech to which attention may be directed. Rightly or wrongly—and I believe rightly—the chairman of Barclays Bank is among those who consider that a free gold market for London will help towards the further equalization and stability of world prices. He also perceives, however, that, so far as this country is concerned, something further is needed if our trade is to revive, and at the end of his speech he laid the strongest emphasis on the need for rigid economy in National Expenditure and for the utmost efficiency in all our industrial enter- prises. In that same connexion Mr. Goodenough made a shrewd remark which is all the more noteworthy, coming as it does from the banker rather than from the industrialist. He said :—
" To-clay, there is a great shortage of skilled labour fitted to undertake the highest quality of work, and• there is urgent need for some new plan under which skilled workmanship in its, highest form can be developed upon lines that will afford to the young worker adequate remuneration to satisfy him even in the days of his apprenticeship, rather than that he should- be tempted by the offer of high wages to undertake labour of an inferior kind. This is a matter which is of the most vital importance to the country."
Unquestionably, this is a very practical point and also a sore spot on which Mr. Goodenough has laid his finger. It is the more serious that this danger of inefficiency should even be threatened at a moment when foreign competition promises to be exceptionally severe.
City, January 21st.
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