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Ernest Bevin and G.D.H.Cole



But can we trust our bankers and financiers to carry into effect such a policy as the foregoing sections have outlined? Emphatically we cannot; for our bankers are primarily responsible for the troubles into which we have fallen. It was on their advice that we went back to the gold standard in 1925, on a basis of pre-war parity which heavily over-valued the pound, and thus put a severe strain on our exchanges and disastrously hampered our export trade. It was their action in locking up in long-term loans sums borrowed from abroad which we were liable to repay at short notice that contributed largely to landing us in the financial crisis of 1931. They have been convinced deflationists almost to a man; and, though they have for the time acquiesced perforce in the suspension of the gold standard, they are deflationists still—witness the high bank rate imposed on the morrow of the suspension, when the danger of a further loss of gold had been removed. They are hankering still, not merely after the gold standard, but after a return to it at pre-war parity, and after the drastic cuts in wages and social services which such a return would involve. They have let us down again and again since the war; and now they are eagerly waiting their chance to let us down once more.

It is out of the question to leave the banks free to dictate to governments in the future as they have dictated hitherto. If we are to pursue a courageous policy of leading the world back to financial sanity, or even to safeguard the interests of our own industries and our standard of living, we must convert the banks from the agents of a narrow financial group into responsible instruments of public policy. This involves socialization, in some form, not only of the Bank of England, but also of the Joint Stock Banks which, with it, occupy the key positions of the financial system. We must socialize the Bank of England, as most other countries have socialized their Central Banks, in order to be free to pursue an expansionist monetary policy on the basis of a managed currency, and in order to be free to negotiate with other countries under conditions which will enable our Government to implement, through its control of the Central Bank, whatever policy may be agreed upon with other nations. Nor can we, if that proves to be the best course to pursue, possibly stabilize our own price-level without full control of the operations of our Central Bank.

So far there will be a wide measure of agreement. But many people who favour socialization of the Bank of England still boggle at the socialization of the Joint Stock Banks. This is, nevertheless, equally indispensable. Broadly, in our present financial system, while the Bank of England chiefly controls the total volume of currency and credit available, the Joint Stock Banks control its distribution among the various classes of potential borrowers. The Bank of England can, in the main, limit their total lendings; but it has far less power to cause expansion than contraction, and very little power indeed of regulating the flow of credit in this or that direction.

This power is, however, indispensable for the effective control of prices as well as for a co-ordinated policy of national economic planning and development. Largely for want of it the policy of price stabilization pursued by the Federal Reserve System in the United States broke down; for no means were devised of preventing the flow of the available credits, through the member banks, into stock- speculation, instead of the financing of increased production and employment. Moreover, if the Bank of England, under public control, were pursuing one policy, while the directors of the Joint Stock Banks believed in another, we should have a situation of pull devil, pull baker, in which each would be able to thwart the other, and the result would be a deadlock worse for industry than almost any positive policy.

It is, moreover, very necessary, if we are to inaugurate a new financial policy, to have effective control over the doings of the numerous private financial institutions of the City of London—discount houses, acceptance houses, issue houses, investment agencies, and, last but not least, the stock and produce exchanges. Now, many of these—and especially the discount houses and the Stock Exchange—are at present related closely to the Joint Stock Banks, from which they draw the loan money with which they carry on their operations. We are not suggesting that we ought to socialize these private institutions—that would be at this stage far too complex a business. What we suggest is that the requisite control over them can be ensured if, and only if, the State has in its hands both the Bank of England and the great Joint Stock Banks.


Socialization, of course, does not mean nationalization in the old- fashioned sense of taking the banks over, and running them on Civil Service lines under a responsible minister and a Government department. Almost no one, we take it, wants that. Socialization means rather the re-constitution of the Bank of England and of each of the Joint Stock Banks as a publicly owned corporation, with directing bodies appointed and removable by the Government, and subject in matter of high policy to Government control, but free from day-to- day political interference in their ordinary business. The precise implications of this form of socialization need working out; but we are already in process of working them out in the case of such institutions as the Central Electricity Board and the B.B.C.—both public bodies whose employees are not Civil Servants and which are not tied down to Civil Service methods or subject to detailed Treasury control or interference by Parliament. There are already the models to be followed in the impending socialization of the banking system.

The aims of a socialized banking service should be threefold. The first should be to secure a management of the issue of currency and credit that will promote industrial expansion and increase employment, without allowing inflation to occur—for emphatically an increase of currency and credit accompanied by a corresponding increase in production is not inflation, but only legitimate and necessary expansion. The second object should be to use the credits thus made available so as to secure the maximum increase in production and employment, and to check speculative activities, by their right distribution among the various industries and services asking for loans. And the third object should be to regulate overseas investment of capital, and to direct home investment into the right channels, both by controlling the operations of private concerns in the capital market, and by setting up new public institutions—and especially a National Investment Board—and so to avoid the colossal waste which has been characteristic of the new capital issues of recent years. The Macmillan Committee on Industry and Finance has recently pointed out that investors in the last investment boom in Great Britain lost practically half the sums they invested within less than two years. This is insane waste of capital which is badly needed for the reorganization of our basic industries and the employment of our workers.

Any full discussion of these three objects would, however, go far beyond the scope of this booklet, which is concerned only with the causes of the present crisis and a general indication of the appropriate remedies. We have put forward two things as the indispensable conditions of averting a complete world collapse in the very near future. These two things are, first, a drastic revision of all international claims, including a complete cancellation of war debts and reparations, and a determined attempt to stabilize prices at a satisfactory level by world action, and to ensure for the future an adequate supply and a right distribution of currency and credit to meet the world’s needs.

These objects, we have further suggested, cannot possibly be secured without the thorough socialization of the banking system; for if States are to agree on a new financial policy they must have in their own hands the means of carrying that policy into effect. We would add that the country must have as well a strong Government, thoroughly aware of what it is attempting to do, and prepared to stand up courageously to the opposition of financial and rentier interests, and to put up with no nonsense from obstructionists either at home or abroad. What is wrong with the present Government is not that it has demanded emergency powers, but that it is putting these powers to the wrong use.