Thomas, Samuel Evelyn
The Macmillan report
A Short Summary of its Main Points
PREPARED FOR THE GUIDANCE OF STUDENTS
S. EVELYN THOMAS, B.Com. (Lond.), Cert. A.I.B.,
DIRECTOR OF STUDIES, METROPOLITAN COLLEGE.
With the Compliments of the
METROPOLITAN COLLEGE, ST. ALBANS
LONDON OFFICE AND LECTURE ROOMS - 40-42, Queen Victoria St., E.G. 4.
MANCHESTER OFFICE AND LECTURE ROOMS - - 21. Spring Gardens.
THE MACMILLAN REPORT.
For some years past there has been growing support for the view
that the present conditions of depression in this country are largely due
to the faulty organisation of our banking and credit system and to the
monetary policy pursued by the authorities during the last decade.
Accordingly, in November, 1929, the Government set up a Committee
of economists and business men, under the Chairmanship of Lord
Macmillan, " to enquire into banking, finance and credit, .... and to
make recommendations calculated to enable these agencies to promote
the development of trade and commerce and the employment of
After many months of exhaustive investigation, during which a large
number of witnesses from banking, commercial, industrial, professional
and academic circles were examined, the Committee issued its Report,
Cmd. 3897, dated July, 1931.
Part I of the Report is devoted to an historical survey of the banking
and monetary systems here and abroad ; the international gold
standard, its functions, objectives and conditions ; the economic
position of Britain ; developments in the economic situation since
1925 ; the fall in world prices and the influence of monetary policy
on the price level.
Part H, with which we are primarily concerned, contains a number
jd recommendations whose main purport should be
The Committee points out that the present troubles of this country
arc neither wholly domestic nor wholly international in character.
The recent increase in unemployment is, it is true, due in the main to
the " world depression " ; but before the world depression we had a
domestic problem of over a million unemployed ; and even after the
troubles of the world as a whole are redressed it would appear that the
domestic problem is likely to remain. The Committee hence found it
necessary to consider proposals relating to both international and
domestic monetary policy.
THE SPECIAL PROBLEMS OF GREAT BRITAIN.
Britain has necessarily suffered severely from the depressed inter-
national situation because of her markedly " open " position, i.e., her
extreme dependence on foreign trade, on her income from foreign
investments and on her profits as international banker, merchant and
financier. In such circumstances, the disequilibrium associated with
prolonged unemployment may be due to any of three factors : (a) that
SUMMARY OF THE MACMILLAN REPORT.
in this country selling prices do not adequately cover costs of production ;
(b) that similar conditions exist throughout the world ; and (c) that our
costs of production are above those of our competitors.
The Committee attributes our unemployment mainly to the first and
third of these, and expresses the opinion that the disparity between our
costs and those of our competitors is due not so much to the inefficiency
of our industries as to the fact that sterling costs of production did not
adjust themselves to the rise in the value of sterling which was
involved by our return to the gold standard. The effect of this lack
of adjustment has been intensified by the world-wide collapse in
prices, and because, though our export industries have reduced their
own costs, that reduction has been nullified by an increase in the
costs of " sheltered " services, such as transport, which enter into the
prices of all our products.
CONCLUSIONS AND RECOMMENDATIONS.
I. THE MAIN OBJECTIVES OF THE MONE-
THE GOLD STANDARD.
After its exhaustive review in Part I of the Report of the working
of the gold standard, both national and international, the Committee
expresses the opinion that, so far as this country is concerned, the
sacrifices involved in returning to the gold standard at the pre-war
parity have not been justified by the anticipated advantages of external
Difficulties in the Operation of the Gold Standard.
(1) The effects of the re-adoption of the gold standard in different
countries varied. In Great Britain our policy of deflation
meant that the existing level of sterling incomes and costs
was relatively too high in terms of gold. This necessitated
a downward adjustment, pending which industries subject
to foreign competition were at a disadvantage. In France
and Belgium, the policy of devaluation gave an artificial
advantage to export industries, pending an upward adjust-
ment of costs.
(2) International lending power has been re-distributed, largely as
a result of the character of the final settlement of the War
debts, by which Britain resigned her own net creditor claims
in favour of France and the United States. Consequently,
the surplus available for lending has relatively increased in
the latter two countries while Great Britain has a smaller
surplus, further reduced since 1925 by the adverse effect of
the return to gold on her visible balance of trade. Instead of
using their receipts as Great Britain used hers, in increasing
imports or in making additional long term foreign loans,
these two countries have required payment of a large part
of their surplus either in gold or in short-term liquid claims.
