resources
and reserves of the producing companies at a time when the provision
of further finance will be impossible. Secondly, enormous stocks are
accumulating which have a serious psychological effect upon the public
as well as on the trade. The Government, with its many other
preoccupations, has, we feel, not hitherto fully realized the true
facts of the situation. This is quite natural. It is not aware for
example of the great difficulty which we experienced in obtaining
credits from the banks for financing the Diamond Corporation's
purchases even for the present year, nor of the definite refusal of [a
certain bank] to provide any further facilities. Undoubtedly the fact
that the companies were still producing diamonds while not selling any,
instead of conserving their resources was one of the main reasons for
the reluctance of the banks. We fully appreciate the natural anxiety of
the Government to prevent the growth of unemployment in the Union, but
the pursuit of their present policy of compelling the companies to
keep men at work producing diamonds regardless of the economic position
of the industry may lead to the bankruptcy of the producing companies
and consequently to permanent loss of employment of thousands of men.
Our object in sending this cablegram is to urge upon you and the
Government not to be content to wait upon events but to act decisively
in reducing production in spite of the difficulties which such a policy
involves.
Both
Sir Basil Blackett, a director of the Bank of England, and Sir Frank
Meyer, in close touch with Rothschilds, must obviously have been fully
conscious of the deeper dangers of the situation. In fact, the European
summer of 1931 was marked by banking crises in Germany and in Austria
and, later, by increasing suspicion of the position of the pound
sterling. On 20 September 1931 Great Britain abandoned the gold
standard, though South Africa remained on that standard till 27
December 1932. A new set of problems was at once created. All sterling
obligations in the United Kingdom in terms of South African pounds
became less onerous; all liabilities in South Africa, in terms of
British pounds, became the more onerous the greater the fall in British
sterling; all this apart from the fact that a fluctuating British
pound presented management problems, the degree of depreciation at any
time being given. The Diamond Corporation decided to sell to cutters on
the Continent in terms of gold, or at the rate of 12 florins to the
British pound. This meant that British sterling receipts rose as the
paper pound fell and gave the producers additional paper profits in
London. The technical side of the diamond situation was thus
complicated, while the currency disorganization in itself added to the
current degree of confusion in economic affairs.
