The war and finance: how to save the situtation

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FINANCE

HOW TO SAVE
THE SITUATION

BY

RAYMOND RADCLYFFE

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LONDON
Wm. DAWSON & SONS LIMITED

ROLLS HOUSE, BREAM'S BUILDINGS
FETTER LANE, E.C.

THE WAR
FINANCE

HOW TO SAYE
THE SITUATION

BY

RAYMOND RADCLYFFE

LONDON
WM. DAWSON AND SONS LTD.

ROLLS HOUSE, BREAM'S BUILDINGS
FETTER LANE, E.G.

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CONTENTS

CHAP. PAGE

I. INTRODUCTION 5

II. THE COST OF WAR 14

III. THE STOCK EXCHANGE 21

IV. THE BANKS 30
V. THE MORATORIUM 38

VI. HOW TO SAVE THE SITUATION 44

324291

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& MERCANTILE

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I

INTRODUCTION

WAR means destruction. This is self-evident,
but how few reahse it 1 In Great Britain not
one in a hundred thousand. When an EngUshman
speaks of war he calls up some vision of a hand-to-
hand fight ; some romantic picture of a " Soldier's
farewell." War to the British nation has never
meant anything more than a disagreeable increase
in the income tax, a little shouting, a little weeping.
The idea has never conveyed any risk of personal
loss or personal ruin. We have been engaged in a
dozen wars during the past fifty years ; some serious,
but all so far away that they could be viewed with
calmness. The casualty lists were very sad of course.
But we put up a few nice marble memorials. The
War Office of the period behaved as all British War
Offices have ever done. It was cursed and then all
went on as before. The politician interfered as all
politicians will do. When he made too flagrant a
blunder he was disgraced as Joseph Chamberlain
was. Politicians always do silly things, but the

5

6 THE WAR AND FINANCE

British bear them patiently. They are too indolent
to revolt, too phlegmatic to shout and curse.
Somehow the wars get ended, no one quite knows
how. A good deal of tosh is talked about " glory,"
a few sane people see the mistakes that have been
made and try to prevent war offices and politicians
from repeating these mistakes. But usually these
sane people are more or less ashamed of their
criticisms. They think they are unpatriotic. The
general public never has any doubt on the question.
" After all, what does it matter," says John Bull
as he shrugs his shoulders and pays the bill.

.John Bull paid a bill of eighty millions for the
Crimean War, and another of two hundred millions
for the Boer War, and never winked an eyelid.
His trade went on smoothly. If a few people
found their returns go down, a dozen others were
making money out of war contracts. In every
war that England has been engaged in since the
Napoleonic era the motto " Business as usual " has
been apposite and appropriate. However much
has had to be paid out, there has always been
more coming in.

But the present war is upon an entirely different
basis. Practically the whole Continent of Europe
is involved. And what is worse, the United States,
Canada, and the whole of South America are

INTRODUCTION 7

suffering from a severe reaction due to a trade
boom and over-speculation. Brazil has defaulted ;
Chili, tlie Argentine, and Uruguay are in dire
trouble. The United States cannot ship gold, and
has narrowly escaped a serious panic. Our manu-
facturers have to face an immense loss of trade on
the Continent and a serious cutting down of orders
from every other part of the world.

We are up against the greatest military power
of modern times. Germany has been preparing
for the struggle for many years. She has arranged
every detail in the most methodical manner.
Nothing has been left to chance. The German
does not miscalculate ; he does not believe in
" muddling through."

We must not under-rate our foes. They are
brutal, pitiless ; but these are not bad qualities in
a soldier, however disagreeable they may be in
private life. We may hate the Germans like
poison, but we must respect their capacity to both
fight and organise. For one whole month their
armies operating in Belgium and France carried
all before them. Our reports spoke of enormous
losses, but such losses did not stay the progress of
the Prussian. The only excuse we could make
for our lack of success was that we were out-
numbered. But this was no excuse at all. We

8 THE WAR AND FINANCE

should have known to a hundred men how many
troops we had to fight. We complained that the
enemy had too many aeroplanes. It was open to
us to buy as many as we needed. But our War
Office would have nothing to say to aeroplanes.
We were sick because innumerable Zeppelins were
arrayed against us; we had as much reason to
complain that the machine-guns were efficient or
the Uhlans daring.

