BORROWING Leap in American Security Values
By Our City Editor
The news of the vast new projects for defence borrowing lowered the gilt edged rate at the beginning of the week, War Loan at one time falling below the " Munich Minimum " at 92i.
It would appear that another factor that has depressed the rate is the unloading of gilt edged by the Clearing Banks.
The latest returns show that this policy is being consistently pursued. They also show a very remarkable increase in bill holdings in the June weekly averages that cannot be accounted for by the usual causes. It is considered doubtful whether
these vast new purchases of bills are due to purchases on the money market, and the view has been expressed that the banks' portfolios have been filled with " tap " bills taken over from Government Departments.
This in its turn would indicate that the Government Departments were deliberately buying gilt edged to hold up the rate. Doubtless the explanation is that the banks have been trying to make room for the new Defence Loan. But the whole business seems to suggest that the prospects for cheap long and medium term borrowing are not too bright for the immediate present, though they may possibly improve in the autumn.
AMERICAN LEAP The leap in American security values can be attributed to a variety of causes, the improved news from Europe, or to cyclic factors. Whether it foreshadows a substantial recovery yet remains to be seen. It may, however, be taken for granted that an American boom would accentuate the unfortunate effects of Sir John Simon's unmistakably Inflationary borrowing, and that the purely voluntary ban that at present exists on the purchases of foreign securities by British Nationals may prove too great a trial for human weakness.
Such purchases would, of course, further weaken the pound.
I note with interest that one of the great price fixing organisations, in this case the Cable Makers' Association, is having its beard rather badly twitched by a new firm called Aberdare Cables, a comparatively small company with a capital of only £200,000. Since this cornpany started up prices charged by the C.M.A. firms have been cut from 10 to 12 per cent. This may have something to do with the drop last year in the profits of certain big ring firms, Despite its considerably lower prices, Aberdare Cables claim to pay the same wages as the ring firms. Of course, it would be wrong to pretend that Aberdare Cables are a sort of Jack the Giant Killer, or
that it is an example of a small group of free citizens heroically battling with the ogres of Big Business.
For the fact is that the larger shareholders of the firm include the County of London Electricity Supply Company and the Bournemouth and Poole Electricity Company. These concerns, of course, can well afford to content themselves with a moderate profit if they can get their cables at a lower rate. Even so it is agreeable to see an attack from any quarter on monopoly revenue, which is the curse of the present order.
WE MUST GET BACK
Indeed if we could only get back to the concept of the just price, the present drift in industrial affairs in almost every country towards rings, boards and cartelisation might really not be wholly bad. These things suitably modified might ultimately form the nuclei of a true guild order, and they would certainly make a better basis than the trades unions. Incidentally. in France the implications of the new development are very apparent in the work of the Conseil National Rconomigue Francais, an organisation created to prepare laws concerning industry and labour, which is at present conducting a far-reaching investigation into cartels and professional associations.
There is at the moment a very strong movement in France to make membership of such organisations obligatory, a development by no means alien to Catholic ideas. since, according to competent theological opinion, compulsory membership would not in itself destroy the character of " free associations " in the sense of Quadragesimo Anne.
The influence of Catholic thought, if that is indeed at work, is also becoming apparent in other departments of French economic life, the driving motive being to correct the appalling ravages of the appalling birth rate.
The French Cabinet recently examined the proposals submitted by the Haut Comae de la Population, and the various ministerial departments are now working on the elaboration of a "Family Code." Among the measures planned are the extension of family allowances to rural homes, marriage Deans to young people, the repayment of -.vhich would become easier in proportion to the number of children. and special loans to young peasant families undertaking to remain at least fifteen years on the land.
IN INITIAL STAGES
In the matter of cartelisation, of course, Britain is still more or less in the initial stages of this, but a characteristic which is in some ways related to it is already very marked.
The structure of industry is becoming more stabilised. Thanks to the growing control over the capital market the accustomed flood of issues for entirely new concerns was absent from the 1937 Investment boom. An important factor here was the provision of the Companies Act of 1929, which insisted on a run of at least three years' profits in prospectuses and offers for sale.
As a result, the usual crop of failures which in the normal way would be just about due now is conspicuously absent. Investment activity has been largely through media of unit trusts which in their turn have financed the expansion of established concerns.
DISAPPEARANCE OF RISK Commenting on this in a recent issue the editor of the Financial News deplores the disappearance of risk from business, a harvest of bankruptcies being, so he implies, a necessary condition of human progress.
He laments the unborn, " the industries which (could they have overcome their teething troubles) might have altered the national standard of living; and the new inventions which might have revolutionised transport and power and consumption. but could not obtain enough money to take the necessary losses in their early stages." Well, I for my part (I speak under correction) cannot recall any issue among the various wild-cat flotations of 1929 which has made a vast difference to human wellbeing, and I am continually being impressed by the great improvements (actual and potential) that the inventor's skill has brought about in the last decade in our standard of living and comfort.
THOSE WHO RNOW The truth is surely that risks are still being taken, but they are being taken —and financed — within established industries by men who know their trade and know their jobs and not under the auspices of visionary promoters who are in paper making one day and in pills the next. The euthanasia of these gentry leaves me dry-eyed.
NEW ZEALAND LOAN According to the latest accounts, poor Mr Nash is to get about £8 millions, 13—a4 millions for arms credit, and about the same amount as an export credit. It must be admitted that the reluctance to give New Zealand vast finances to develop her secondary industries may be attributed to other things than pure original sin. The problem is a very difficult one, and the danger of redundant industrial capacity within the Empire is very real.
There are too many people trying to get away from the land, both at home and in the Dominions, and far too many people after white collar jobs. To correct this you must, of course, have a better exchange relation between finished goods on the one hand and food and raw materials on the other. Meanwhile there are. I understand, projects for tin plate plants in Australia and for chemical, fertiliser, low temperature carbonisation, and synthetic nitrogen plants in India, which are bound to enter into acute competition with existing ones.