4. The Speeches of the Bank Chairmen (1924-1927)

(i) February 1924

We have an admirable custom in this country by which once a year the overlords of the Big Five desist for a day from the thankless task of persuading their customers to accept loans, and, putting on cap and gown, mount the lecturer's rostrum to expound the theory of their practice;—a sort of Saturnalia, during which we are all ephemerally equal with words for weapons. These occasions are of great general interest. But they are more than this. They have a representative significance;—they hold up, as it were, financial fashion-plates. What have they found to say this year about Monetary Policy?

Only one, Mr. Walter Leaf, of the Westminster Bank, has refrained himself entirely. Each of the other four has had something to say. They fall into a pair of couples: one of which, Mr. Beaumont Pease of Lloyds Bank and Sir Harry Goschen of the National Provincial Bank, feel that there is something improper, or at any rate undesirable, in thinking or speaking about these things at all; and the other of which, Mr. Goodenough of Barclays Bank and Mr. McKenna of the Midland Bank, so far from deprecating discussion, join in it boldly.

Mr. Pease, as I have said, deprecates thinking, or—as he prefers to call it—"the expenditure of mental agility." He desires "straightly to face the facts instead of to find a clever way round them," and holds that, in matters arising out of the Quantity Theory of Money, as between brains and character, "certainly the latter does not come second in order of merit." In short, the gold standard falls within the sphere of morals or of religion, where free-thought is out of place. He goes on to say: "As far as any ordinary joint-stock bank is concerned, I do not think it determines its policy consciously on pure monetary grounds. That is to say, its chief concern is to meet the requirements of trade as they arise, regardless of adhesion to any particular theory. Its actions are not the cause of trade movements; they follow after and do not precede them." I think that this, broadly speaking, is a correct account of the matter, and Mr. Pease's emphasis on it is the most valuable part of his speech. It is precisely this automatic element in the reactions of the joint-stock banks which makes the policy of the Bank of England about the volume of the banks' balances and the rate of discount so all-important. In conclusion, Mr. Pease does not propose to take any particular steps at present towards establishing any particular standard. Nevertheless he is "hopeful that we may gradually get back to our gold standard, which, in spite of some defects and difficulties, has, as a matter of fact, worked well in the past."

Sir Harry Goschen goes one better than Mr. Pease in a delightful passage which deserves to be quoted in full:—

I cannot help thinking that there has been lately far too much irresponsible discussion as to the comparative advantages of Inflation and Deflation. Discussions of this kind can only breed suspicion in the minds of our neighbours as to whether we shall adopt either of these courses, and, if so, which. I think we had better let matters take their natural course.

Is it more appropriate to smile or to rage at these artless sentiments? Best of all, perhaps, just to leave Sir Harry to take his natural course.

Leaving, then, these impeccable Spinsters, we come, in the speeches of Mr. Goodenough and Mr. McKenna, to rational, even risqué conversation. In immediate policy there is a large measure of agreement between them. They agree that monetary policy is capable of determining the level of prices, that our destiny is therefore in our own hands, and that the right course to pursue requires much thought and discussion. Mr. Goodenough, however, lays greater stress on the bank-rate, and Mr. McKenna on the amount of the cash resources in the hands of the banks. They are opposed to any revival at the present time of the Cunliffe Committee's policy of Deflation. They both look to internal conditions, and not to the foreign exchanges, as the criterion for expanding or contracting credit; with this difference, however, that Mr. McKenna would look chiefly to the level of employment, whilst Mr. Goodenough would be more influenced by the stability of internal prices. "To sum up my views on the currency question," the latter says, "I feel that our aim should be to maintain as nearly as possible the existing equilibrium between currency and commodities. . . ." Neither of them, however, would be much disturbed by a moderate rise of prices, provided (in the case of Mr. McKenna) that the productive resources of the country had not yet reached the limit of their capacity, and (in the case of Mr. Goodenough) that the rise was due neither to the speculative withholding of commodities nor to British prices rising relatively to American prices. About our ultimate objective, Mr. McKenna does not speak; but there is nothing in his speech to suggest that he would not be in favour of pursuing permanently the policy, which he recommends for the present, of "steering a middle course between Inflation and Deflation," i.e. of aiming, like Mr. Goodenough, at a general stability of prices within certain limits, and of deliberately employing monetary policy to mitigate the evils of the credit cycle: "Ups and downs in trade we are bound to have, but wise monetary policy can always prevent the cyclical movement from going to extremes. The speculative excesses of an inflationary boom and the cruel impoverishment of a prolonged slump can both be avoided. They are not necessary evils to which we must submit as things without understandable or preventable causes." Mr. Goodenough, on the other hand, whilst desisting from the pursuit of the gold standard for the time being, continues the passage from his speech quoted above—". . . although always we should keep in mind our ultimate aim, which is a return to a gold standard." Meanwhile, he puts his hopes on an inflationary movement in America just sufficient to bring sterling back to its former parity with gold, without any disturbance to its present parity with commodities.

What is the net result of these speeches? They strengthen greatly the hands of the Currency Reformers who believe that the stability of the internal price level and the damping down of the credit cycle are desirable and attainable objects. They are also reassuring, since they show that two of the most influential figures in the City have clearly in mind all the points of immediate practical importance, and can be relied on to use their influence in the right direction. Mr. McKenna and Mr. Goodenough are both in sympathy with the above aims. Nor would it be fair to say that the Spinsters are definitely opposed to these ideas. (There would be just as much impropriety for them, just as much mental agility required, to think one thing as to think another. Their simplicity is quite impartial.) If they could be led gently by the hand beyond their copy-book maxims of "looking facts firmly in the face" and "economy and hard work," it might be found that they, too, had no objection to a deliberate attempt to keep prices steady and trade on an even keel, and that, whilst they feel at first the same distaste towards any proposal to "tamper" with "the natural course" of prices as they might feel towards an attempt to settle the sex of a child before birth, they are not really prepared to insist on their instinctive preference for having these matters settled by some method of pure chance.

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