22 LONDON'S FINANCIAL POSITION

effect of this policy is seen in the enormous mass of
Treasury notes with which the country has been
flooded. Their total is now nearly 180 millions or
perhaps 100 millions more than the gold which they
were originally designed to replace.

It is also to be seen in the great increase in banking
deposits which has been a feature of our financial
history since the war began. Some people regard
this feature as a phenomenal proof of the growth of
our wealth during the war. I am afraid there is
little foundation for this pleasant assumption, for
these new deposits have been called into being by
the banks subscribing to Government securities,
whether War Loan, Treasury Bills, Exchequer Bonds
or Ways and Means advances or lending their
customers the wherewithal to do so. By this process
the balance-sheets of the banks are swollen on both
sides, by the Government securities and advances to
customers among the assets, against which the banks
create new deposits, so giving the community as a
whole the right to draw more cheques.

Every time the bank makes an advance it gives
the borrower a credit in its books, that is to say, the
/ right to draw cheques to that amount; the borrower
draws on the credit and hands it to any one to whom
he owes money; but as long as the advance is
outstanding there will be a deposit out against it in
the books of some bank or another.

It is an easy way for the Government to finance
the war by getting the banks to manufacture money
for it. Nobody feels any poorer for the process, in
fact, those who have new money in their pockets or