SUMMARY OF THB MACMILLAN REPORT.
This position can only be temporary, since if a creditor
country is unwilling to lend its surplus, its own export trade
must be destroyed through the relative reduction in the gold
costs of other countries. This effect has been delayed by the
sterilisation of gold imports in the creditor countries, France
and U.S.A., and by the inelasticity of wages and other costs
in the debtor countries.
The Committee concludes, however, that the promise of international
co-operation and the dependence of this country on overseas trade
and on invisible exports make it desirable that we should maintain
the gold standard at the present parity.
THE INTERNATIONAL PRICE LEVEL.
The fall in wholesale commodity prices has adversely affected share-
holders and entrepreneurs and has led to an increase in unemployment.
A rise in prices, however, would transfer purchasing power from those
in receipt of fixed incomes to the shareholder and entrepreneur and
those whose employment is increased. Moreover, it would lead to
a decrease in the burden of war debts.
Hence, the Committee concludes that the International Price Level
should be forced up to the 1928 level by the Bank of England and
other central banks working in the closest co-operation. Although this
clearly involves a system of international currency management, and
manifold difficulties which only experience can solve, it should,
nevertheless, be " the prime object of international statesmanship " to-
attain the new level of prices and, having achieved it, to maintain it
with as much stability as possible.
DOMESTIC CURRENCY MANAGEMENT.
" The monetary system of this country must be a Managed
System ". The main objects of a sound monetary policy (a)
maintenance of the parity of the foreign exchanges ; (ft) the avoidance
of the Credit Cycle ; and (c) the stability of the price level cannot be
achieved automatically, as was thought to be the case under the old gold
standard. They require the constant exercise of knowledge and
judgment by an institution of ripe experience, great resources and
unchallengeable authority. Hence
The managing authority should be the Bank of England ,.
" an excellent instrument for the purpose ; independent of political
influences, yet functioning solely in the public interest ; with long
traditions and experience and clothed with vast prestige, yet not
distrustful .... of evolutionary change or hesitant of new respon-
sibilities ". The Committee suggests that the Bank of England should
endeavour to promote the stability of output and of employment
at a high level by influencing the regular flow of savings into investment
at home and abroad. The banking system can supply short-term loans
but funds for long-period investment must be provided from sources
outside the banking system. The machinery of investment must be
so adjusted that a proper balance shall exist between facilities for
domestic and foreign borrowers.
SUMMARY OF THE MACMILLAN REPORT.
II. INTERNATIONAL MONETARY POLICY.
In brief, the Committee concludes that the objectives of our monetary
policy should be : (a) to adhere to the gold standard at the existing
parity ; (b) to use our influence to raise the international price level,
i.e., to lower the value of gold ; and (c) to maintain the stability of
national and international prices at the new level. Thus 'both
permanent and temporary measures are called for.
A. PERMANENT MEASURES.
Stability of international prices over long and short periods can be
maintained only by co-operation among central banks. Over long
periods stability is largely a question of gold reserves in relation to
credit. Stability over short periods in order to mitigate the Credit
Cycle is a question of co-operative monetary management.
Central Bank Reserves.
The problem of the inadequacy of the world's gold stocks and future
gold supplies is not regarded as immediately pressing, particularly as
gold currencies no longer circulate and gold stocks are concentrated
in the reserves of the central banks.
The sole use of gold reserves to-day is to enable a country to meet
temporary deficits in its international balance of payments. Yet in
many countries legislation fixes a definite proportion between the total
reserves of gold or foreign gold exchange and the volume of notes
issued by the Central Bank. Such a basis is now almost meaningless
and has the effect of forcing a drastic restriction of credit whenever
the reserve approaches the legal minimum. Greater freedom in
the use of Central Bank reserves is, therefore, desirable.
The Committee endorses the views expressed in the second interim
Report of the Gold Delegation of the Financial Committee of the
League of Nations and suggests the following principles for the guidance
of central banks generally :
(1) Gold standard countries should agree not to allow gold coins
or gold certificates to pass into circulation.
