Tom Walton (1879-1953) Business Economist

wantingcaution !! this is an initial draft ...

I keep these notes on my server so I don't lose them !!




Business Economics - wealth creating technology or political shenanigans ...

In 1920 Edward Hindley had an emotional ingrained hunch that The Weaver Refining Company needed to be modernised if its existing remarkable success was to continue ... he remembered what had happened to his father's traditional shoemaking business ... by 1920 change became an imperative ... major industrial reorganisation and injections of capital & chemistry were required to compete internationally, the logic of amalgamation was irresistible ... and, with hindsight, just in time ... just before the 1921 slump ...

When Edward became a director of British Glues & Chemicals in 1920 he was 62 and almost certainly out of his depth but luckily, after the failing health of another old man, William S Corder, the first short lived Chairman of the board, a giant appeared on the scene ... Tom Walton FRA ...

In 1921 Tom Walton was appointed Chairman of British Glues & Chemicals. Tom was an accountant and a partner at the Manchester firm, Walton, Watts & Co, he was also Chairman of Charles Massey & Co, the largest of the subsidiary companies in the group. Tom Walton not only understood the Balance Sheet figures, he also understood the business economic reality which confronted his company, his country and the world after the Great War ... 

Edward had a hunch but Tom Walton understood ...

Did Edward Hindley's mantra of 'education & compound interest' turn from hunch to understanding as Tom Walton explained what was going on ... at every opportunity?

... read his annual reports to the British Glues & Chemical shareholders ...

Tom Walton's message was clear from the objectives of the amalgamation spelt out at the First Statutory Meeting in 1920 -

'fair market priced competition was the stimulus, and science was the way to provide benefits for the consumer'.

At the AGM in 1925 after 5 years of 'difficult trading conditions', Tom Walton was getting exasperated ... nobody was listening to his explanations, nor his remedy of 'sustained intelligent effort' ... rather the net result of Post War policy errors was to scupper business enterprise ... business economists understood economic reality simply because those that didn't went bankrupt -

'I profoundly regret that whilst much prominence is given in the press to the views of economists, the imperative necessity of sustained intelligent effort is not sufficiently often and with adequate force hammered home by the leaders of our government. It is a misfortune that the remarks of business men appear only in the reports of company meetings and the contributions of economists have a greater influence on the public mind'.

British Glues & Chemicals and the Nation itself would succeed only through 'sustained intelligent effort, the price to be paid for success'. Businessmen, not academic economists, should have the ear of government and the focus of attention should be 'fair market priced competition' rather than effort being diverted into protectionism and various forms of price fixing in a vain attempt to appease various interest groups who insisted someone else, preferably Germany, should pay the bills ... after all they lost the war? ...

The hard work, honesty & thrift necessary for wealth creating technology were eroded as the 'difficult trading conditions' brought about by political financial shenanigans confronted Tom Walton and business enterprise when he took the Chair in 1921 ... here's the sorry saga ...

Industrial Revolution.

From 1700 to 1800 a century of revolution in agriculture and industry stabilised prices as productivity in food and goodies matched a growing population ... rapid stable growth of industrialisation in the cities ...

 Taxes were raised, inevitably ... to fund 'mercantilist' wars ... the 'religious' wars were over?

In 1717, Sir Isaac Newton, master of the Royal Mint, established an effective gold standard, which powered the industrial revolution by providing stability & confidence in the money measurement system.

The Gold Standard was nothing new it had evolved as a useful monetary system ... way back ... gold exchange emerged because folk trusted such exchanges. Gold was the people's money, everybody understood it ... and then money was nationalised! Why else 'legal tender', why else 'fiat money'? Without competition, power corrupts, monopolists always eventually abuse their legal position, creating inflation. The problem of production remained. Folk simply paid their taxes in clipped coins instead of 'sustained intelligent effort'.

International Free Trade.

In 1815 after 23 years of restrictive war things changed. International free trade powered new markets for manufacturing output ... but international trade must balance ... agriculture declined as food and raw materials, grain, sugar, cotton were imported ... everybody gained from trade ... but agricultural wages/prices declined as manufacturing was prolific ... 'temporary' income tax was used to prop up agricultural prices with the 'Corn Laws' ...

The modern version of the gold standard was probably established after the euphoria and national confidence which followed the Glorious Revolution ... and in 1821, the gold sovereign put the United Kingdom formally on a gold standard, the first of the great industrial powers enjoyed stability in measurements for their trades without inflation. Everyone could get on with the job of 'sustained intelligent hard work'.

In 1850 The Great Exhibition signaled  the peak of British pre-eminence. The industrial revolution in England was based on trade of mass produced goods at home and abroad. Coal, steel & textiles were exported in return for imports of raw materials and food. This led to unparalleled prosperity which continued up to the Great War. Industrial output was so successful that up to 1914 prices fell to maintain the value of the gold sovereign. Too little money chasing too many goods!

By 1900, the 19th century successful industrial empirical techniques & British technology were in decline and there was formidable competition in the modern science based world of Germany and the USA.

The Great Depression.

In 1914 The Great War changed everything, trade collapsed. Protectionism, bailouts & dirigism. To finance the costs of war, most countries went off the gold standard, and subsequently suffered significant inflation. Inflation levels varied between nation states and when the return to the standard was contemplated the price determined by guesses and not by markets. The inevitable result was gluts & queues as some goods were undervalued and some overvalued. Trade and markets couldn't work unless the prices were right.

After the war there were bills to be paid. The balance of trade had changed dramatically. Belligerent countries were simply not as rich as they used to be and comparative advantage had shifted. A new phase of economic growth from R&D, product innovation for consumers & manufacturing productivity was the competitive reality and a readjustment exchange rates was necessary to reflect this new reality.

