Page 2, 28th October 1938

28th October 1938
Page 2

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By Our City Editor

From the larger week-end post which greeted brokers on the start of the new Account, it seems that at last the public is taking a greater practical interest after having been practically out of the markets for several months. Business, however, is of a " specialised " character, iron and steel, armament and engineering shares re

ceiving principal attention on the excellent results disclosed recently in this direction, and the fact that there now seems no likelihood of any slackening of our Defence programme over the next few years. The fact that those shares benefiting from Government expenditure on rearmament are generally indicated as the most promising channel of industrial investment for some time to come, places at a disadvantage those investors who object on principle to participating in profits from the manufacture of war material.

Monopoly of Aircraft Ring

Although this attitude on the part of some investors precludes investment in concerns directly employed by the Government, these are comparatively few in number, and it is as well to distinguish between their position and that of the vast majority of engineering firms, which are only very indirectly concerned through a little sub-contracting, and are still largely occupied with civil work.

In the case of the Aircraft industry, for example, those companies holding the monopoly of official work comprise a ring of only nineteen. including such firms as Airspeed, Bristol Aeroplane, Fairey and Short Bros., most of which are farming out work to the smaller companies.

Even among the ring firms, however, there are several producing 'planes only for such non-combatant purposes as training and observation, while the enormous demand for machines for the Air Guard should fully occupy those other concerns manufacturing only private and commercial types. Although having no connection with weapons of war, the shares of these companies should benefit as much as any from Government expenditure.

Taxation Has Its Benefits

Gilt-edged and other fixed-interest securities are restrained at the moment owing to uncertainty as to the means of financing further rearmament. There is much speculation as to the extent to which the programme will be met by a new, big loan, or whether, for the moment, provision will be made from national revenue by increased income-tax and/or N.D.C. The choice of a loan is suggested by the weakness recently of the Gilt-edged section, and the tenacity with which the authorities have maintained the 2 per cent. Bank rate, despite the recent major crisis. Nevertheless, the Government must raise money at all costs, and, if this method is chosen, will offer more attractive terms than has hitherto been necessary. In this case, securities such as War Loan and Consols would have cause for depression.

On the other hand, there are many who favour higher direct taxation as a preferable means of raising funds to any further increase in the national debt. For many years past, we have witnessed in many countries, including our own, vast spending by Governments on armament and social services, without precipitating them down the road to ruin which we were formerly led to believe was the sure result of such squandermania. Such expenditure is, in fact, a mild form of inflation, and provided it is confined within the country the advantages to the masses far outweigh the disadvantages to the direct taxpayer.

In this respect, it is clear that everywhere a new economic order has been established, which is as near as practicable to the Socialist ideal of the redistribution of wealth. In future, the moneyed man must be prepared to pay away upwards of a third of his annual income in direct taxation, much of which will be devoted to fostering industrial activity, and thereby increasing the purchasing power of the masses; as a result, a substantial proportion of every pound of revenue spent in this way will revert to the Treasury in the form of taxes on beer and tobacco, while the investing class will also receive compensation from increased dividends as a result of prosperous industry. It is true that borrowed capital could be spent to the same general advantage, but, in this case, there is the burden of making provision for both the interest and the principal. For this reason, I believe that the greater cost of rearmament will be borne by the present taxpayer rather than the future generation.

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