(2) Central banks should collectively consider whether national
legal requirements as to gold reserves should be relaxed or
tightened. At the present time they should probably be
(3) Central banks should be permitted, at their discretion, to regard
balances with central banks in other gold standard countries
or with the Bank for International Settlements as the
equivalent of gold for all purposes.
(4) Central banks must not be unduly limited in their power to
expand credit without a corresponding increase in their gold
holdings, or to restrict credit otherwise than by a restriction
of such holdings.
In this way, the available quantity of monetary gold would not
limit the available supplies of currency and bank credit, and conse-
quently need not affect general price levels.
SUMMARY OF THE MACMILLAN REPORT.
Obstacles facing Central Banks.
(1) Non-monetary causes of instability nullifying effective con-
trol, e.g., political troubles, war debts, seasonal variations,
changes in tariffs, in fashion and in demand, over-borrowing
by some countries and over-lending by others, rigidity of
economic conditions and especially of costs of production,
and local or general lack of confidence.
(2) Divergence between the interests of their own country and
those of the rest of the world.
(3) Inadequate control over the monetary machine and its working.
Neither the Federal Reserve system, the Bank of France nor
the Reichsbank has as complete a control over the creation
of credit in their respective countries as has the Bank of
England, whose control, within the limits of the international
standard, is " remarkably complete ". Nevertheless, even if
the central bank can control the amount of money, it cannot
control the uses to which it is put. This is the sphere of the
Central Bank Control over Bank Credit.
A central bank should regulate the volume and price of bank credit
so as " to maintain output and employment at the maximum compatible
with adherence to the international gold standard and with maintenance
of the stability of the international price level ". To do this, it must
watch not only " the short-money market, the gold movements and
the pressure on the exchange and conditions abroad, but also the
internal price level, the unemployment figures and the capital market".
It is reiterated, however, that owing to the international effects of
monetary conditions, effective internal control can be achieved only
by concerted action by all central banks.
Summary of Conclusions Relative to Central Banking Policy.
(1) The aim of central banks should be to maintain the stability
of international prices over both long and short periods.
(2) This implies the regulation of the volume and terms of bank
credit so as to maintain stability in the rate of new investment
and new enterprise, both at home and abroad.
(3) Central banks should frequently confer to decide on the
general tendency of their individual credit policies, without
prejudice, however, to the individual discretion of each
institution to safeguard its national interests by altering its
own bank rate, or by attracting or discouraging gold imports.
(4) Whilst each central bank should retain complete autonomy,
it should aim at avoiding unnecessary imports of gold. Its
duty should be to prevent unbalanced internal conditions
from creating international instability, and, to this end,
it should endeavour to combat any national tendency to
maintain too high a proportion of liquid investments or to
undertake an excessive amount of long-term lending.
B. TEMPORARY MEASURES.
To meet the present emergency, creditor countries which have been
requiring balances to be paid in gold or short-term liquid claims should
be induced to lend their surpluses and to buy goods. Loans should be
SUMMARY OF THE MACMILLAN REPORT.
made to solvent borrowers to finance new productive enterprises and
should be made either to foreign borrowers or to home borrowers. To
this end central banks should (a) endeavour to remove existing
hindrances to foreign lending, and (b) maintain cheap credit in their
money markets. It is essential that concerted action be taken, as
increased lending or buying by one creditor nation might result in the
claims against it being used, not to buy more goods, but to meet
the demands of the other creditor nations.
The task is two-fold : (a) to attract borrowers by low rates of interest
on long-term loans, and (b) to remedy the shortage of sound borrowers
for new enterprise. The first of these objects may be attained if central
banks exert their influence to promote public confidence in the
duration of low short-term rates, and to lower deposit rates
so as to encourage investment. The second object involves some
action to reinforce the credit of borrowers and so overcome the
unwillingness to lend which has followed the extensive unwise use of
borrowed funds. The difficulty might be overcome by some form of
guaranteed credit under a state-aided international guarantee fund or
by the establishment of a powerful international financial corporation
to safeguard the interests of investors in foreign loans.
III. DOMESTIC MONETARY POLICY.
THE BANK OF ENGLAND NOTE ISSUE.
The volume of bank deposits has now a more important influence on
monetary conditions than has the volume of cash, notes being used
for few purposes except wage payments and small transactions. Hence
an increase in the active note issue is not so much a cause as
a result of trade activity, this activity in turn being traceable to an
expansion of the Bank's deposits. Yet the Bank is not regulated in
respect of deposits. This, however, is to the advantage of central
banking operations. What is required is more elasticity with regard
to the note issue.