In war the only way to win is to be prepared
for the worst. And the worst that can happen to
us is starvation and invasion. Both are possible,
though not probable. We can guard against
starvation by storing food supplies, and against
invasion by shipbuilding and conscription. Are
we storing food ? Are we building sufficient
ships ? We are no nearer conscription than we
were a hundred years ago.

An army of a million men is estimated for.
Recruiting goes on slowly. Politicians, vain
people ! think that they can get the necessary
troops by making speeches. I hope that they can.
But if we promised our soldiers a pound a week
and their food we should be able to pick and
choose, and in two years we should have a real
army, as good and better than any Continental
force of similar size. We must not consider the

INTRODUCTION 9

cost. A man who finds a burglar in his bedroom
is an ass if he refuses to fire a shot because it
would cost money. I am not writing in favour of
conscription. Lord Roberts has said all that can
be said upon this point, and had he been heeded
this war would never have occurred. A paid army
may suffice. It is expensive, but if we haggle
whilst our house burns we shall lose all we possess.
It is said that we are short of uniforms, rifles, and
artillery ; that we have not enough officers, not
enough drill-masters. But Lord Kitchener is a
strong man. Backed by Mr. Winston Churchill,
who is also a man of action, we should be able to
overcome the inaction of the War Office, the
procrastination of the lawyer.

But I am not out to slay the permanent officials
of the War Office. They lie fat and snug in their
warm berths, bleating inutilities as they have done
since the days of the Crimean War. It is sad to
think that a capable man like Lord Kitchener
should have to deal with men who inherit tra-
ditions of incompetency handed down generation
by generation. It was meet that they should
have been ruled over by a lawyer whose main
claim to respect was that he was a friend of the
Kaiser. - n

The stupidity of the War Office is incurable

10 THE WAR AND FINANCE

except by revolutionary measures, and of these I
see no sign. Indeed everyone v^as delighted at
the orderly manner in which our retreat v^as
conducted. No one suggested that we should
have been ready for a war about which the whole
world had been talking for a half a dozen years,
and which had been studied in its minutest details
for three years. Not only was the public pleased
with the system of retreat forced upon our brave
troops, who by the way did not appreciate the
pleasures of an advance backwards, but it also
seemed entranced with the courage of the whole
Ministry. A plain ordinary critic like myself,
who knew that a European war was inevitable as
soon as Austria sent her ultimatum, does not
understand why Mr. Churchill was not allowed to
destroy the German Fleet on the Saturday before
war was declared. His admirals had the Germans
in their power, his ships were cleared for action,
and it is rumoured on good authority that he
implored the Cabinet to declare war and promised
an instant sinking of the German boats. He had
ample excuse in the detention of British ships at
Hamburg, an act of war in itself. But the Cabinet
of attorneys, which rules England to-day, quibbled
and begged for delay. Lawyers are trained to
delay. Their income is derived by the careful breed-

INTRODUCTION 11

ing of delay by delay. Indecision means money to
a lawyer. Words are his weapons. He has a
horror of all deeds not engrossed on parchment
and charged up per folio. Unluckily the German
Kaiser wastes no words, has no respect for the
parchment deed or treaty, and he must have
grinned as he took our steamers in Hamburg,
sowed the North Sea with mines and hid his fleet
behind Heligoland — an island presented to him by
his grateful Grandmother.

I am not asking the public to turn Dut the
attorneys. I do not think that those who sit on
the opposite side of the House are one whit more
capable. Indeed nothing could be more impotent
than the manner in which the Press Censorship
was managed by Mr. F. E. Smith, who is supposed
to be the leading Tory statesman. That he has
all the tricks of the lawyer up his sleeve was
shown by his handling of the Times, But does
England want a trickster ? Does she not need a
man of action ?

We are ruled by lawyers, chosen, not for their
courage, their organizing powers or their patriotism ;
but picked out of the party for their chicanery;
their capacity to play tricks on their opponents ;
their facility in verbal battle : their ability to jibe
and jeer, and their suppleness in accepting reverses.

