It may be asked, however: What effect will this huge Government expenditure have on the balance of international payments? Obviously for a country which produces within its own borders so little of the raw materials required for re-armament, the carrying out of a vast programme such as Great Britain has undertaken must involve an expansion of the volume of imports, against which there is no prospect of countervailing exports. Add to this the laying in of stocks of food and other necessaries, and there arises a strong probability that our current income from sales abroad of British goods and services and the yield on our over. seas investments may be insufficient to meet our purchases. A year ago I suggested that the balance of payments is under ordinary conditions a test of whether we are right ar. wrong in going on with an expansive monetary policy. I expressed some doubt as to the accuracy of previous estimates, but it may well be now that our specially enlarged imports have not been financed out of current income from abroad. Are we then to infer that the time has come when our monetary policy should be reversed, and restrictive financial measures adopted in order to reduce consumption?
I do not think we need contemplate as an early necessity, any such drastic—and dameging—steps. The temporary enlargement of imports for purposes of defence is a different matter from a growth of imports for immediate consumption. If we are incurring a deficit on our current balance of payments we must, it is tue, be drawing on our capital abroad; but so far ás we are accumulating stocks we are merely exchanging one kind of asset for another. In any case we are not drawing on our capital abroad to maintain a standard of living higher than we can afford. If it should become clear that rearmament is causing true inflation, as indicated by over-employment end an all-round rise in costs, it will, I think, be undeniable that restrictive measures have become a matter of urgency. But I see no sign of a near approach to that condition.
Crom all this I conclude that our monetary system and practice are well fitied to cope with the great demands imposed by national necessities. We are, moreover, far stronger than ever before to face any possibilities of financial disturbance that might arise from developments abroad. We are technically better equipped for management, in which our authorities are achieving by experience a rising standard of skill Above all, under the guiding hand of the Treasury. a high degree of ce-ordination is being attained between the major elements in our ry system, the Bank of England and the commercial banks.
Text read from the printed page and cleaned; old type leaves the occasional error.