The provisions made by the Act of 1928 are inadequate, for the
existence of a fixed fiduciary issue involves the immobilisation of gold
for export purposes to the extent of the difference between the fiduciary
issue and the actual circulation. Moreover, an approach to the
Treasury under existing provisions for powers to increase the note
issue may be interpreted as a sign of weakness and give rise to
undesirable nervousness. The Bank of England should, therefore,
have greater freedom with regard to its reserves and should be
allowed to reckon as part thereof any balances held by it with the
Bank for International Settlements.
(a) Parliament should give the Bank power to put into active
circulation notes to the amount of 380,000,000 with an
absolute maximum of 400,000,000. Temporary additional
elasticity to be provided by reference to the Treasury.
(b) The Bank should not allow its gold reserve to fall below (say)
75,000,000 except temporarily with the permission of the
Treasury. In ordinary circumstances the gold should not
fall so low as this statutory minimum. On the contrary,
the Committee suggests that the Bank's normal reserves of
gold or gold exchange should be increased.
8 SUMMARY OF THE MACMILLAN REPORT.
Separation of the Departments.
Although the separation of the Departments provides a convenient
formula for dividing the profits of the Bank between the Bank and the
Treasury', it has not been satisfactory from any other aspect, and is
confusing and misleading to other than experts. The Departments
should be amalgamated and the statements in the Bank Return
amalgamated without preventing the calculation of the division of
profits as before.
Notes in Circulation.
Of the " notes in circulation " a considerable amount is held by the
joint stock banks as till money ; but this position could be avoided if
the banks would increase their deposits at the Bank of England. In
this way the amount of notes stated to be in circulation would be
reduced to a figure more representative of notes actually in circulation.
RESOURCES OF THE BANK OF ENGLAND.
Before the War our liquid international assets consisted mainly of
the Bank of England's gold and of sterling acceptances on foreign
account. These were at least equal to and sometimes in excess of our
short-term international liabilities. In recent years, however, London
has conducted a vast business in international deposit banking, and
her liabilities in respect of short-term bills and deposits held on
foreign account greatly exceed her claims in respect of accep-
tances. At the same time, London is now doing a larger volume of
long-term financing than is justified by the surplus which we have
available for long-term overseas investment, with the result that we
are financing long-term foreign loans by short-period borrowing in
the form of precarious foreign deposits, which can be retained in
London only at the cost of high rates of interest. In brief, our position
is less liquid.
The Bank of England's liquid assets should, therefore, be
substantially increased at the first opportunity. Bank rate
should be used sparingly when the object is merely to balance moderate
changes in the short-term position by attracting foreign funds. It
should be rightly used to contract credit either at home or abroad.
Temporary contingencies would often be better met by the Bank
relinquishing its own liquid assets. For this reason, fluctuations in the
volume of assets should be allowed to a greater extent than in the past
Thus the Bank's gold reserves should be allowed to fluctuate between,
say, 175,000,000 and 100,000,000, and they should be supplemented
by liquid resources up to 50,000,000 held in foreign centres and with
the Bank for International Settlements.
DAY-TO-DAY POLICY OF THE BANK.
The chief means by which the Bank manages the monetary system
(1) The official bank rate.
(2) Open market operations, e.g., the sale of securities, which result
in a change in the aggregate amount of the Bank's private
(3) Open market operations which may consist of changes in the
form of the Bank's assets but not necessarily their volume.
They may take three forms :
SUMMARY OF THE MACMILLAN REPORT. 9
(a) Purchasing and selling securities to offset gold movements
(6) Buying long-dated securities (Consols) and selling short-
dated securities (Treasury Bills).
(c) Forcing the market to discount or obtain advances at the
official rates, with the object of bringing market rates
into closer conformity with these, by selling securities.
(4) Adoption of technical devices for directly influencing foreign
exchanges, e.g., sales or purchases of foreign balances (gold
exchange methods) dealings in forward exchange, and small
variations in the Bank's buying price for gold.
(5) Personal influence or advice to prominent elements in the
In regard to (1), the Committee's views, as stated above, are that it
should be used sparingly.