12 THE WAR AND FINANCE

In short the lawyer is the exact opposite to a
soldier. The fighting man says little and hits
hard. He has no thought of compromise. He
finds nothing to admire in verbal cunning.

We are most unfortunate in that at the very
crisis of our fate we should be at the mercy of a
gang of politicians compared with whom Taper and
Tadpole were statesmen. These gentry have ap-
pealed to the patriotism of the Nation to leave
them alone. They have played the very game
played by their opponents in the Boer War. Then
anyone who dared to say that Joseph Chamberlain
had made a mistake in under-estimating Kruger was
called a pro-Boer. Then anyone who dared to say
that the first duty of a soldier was death, not sur-
render, was howled down. Balfour, Chamberlain
and Co. kept in office for years by pretending that
anyone who criticised them was unpatriotic. The
present ministry are doing the same thing. The
Opposition didn't want to bear the obloquy of a long
sustained retreat conducted in a masterly manner.
So they lay low.

But posterity will not be so soft-hearted. The
historian will wonder why we were completely un-
prepared on land, why our fleet was not allowed to
act, why no single scrap of news was allowed to
appear in any newspaper for over a month, why the

INTRODUCTION 13

English nation had to rely for its history of the war
upon Marconigrams "made in Germany." Posterity
will sneer at our lack of foresight in not providing
a fleet of airships and aeroplanes. Our grandchild-
ren will call us fools because we, seeing armies in
millions all over the Continent, had not a couple of
hundred thousand men ready to fight.

But if we are called fools we shall not be called
cowards, thank God ! For we mean to fight this
fight to a finish. It may take three years. It may
last as long as the Napoleon wars. But we shall
not give in. Win we must, and win we shall. We
shall learn to be as brutal as the German, as care-
less of life as the Russian. We shall remember all
our old fighting tricks. We shall even remember
how to be efficient. We may learn to organize.
But we shall not give in till we win.

II

THE COST OF WAR

I HAVE said that war means destruction. It
means destruction not only of life but of pro-
perty, and therefore credit which is based upon pro-
perty. We cannot compare the present war with
any other in history. We have nothing to go upon.
From the point of view of the number of countries
involved it is bigger than the great wars of Napoleon.
But in those days there were no public companies.
Each man worked for himself, and the mainstay of
the rich people was not manufacture but agricul-
ture. War lays waste the fields, but the next year
the fruitful soil can be tilled. Therefore a loss of
harvest in one year can be made up in the next.
Even in those days the armies had to be fed, and
agriculturalists and landowners who were outside
the range of operations made large fortunes by
supplying troops with food. Landed proprietors
grew fat on war. Wheat was at a fabulous price,
and other food stuffs rose in proportion. The
manufacturing trade of England did not suffer

THE COST OF WAR 15

seriously, for England then only did a moderate
export trade and her factories were kept busy
throughout the whole war. The Crimean War
hardly affected English trade at all ; the Franco-
German, coming as it did at the end of a trade boom,
sustained that boom for almost a twelvemonth.
The Japanese and Russian War had little or no
effect upon English trade ; the Balkan wars, al-
though seriously injuring Austria and certainly
affecting Germany, only damaged such manufac-
turers as supplied the Near East with goods.

The present war stands alone. It has involved
so many nations that world credit has been
destroyed; exchange no longer exists; Bourses
are everywhere closed ; securities are unsaleable ;
credit has vanished.

The complete collapse of our modern system of
credit is due in part to the system of limited liability
companies which has grown up during the past
fifty years. To-day every one with any money
has an interest in some trade or another. They
have purchased this interest, fondly believing that
the certificate of interest was readily saleable and
that a definite income would always accrue to its
owner. In order to deal the more readily with
these certificates Bourses have been established in
every large city in the world. We have become

