47. Similar and no less important considerations, however, affect also the burden of the internal debt. Any fall in the general price level at home, which is not accompanied by an exactly proportionate increase in the productivity of British labour, involves an increase in the burden of the internal debt; while any rise in our general price level, unaccompanied by a proportionate diminution in productivity, lightens the burden of the debt at the expense of the whole class of debt holders. as well as of all recipients of fixed incomes. 48. We doubt if it is generally appreciated how seriously the burden of the debt has been increased in the past few years owing to the rise in the value of money. In the following table we show year by year the total nominal amount of the debt; the nominal amount of the debt other than floating, foreign and pre-war; and this last expressed in 1913 prices.* 49. It will be seen that in March, 1920, the Statist index number (on the basis 1913 = 100) stood at 308-0, whilst in March, 1925, it had fallen to 164-8. Between these two dates, therefore, the value of every pound paid in interest upon the debt increased by about 87 per cent. During the same period the nominal value of the internal debt, other than floating and pre-war, also increased slightly, with the result that the total value of this debt, expressed in 1913 prices, was actually more than double in March, 1925, what it had been in March, 1920. *We have not converted the floating and foreign debt to pre-war prices since the burden of these is not affected by the fluctuations of past British price levels; and we have omitted pre-war debt since this is comparatively negligible in amount and has, of course, been affected by variations in the price level over a very much longer period than the rest of the debt. 50. Since there was certainly no corresponding increase in the national income during the same period, it follows that (apart from reductions in the interest charge due to repayments and conversions) the real cost to the nation of financing the debt was also about doubled in the five years to 1925. 51. The obverse of this increase in the real cost of interest on the debt to the nation is the enjoyment during the same period by the State's creditors as a class of an unearned increment owing to appreciation of the real value of their holdings. By this we do not, of course, imply that every present War Loan holder has enjoyed an increment exactly corresponding to the fall in prices; indeed, in view of the fact that War Loans are constantly changing hands, it is extremely unlikely that this will be the case in any particular instance. Nor, in consequence of the various conversions of one issue into another which have been effected, is it possible to relate with accuracy the present real value of each part of the debt to the value of the money which was originally subscribed for it. 52. A rough estimate of the position up to 31st March, 1925, made by the Treasury, indicates, however, that over two-thirds of the post-war debt was raised when the value of money was lower than at 31st March, 1925, while the remainder was raised when the value of money was higher than it was at that date. Holders of the pre-war debt have, of course, up to the present, suffered a considerable "decrement" as compared with their position at the outbreak of war. Future Movements of Prices. 53. In our judgment, the evidence available is not sufficient to permit of reasonably trustworthy estimates being formed as to the course of prices for more than very short periods ahead. On this point, therefore, we only wish to express the negative opinion that we cannot confidently anticipate prolonged stability of prices. We are of opinion that this uncertainty as to prices constitutes an important additional reason for reducing the debt as rapidly as possible. It is undesirable that the burden upon the whole nation should be allowed to increase, as it will if the level of prices falls without any corresponding increase in the national income. It is equally undesirable that a diminution of the burden should be purchased at the sole expense of the recipients of fixed incomes, as it will if the level of prices rises without any corresponding decrease in the productivity of our industry. Comparison with the Period following the Napoleonic Wars. 54. Witnesses have frequently recalled to us the conditions prevailing immediately after the Napoleonic Wars, pointing out how a debt which was about equally burdensome in relation to the wealth and population of the time, subsequently became of relatively small importance (although no large efforts were made to reduce it) owing to the growth of the nation in numbers and in prosperity. What has happened before, it has been suggested, may very well happen again. 55. The following table gives an estimated comparison of certain factors in the position in 1818 and in 1923 :— 56. It will be seen that the total debt of 1923, as well as the cost of interest thereupon, bears very much the same ratio to the total national income as did the debt of 1818 to the income of that date. 57. There are, however, certain differences between the two periods. In the first place, a century ago we had no external debt. Second, in the estimates of total national income upon which the foregoing figures are based, the figure for the national income includes interest on the internal debt and war pensions, together with other items such as old age pensions. These items, while they add to the national money income and are subject to taxation, do not represent any present production of goods and services, and are not, therefore, strictly part of our real income Such items constitute a much larger proportion of the whole national money income in 1923 than they did in 1818. If, therefore, a comparison could be made between the ratio of the debt and debt service to the real national income (i.e., such part of the total national money income as represents actual economic production) it would be found that the ratio is decidedly higher than it was a century ago. 58. Further, behind this general similarity between the ratio of debt and debt service to national income to-day and a century ago, there lie differences in other economic conditions which are of at least as great importance. 59. In the first place, we have no reason to anticipate a continuance of the exceptionally rapid growth of population which took place during the last century, greatly reducing the burden of the National Debt per head, and being perhaps a contributory cause of the notable expansion of our wealth during the same period. On this subject we have heard expert evidence from Professor A. L. Bowley. According to Professor Bowley's calculations the rate of increase of our population is declining, and the indications are that we are tending towards a stationary population. On the assumption that the number of births remains as at present, (in point of fact its tendency is to fall), and that emigration continues on a moderate scale, Professor Bowley calculates that our population would be very nearly stationary by 1951 and quite stationary by the end of this century. 60. Further, on the assumption that the number of births is stationary, 20 years or so hence a larger proportion of the population will be found in the higher age groups, i.e., either outside the working population altogether, or in those age groups which experience has shown have the greatest difficulty in obtaining permanent productive employment. 61. It would seem, therefore, that, first, we cannot expect any large increase in our population during the next half century, even supposing (which we do not wish to be understood to admit) that this would be accompanied by a sufficient increase of wealth to make the reduction in the debt-charge per head of population a real as well as an apparent relief; and, second. that such increase as may be expected is likely to occur predominantly among the sections of the population who are at non-productive ages. 62. Again, a century ago we were in the midst of a stream of new inventions and important changes in industrial technique, and had also something like a monopoly of the new methods. While we do not suggest that the stream of invention has run dry, we see no reason to anticipate that history will repeat for our benefit an episode which was plainly of an exceptional character. 63. On the prospects for the future it is impossible to be dogmatic, least of all without a searching investigation into the whole position of British industry such as would be altogether outside our province. We think, however, that we have said enough to make it beyond doubt that he who relies for relief from the burden of debt upon a repetition of nineteenth century economic history in the twentieth century is at best gambling upon a most uncertain chance. Nor should it be forgotten that, unless our currency is deliberately expanded to counteract this result, an increase in the national income will be accompanied by a fall in the general level of prices. An increase in production, however, if accompanied by an equivalent fall in prices, leaves the burden of the debt in relation to the national income exactly where it was. |