The success which in the past has attended the Bank's open market
operations is in itself a justification for their development, but in
regard to (2) above, the Bank's position could be strengthened if
it were afforded more detailed information respecting the
nature and extent of the cash holdings and deposits of the joint
stock banks, and if there were closer collaboration between the Bank
and the joint stock institutions.
RELATIONS WITH THE JOINT STOCK BANKS.
The published reserves of the clearing banks show a figure of about
10 - 5 per cent, of the deposits, comprising 6 per cent, in cash and 4'5 per
cent, in balances with the Bank of England. But this latter figure is
higher than is actually the case from day to day, for the averages
are not daily averages but relate to particular days, when the reserves
are inflated by " window dressing ". The Committee recommends
that the process of window dressing be abandoned and that the
London clearing banks should keep a daily average of cash,
in bank notes and balances with the Bank of England, of not
less than 10 per cent, of their deposits. This would involve their
keeping larger reserves.
A further recommendation was that returns by the joint-stock banks
should be more informative.
Banks other than the clearing banks should also increase their liquid
reserves to a proportion to be determined in each case after consultation
with the Bank of England.
If, following frequent and regular meetings with the Bank of England,
the banks would from time to time accept the Bank of England's advice
as to the average figure at which to keep their reserves, it is possible
that the relaxation or tightening up of this figure could be made an
important part of the Bank's machinery for the regulation of credit
and that it could usefully replace some open market operations,
particularly if the joint stock banks' deposit rate were made more elastic.
But these arrangements can be successful only if the joint stock
banks are taken into the Bank's confidence and plainly informed
of its current credit policy.
The main object of these larger reserves is to provide the
central bank with adequate resources with which to manage
the monetary system. With the same object, the Committee
further suggests that the Bank of England should consider an
appreciable increase in the amount of its capital.
10 SUMMARY OF THE MACMILLAN REPORT.
IV. THE CAPITAL MARKET FOR HOME
FINANCE AND INDUSTRY.
Although British manufacturers and traders have always been able
to find cheap accommodation, yet the relations between British banks
aud industry have never been so close as those between German and
American banks and industry.
In Germany, scarcity of capital and of independent investors
compelled the banks to supply industry with long-period as well as
short-period capital. These responsibilities obliged them to keep in
intimate touch with the industries themselves.
In France, the individual investor had usually relatively small
resources and relied on the investments suggested to him by the big
banks which made practically all the industrial issues.
In the United States, the great industries and railroads were
affiliated to particular banking houses or issuing institutions which
usually sponsor all industrial issues of well-known concerns and, in
addition, make loans to investors and speculators either direct or
In considering the most beneficial system for British industry, the
Committee states that progress necessitates closer association
through appropriate organisations of the financial and industrial
Financial leaders, through their wide international operations, are
competent to advise not only on home conditions but also on affairs
throughout the world. Industry is becoming more internationalised ;
and British industry must be ready to meet American and German
competitors who are generally financially powerful and backed by
banking and financial groups. Without similar support, British
industry will undoubtedly be at a disadvantage, particularly in the
establishment of British enterprises abroad. It will, therefore, have
to keep in close touch with institutions connected with international
finance. Industries and financial institutions will thus have to
co-operate so that each is thoroughly intimate with the affairs and
position of the other.
Particularly in the matter of investment have our financial institu-
tions been weak. Greater attention must be given to directing our
capital into domestic enterprise and into British-owned concerns
abroad. Long established issuing houses assist those who invest
abroad and frequently vouch for the issues they sponsor ; but with
few exceptions little guidance is forthcoming in respect of home issues,
and many ignorant investors are misled merely by the appear-
ance of the name of a large joint stock bank on a prospectus.
Though industry should in no way be managed by the banks,
both industry and finance would benefit from a closer relation-
ship between British industry and the City of London, especially
if the intrinsic merit of industrial issues were vouched for by institutions
<>f first-class strength and repute specialising in the finance of particular
nulustries. It would also be better if the joint stock banks did not
give the appearance of sponsoring any issues for which they could not
SUMMARY OF THE MACMILLAN REPORT. 11
CREDIT FOR INDUSTRY.
Every industrial and financial company has to provide itself with (a)
permanent capital and (b) seasonal or temporary credits. Sometimes
intermediate credit also is required.
SHORT-TERM CREDITS. The principal function of the banks is to
provide short-term credit. This a lucrative source of business and
the facilities afforded to British industry in this respect compare
favourably with those available in other countries. The Committee
concludes that " our banking system is adequate and satisfactory in the
provision of the normal short credits to industry and their distribution."
