The New York herald., 1920-01-30
ECONOMY URGED
TO SAVE BRITAIN
Reginald McKenna, Formerly
Chancellor of Exchequer,
Outlines Plea.
TO KEEP DOWN EXPENSES
Only Way to Check Rise in Prices
Is to Keep Outgo Within
Income.
TO KEEP DOWN EXPENSES
(Specia, ca5re to the Herald


LONDON. Thursday.-A plea that Brit
ish expenditures be brought within the
compass Of British revenue was made by
Reginald McKenna. formerly Chancellor
of the Exchequer and now the head of
the London Joint City and Midland Bank.
Inc. at the yearly meeting of the share
holders Of that institution held here to-
day.
It was Mr.. McKenna's first public ut
terance since he assumed the mantle of
responsibility laid down by the late Sir
Edward Hopkinson Holden, chairman OF
the bank, and IN his address he dealt
with the problems of the day as he saw
them, at The same time explaining his
views on what should be done in world
reconstruction. AS the head of the inst
tuition which, next to the Bank of Eng
land. was one of Great Britain's financial
mainstays during the war, he received
an ovation.
THE only condition upon which we viii
be able to check the rise in prices is that
our annual expenditures shall be brought
within the compass of our revenue" he
said in part "In state as in domestic
finance, we must learn to make both ends
meet.
This is not a plea for additional taxa
tion but it is a plea for economy in eX-
penditures. 1t is a plea for such ruthless
cutting down or postponement of all finan-
cial outlay as will reduce expenditures to
a figure less than our tax revenue, for by
such methods only can we hope to restrict
the issue OF currency, check the rise IN
prices, restore foreign exchange and re-
establish London in her old position as the
financial centre and the free gold market
of the world.
Net Due to Inflated Currency.
fo1c "a
theory that inflated currency alone was
responsible for prevailing high prices and
for world unrest. He declared that huge
bank deposits. based on inflated credit, far
exceeded in Importance inflated currency
as a factor in the high price situation
Taking the case OF England alone, he said
that the combined public spending power.
as represented by currency and credit in
1914. was CT 19S, 10000. as compared with!
SO 693, 600 in 1919. thus giving an in
creased spending power Of 81 $4,000, or
125 per cent.
AS an indication of how fundamental is
the relation between currency and deposits
on the one hand and the cost or living
on the other. he said that taking the index
number of the former as 100 in 1914, it now
stands at exactly 225. He said that an in
crease of the same amount has occurred in
the spending power.
Mr.. McKenna then showed methods by
which the spending power could be re-
duced He declared that it was not by
Limitation or by the reduction of paper
money. but that IL could be achieved by
the gradual deflation of the entire credit
structure. Direct advances to the govern
ment by the Bank of England, against
which immediate increases in deposits and
currency are made, are, he declared, most
flaGrant causes of initiation and should De
eliminated first
WouId Eliminate Credits.
A secondary influence, he said. consists
of indirect credits supplied TO the gov
ornment BY banks, which also increase
deposits and currency. These he would
eliminate with the utmost eXpediency.
Third in the list, he said, came loans OBJ
tanned from the public partly through
banking aid These. he believed, should
he liquidated with the greatest possible
speed through economy and by savings by
the people. His stand against high bank
rate as a means OF eXpediting Initiation
was very emphatic.
Let us take the bank rate and con-
sider its operation today as compared with
pre-war times" he said Under condi-
tions then enjoyed. the raising of the bank
rate was an admirable means of checking
excessive borrowing. of restoring our ex-
change and OF restricting the demand Tor
currency. Today we cannot be certain
that Il will achieve any OF these purposes
lt is conceivable. indeed, tnaJ IL Wouiu
have an opposite effect. The government
has been the heaviest borrower and may
continue to be. whatever may be the bank
rate
THE raising OF the bank rate depreciates
all existing government securities, which
makes IL difficult 10 borrow from the
public, and as result the government
Is driven to the Bank OF England. We
know the consequences Total deposits
and bank cash are increased, prices go
up and currency is further inflated.
''The purpose OF raising the bank rate
is to prevent this by making it too ex-
pensive and by this means to restrict de-
posits and the issue OF currency. But
when the borrower rs the government.
which may have to borrow no matter
what the price is and which has the power
to compel the Bank Of England to lend,
raising the rate not merely fails TO achieve
It's purpose, but actually operates in the
opposite way.
Regarding exchange before the war,
the raising of the bank rate was bound to
send up the value of the pound sterling IN
foreign exchange. The balance OF trade.
including invisible exports and imports,
was in our favor. and IL for the moment
the pound sterling depreciated It was only
because we had lent too much money
abroad. Raising tho bank rate made 1t un-
profitable for the foreigner to borrow in
this market, and left our excess exports
free to assert their natural effect.
German Finance Minister Regards Ex-