But instead trade was neglected. Political economists pursued restoration of pre-war gold standards at pre-war exchange rates. It was not the gold standard itself which was the nub of the problem but rather the political reluctance to accept the reality of new adjusted wage rates and exchange rates. Political economists can easily mess things up by trying to fix prices but only a few less conspicuous business economists understood that prosperity came from creating REAL jobs from investment in human capital & technological innovation.

Mercantilism & protectionism was an old and dreadful misunderstanding, it was not gold but the productivity of trade in marketable goods that would restore prosperity.

From 1918 reparations were piled on Germany who soon lost all their gold and started printing money feverishly. Germany lost gold in reparations

France naively assumed Germany would pay their bills and when the impossible didn't materialise they occupied the Ruhr. In France gold was hoarded ... trade in marketable goods was not a priority ...

Europe resorted to printing inflation.

In the UK the real costs of war were met by sales of overseas assets which reduced ongoing foreign income while at the same time overseas competitors had moved to erode the traditional British advantage in coal, steel & textiles. Debt, overseas customers for British exports & 40% of the merchant navy lost, traditional exports textiles, steel and coal, decimated. Things had changed! UK financed the war from overseas asset sales and adopted a policy of deflation prior to a return to the gold standard asap. National pride was at stake.

 In 1919 the gold standard was quickly restored in US at the fixed the price of gold at pre-war level $1 = $35 per oz ... but price adjustments could not be made quickly enough - political hubris tried to dictate £1 = $4.86 - rapid technological change, changed real prices - labour unions tried to prevent wages declining - inevitably wrong prices resulted in gluts & queues ...

1920 - BG&C was formed, as D W F Hardie explained, an amalgamation 'the objective was to present a united front against any German  attempt to regain the control of the glue and gelatine industry, which had been exercised pre-war through S Meggitt & Sons Ltd, which had been taken over in 1917 by the Controller of Enemy Businesses'. German prices were ridiculously low as inflation raged at the time the UK was deflating and imports were likely to flood in.

1920 - new industries, motors & electrical goods, but foreign competitors possessed modern plants. Roaring 20s in the US but UK was in decline, deflation. Strife as prices & wages decline. 1920s recovery stalled unemployment remained at 1 million. A relatively advanced welfare system compared to many of the industrialised countries, a compulsory national unemployment and health insurance scheme. Effort into creating jobs and the plight of the unemployed in order to stave off labour union unrest.

In 1923 Germany had no gold to pay their bills so they printed money and inevitably reparations failed and uproar followed in Britain and France. French troops occupied the Ruhr to grab the coal, iron and steel that the German industry needed if they were to pay in goods rather than barrow loads of worthless paper. France accumulated gold instead of trading ...

In 1924 Germany was transformed from a pitiable nation into a prosperous power when all the old currency was burned, in order to introduce the Reich mark, a new currency that would be valuable in matched exchange for industrial output.

1925 - Churchill restored the gold standard, exports destroyed & labour unions strike.

1925 to 1931 gold went to the USA instead of traditional exports.

1929 - deflation, unemployment, protectionism in the US.

1931 - National Government in the UK moves off the gold standard and interest rates could be lowered and credit supplied. Cuts in public spending & wages, and tax rises. Gold disappears and the gold standard abandoned, interest rates lower. War loan conversion scheme to 31/2% reduces the tax needed to pay the interest. But the  problem was transferred to USA.

1933 FDR abandons gold in another beggar thy neighbour', competitive devaluation which solved nothing, what was needed was sustained intelligent hard work and trade in marketable products at market prices which cleared markets. Gold was nationalised.

It is difficult to manipulate a gold standard to tailor to an economy’s demand for money, providing practical constraints against the measures that central banks might otherwise use to respond to economic crises. But Tom Walton knew, financial crisis's were the result unprofitable trading or wars!

1933 - modest economic recovery, recovery in service industries in the South West, and motors & agriculture as imports decimated.

1934 - modest fall in unemployment, exports recovered slightly as lower interest rates spurred a building boom.

1936 - rearmament stimulus.

The Welfare State.

In 1945 after WW2 the hubris of 'a winners curse' resulted in the planned economy and the welfare state. 'Keynesian' economic policies created artificial economic demand leading to unsustainable full employment and inflation.

1945 - Bretton Woods reintroduces the gold standard via the $1=$35 an oz. But exchange rates couldn't remain 'fixed' or 'pegged' because of real productivity differences between currency areas.

1968 - the Vietnam War & the War on Poverty printed too many dollars.

1971 - gold standard abandoned, the great inflation followed. Money printed out of thin air 'at a key stroke'.

Banks were in business like everyone else and their credit had to competing in a free market. Once money was nationalised inflation followed. As in the US constitution!!

Tom Walton probably never summarised his analysis of the great depression but clearly onerous taxation & regulation interfered with 'sustained intelligent effort' and stopped business from creating real jobs from the innovative mass production of goods & services for global markets which delivered prosperity at home & abroad. He was infuriated by the prevailing political view that manipulated prices and restricted trade through various forms of 'beggar they neighbour' policy -

price manipulation through tax & regulation, slowing growth through 'dead weight' losses, lowered 'marginal productivity of capital', subsidised borrowing, capital controls ... 

protection of obsolete businesses by subsidies, bailouts & tariffs

protection of obsolete jobs and entitlements to secure trade union votes

protection of obsolete exchange rates for national pride

Protection of obsolete practice & prices eroded business enterprise & innovation which created wealth & economic growth.


Any corrections and additional information gratefully received contact   john p birchall

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