In this connection, however, all would benefit by a more extended use
of commercial bills bills given by a purchaser to a supplier rather
than mere book entries.
INTERMEDIATE CREDIT. This is credit advanced (a) for periods ranging
from one or two up to five years and is required for hire purchase sales,
in which the ownership of goods is retained by the seller until payment
is completed ; (b) for advances against deferred payment, in which owner-
ship of goods passes to the buyer and payment is spread over a period ;
and (c) for long term credit contracts, such as road building and
Excellent facilities exist for these purposes for use internally, but the
trading community does not take as much advantage of them as it
might, especially in the first two groups.
In the case of sales and contracts abroad, credit facilities are not
adequate and frequently British firms have to resort to foreign institu-
tions. To remedy this situation, British institutions should be
established for the purpose of assisting British industry and
trade abroad. Some of these facilities should be provided by the
joint stock banks and other existing financial institutions. The banks
would run no undue risk in financing longer term contracts than is their
custom, provided they were of a sound character, and amounted only
to a small proportion of their advances.
LONG-DATED CAPITAL : PROPOSALS FOR A NEW
Closer co-ordination between British industry and the City of London
would be advantageous for the provision of long-dated capital, especially
for large-scale industry. In some respects the City has better facilities
for providing capital to foreign countries than to British industry, and
there is need for new institutions to fulfil the following functions :
(a) To act as financial adviser to existing companies ;
(b) To advise as to the provision of permanent capital
(c) To secure the underwriting of and to issue the
company's securities to the public and, if necessary, to
assist previously in arranging for temporary finance in anticipa-
tion of an issue ;
(d) To assist in financing long-term contracts at home and abroad,
or new developments of an existing company, and to found
companies for new enterprises ;
(e) To act as an intermediary and financial adviser in the case of
mergers or in the case of negotiations with corresponding
international groups ;
(/) To be free to carry out all types of financing business.
12 SUMMARY OF THE MACMILLAN REPORT.
Such an institution must have a substantial capital. When financing
contracts for periods up to five years, it might be able to supplement
its resources by the issue of its own short-term notes. It should be
able to rely on co-operation with existing financial institutions in making
temporary advances. It must also build up an expert staff, establish
gradual connections with industry and instil confidence in its issuing
ability and credit.
Though the big joint-stock banks could perform these functions it
" is doubtful whether the banks can with advantage depart from
their traditional banking sphere." The same difficulty applies
to the big private banking houses. Such institutions could, however, with
no change in their present banking practice, take an interest in the share
capital of an institution set up for this purpose. " The best course
might be if the leading private institutions and the big banks
were to co-operate in creating one or more such concerns."
The Bankers' Industrial Development Company, at present an offshoot
of the Bank of England, might form the nucleus of a new institution
on the lines suggested, but it should at a convenient stage be separated
from the Bank of England and have a separate, self-supporting exist-
ence. To provide financial facilities for the small and medium sized
concern the Committee recognises that it .nay be desirable to form
yet another type of finance institution which would confine itself to
smaller industrial and commercial issues.
V. INFORMATION AND STATISTICS.
Information and statistical knowledge are also essential. The
provision of statistics could be undertaken by the appropriate Ministries.
In particular the publication of the following statistics in new or
improved form is recommended : the monthly returns of the clearing
banks ; classification of loans and overdrafts ; returns from the other
joint stock banks and other banking institutions ; foreign balances
and foreign liquid assets held in sterling ; the volume of acceptances ;
the volume of cheque transactions ; the balance of trade ; the census of
production ; the volume of wages paid ; the volume of retail sales ; the ag-
gregate and the distribution of profits ; the value of capital construction.
The various Government Departments responsible for the prepara-
tion of statistics should co-operate in such work.
ADDENDA TO THE MAIN REPORT.
The Report was signed by all members of the Committee with the
exception of l.ord Bradbury, who dissented. Most of the other members
u'.ol Addenda which amplified rather than disagreed with certain
points in the main report. The chief points of the two most important
of these Addenda are summarised here.
Signed by Sir Thomas Allen and Messrs. Ernest Bevin, J. M.
Keynes, R. McKenna, J. Prater Taylor, A. A. G. Tulloch.
The signatories to this Addendum recall that in the Main Report
it is recognised that the remedies for the world depression lie in an
expansion of purchasing power ; in the encouragement of borrowing
if necessary under guarantees; in a reduction in the cost of both long-
terra and short-term credit ; and in the encouragement of enterprise
SUMMARY OF THE MACMILLAN REPORT. 13
But the " open " position of this country is such that the initiation
of independent action here, without concerted action abroad, would
subject the Bank of England to a severe strain, to meet which it would
be necessary for us to strengthen our position by (a) improving our
balance of trade through (i) an increase of exports, (ii) the substitution
of home-produced for imported goods, and (b) increasing investment
Apart from the basic need of improving the relative efficiency of our
industries, there are three practical courses open to us for achieving
these objects : (a) a reduction of salaries and wages ; (b) control
of imports and aids to exports ; (c) State assisted schemes of capital
REDUCTION OF SALARIES AND WAGES.
While recognising the urgent need for greater elasticity of money-
incomes and the fact that an all-round reduction would be beneficial,
the signatories emphatically reject the suggestion that a reduction
of salaries and wages alone would offer a solution. Such a
policy would tend to cause further falls in prices and would render
capital charges and taxation a greater real burden ; while it would
inevitably defeat its own object by causing similar reductions in other
But if an all-round reduction in money-incomes becomes plainly
unavoidable, it may be attained by :
(a) Devaluation a policy rejected in the Main Report.
(b) A National Treaty for a simultaneous cut a scheme which
has many practical difficulties, but which should nevertheless
receive consideration as a possible alternative.
(c) Tariffs plus Bounties which would have the twofold effect
of reducing money-incomes and improving our balance of
CONTROL OF IMPORTS AND AIDS TO EXPORTS.
The signatories give their strongest support to the third method,
which they consider would be attended by the advantages but not by
the practical difficulties of the two others. They justify the abandon-
ment of the policy of Free Trade on the ground that the economic
position of this country is in a state of chronic disequilibrium, and they
argue that the suggested policy would bring in a useful contribution
to the National Exchequer. Hence, in the present circumstances, this
is regarded as the most practical plan of action likely to revive
SCHEMES OF CAPITAL DEVELOPMENT.
In conjunction with a system of tariffs plus bounties, the signatories
recommend the development of state enterprise with subsidies for
domestic investment. In particular, the following schemes are
suggested : (a) Rebuilding and re-planning schemes for larger towns
and industrial centres ; (b) Refitting of our staple industries on
modern lines; (c) Electrification of the railways as suggested by
the recent Weir Commission.
It is pointed out that there is no danger that such State-directed
schemes will result in a transference of private investment since there
is, at the moment, no lack of funds available for investment : rather
there is a lack of confidence in borrowers. Above all it is considered
desirable that capital development should be organised and
14 SUMMARY OF THE MACMILLAN REPORT.
planned on a national scale through a Board of National Invest-
ment charged with " the deliberate guidance of schemes of long-term
national investment ".
In conclusion it is emphasized that these proposals are made not as an
alternative to the main suggestion of raising world prices but rather
as an " attempt to avoid the immense waste of the national productive
resources " pending the necessary upward adjustment.
The signatories point out that those who dissent from these views
contend that the proposals put forward are merely temporary shifts
which do not get to the root of the trouble, viz., the unduly high level of
our costs of production as compared with those of our competitors
(see Addendum III). Nevertheless, the signatories, pinning their
faith on the ultimate recovery of world prices, maintain that we can
continue to support permanently our improved working class standards,
and that to seek the remedy in a reduction of salaries and wages will
involve practical difficulties and social troubles of the first magnitude.
Signed by Prof. T. E. Gregory.
Whilst admitting that the great problem to be faced is the disequili-
brium between prices and costs, Prof. Gregory points out that the
problem cannot be solved except by co-operation between all
countries : consequently any attempt to achieve economic isolation
of this country by the imposition of tariffs is to be deplored as incom-
patible with the attainment of international co-operation.
The Two Proposed Remedies should be combined.
Two remedies are available : to raise prices or to reduce costs.
Each is open to certain objections which Prof. Gregory considers could
best be met by combining the two, i.e., by raising prices and reducing
costs. In this way the tendency for a reduction in costs to produce a
further reduction in prices would be counteracted. He points out, also,
that a reduction in costs need not cause a proportionate contraction
in consumers' purchasing-power, since the effect is merely to redistribute
the proceeds of industry, more going to the entrepreneur and less to
the wage-earner. Furthermore, the reduction in unemployment will
itself increase the volume of purchasing power ; and the growth in
profits will stimulate business expansion.
Objections to Tariffs and Capital Schemes.
Prof. Gregory is in complete agreement with the signatories of
Addendum 1 regarding devaluation but he differs from them funda-
mentally on the question of tariffs, which, he considers, would tend
to make permanent the present disequilibrium between British
and foreign costs. He points out, too, the danger that any tem-
porary expedient might easily become a permanent part of our
i onomic policy. He argues that, if imports were reduced and foreign
tmcnt were not adjusted to the changes in the balance of payments,
gold would flow in. This gold would be used to expand credit and a
resulting boom in home industry would check foreign investment.
The money income of society, especially money wages, would increase.
This would act as a stimulus to imports and a check on exports, while a
SUMMARY OF THE MACMILLAN REPORT. 15
new disequilibrium between home and foreign costs would be estab-
lished. Thus, to prevent a collapse, a higher level of tariffs would
As regards the effectiveness of tariffs, he emphasises the fact that there
would probably be vigorous attempts abroad to neutralise our tariffs
and subsidy policy by anti-dumping measures. In any case the foreign
goods which were shut out of British markets would probably appear
in neutral markets where they would compete with our exports.
Finally, he doubts whether the revenue from any such scheme (after
deduction of administrative expenses and subsidies) would be sufficient
to make the policy worth while.
The proposals for capital development, he considers, fail to meet the
needs of the situation since they would not greatly affect the position
of our export industries, which contribute most to unemployment.
The best solution is a reduction of money costs.
Prof. Gregory suggests that the best solution put forward is the
reduction of money-costs. He suggests that this should be effected
as far as possible by improved methods and by spreading overhead
costs over a larger output. To facilitate this process rationalisation
schemes may be found necessary and here it may be desirable to invest
the State with statutory powers. He does not agree, however, that it
is possible, or even desirable, to effect an all-round reduction of incomes
on the lines of a National Treaty. The shareholding class already
suffers by reduced dividends and capital reductions and the rentier
by increased taxation. Thus the main burden of the reduction
must fall on wage-earners. The fall need not necessarily be confined
to the exporting industries, but might extend to ancillary and sheltered
trades. In any case the fall need not involve an equal reduction in
the standard of living and, to the extent that it makes possible an
increase of productivity, it should result eventually in a betterment
of the standard.
In brief, Professor Gregory contends that the tariff action, strongly
recommended by Mr. McKenna, Mr. Keynes and the others, is merely
a roundabout and possibly ineffective way of bringing into effect that
reduction of costs which in his opinion is clearly imperative.
ALL 3 FIRST PLACES won by M.C. Students
on Two Occasions.
At both the May, 1931, and the November, 1927, S.A.A.
examinations, the Metropolitan College presented the winners
of the three
1st PLACES, i.e. Prelim., Inter, and Final.
The Metropolitan College has thus achieved on two occasions,
a record which cannot be equalled by any other Coaching
HIGHEST EXAMINATION HONOURS
OF THE ACCOUNTANCY PROFESSION
Won by M.C. Students in 1930-31
At the examinations of the Institute of Chartered Accountants in
England and Wales and the Society of Incorporated Accountants
and Auditors, held in 1930-31, Students of the Metropolitan
College won :
FIRST PLACE FINAL C.A.
FIRST PLACE FINAL S.A.A.
FIRST PLACE INTER. S.A.A.
8 other Honours C.A. & S.A.A.
and 540 SUCCESSES
During the 9 years to May, 1931, English C.A. and S.A.A.
Students of the College have won :
103 HONOURS and over 3,700 PASSES
21 FIRST PLACES in the KINGDOM
A copy of the College " Accountancy Prospectus," and full par-
ticulars of the expert postal and oral training facilities provided,
may be obtained on application to the Secretary :
METROPOLITAN COLLEGE, ST. ALBANS
AND AT LONDON & MANCHESTER
Printed l>y \YniiTiow mid S,,ns Litmtrd. London, I)mi-.i:i!'ir :iml \Vutfonl.
tor the Publishers. The Metropolitan College Ltd., St. AIL
HG Thomas, Samuel Evelyn
186 The Macmillan report
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