16 THE WAR AND FINANCE

so used to dealing in stocks and shares that all the
civilised nations have sunk the bulk of their savings
in these securities. We considered these promises
to pay had an absolute definite value. We now
find that their value is nebulous ; that they are
to-day almost unsaleable and that as long as
the war lasts they will be unrealisable in bulk.
The millionaire is now no better off than the poor
man ; indeed he is much worse off, for the poor
man has been accustomed to work hard all his life,
and shortage in luxuries means nothing to him.
But the rich man has not worked. He has become
a moneylender. He has sat in his office and
watched his gold double in value in a few years,
his general intelligence has become atrophied, his
capacity for endurance has gone. He has culti-
vated but one gift — that of money-making. This
gift is valueless in war time, therefore we must be
sorry for the millionaire. We have hitherto envied
him, now we shall pity him. The whole credit
system of Europe has gone by the board. As the
trade of North and South America is so intermeshed
with that of Europe, the credit system of the
American continent has received a terrific blow
from which it shows little sign of recovery.

The curious thing is not that it has happened, but
that we should be surprised at the happening. Dozens

THE COST OF WAR 17

of thinkers have prophesied the present debacle.
Shrewd as the money-maker is he never heeded
the prophets, and to-day he is aghast at his position.
The catastrophe has come so suddenly that he
has not yet lost his optimism. He believes that
empiric methods will restore his wealth. He cannot
realise that war means destruction to him as it
does to the soldier. In Germany, where the credit
system has been carried to its extremest point, the
German financier was ready with a scheme the day
that war was declared. That scheme is based upon
make-believe. It cannot be permanent, but so
confident is the German of winning the war that
he does not mind this. He thinks that the war of
1914 will be as profitable to him as the war of 1 870, by
which he claimed to have made £174,000,000. I can-
not agree these figures. Germany's loss in business
alone wasabout£50,000,000, she spent £135,000,000
on the war, and received an indemnity from France
of £200,000,000. There is no doubt that the intense
financial suffering of the German Empire in the
years following the war were a direct result of that
struggle. It is impossible to drive this home to
the German who has been taught all his life to
look upon w^ar as a profitable undertaking. To-
day he is issuing paper money against every kind
of property, very much as France did in the Napo-

B

18 THE WAR AND FINANCE

Iconic wars. He should remember, however, that
assignats became in 1795 absolutely valueless. No
less than £1,800,000,000 had been issued and their
price fell to one per cent, of their nominal value.
Napoleon thereupon hit upon the plan of making
the countries in which he fought pay the cost of
his campaigns. Austria paid him £3,400,000 after
Austerlitz, and in the 1809 campaign he extracted
another £6,000,000. WhenNapoleon abdicated, the
finances of France showed a deficit of only about
£24,000,000, which, considering the length of the
wars and their severity, was ridiculously small. The
Napoleonic wars cost England £831,446,449, whilst
the war with the American colonies cost over
£120,000,000, consequently the Bank of England
discontinued cash payments from 1797 to 1811,
and taxes which in 1792 were £20,000,000 rose to
£100,000,000 a year in 1815. In those days war
was cheap. The soldiers were accustomed to
billet themselves upon the towns they occupied ;
the Navy paid itself out of prize money. On the
other hand the troops got fairly high pay. But I
repeat that the present elaborate system of joint
stock company finance did not exist. Consequently
the destructive capacity of war was directed
more against human beings and their im-
movable property than against their credit.

THE COST OF WAR 19

A victorious army could borrow easily and live
cheaply.

To-day, the whole world over-trades and over-
speculates. Everything is on paper. Fifty per
cent, of our companies depreciate only on paper.
Thus the assets mount up year by year, and as they
increase so does the capital. But the whole added
wealth is imaginary. No real provision is made for
days of trouble, the imaginary paper profits are
paid away in dividends, the money for which is
often borrowed from the banks. Not thirty per cent,
of our limited companies are therefore in a position
to meet a crisis. They are in debt to the banks,
their reserves are fictitious and their assets not
having been properly depreciated are absurdly over-
valued. When they have any spare cash they
usually lend it out from account to account to
some Stock Exchange. As all these institutions
are closed, that money is gone never to be re-
covered till the Exchanges reopen and perhaps not
then.

We have had such a long period of peace that
no one has ever considered what would happen
when a big European war came. Sectional wars
have come and gone and left only local trouble.
To-day the trouble is world wide. The war has
burnt up the paper credits.

20 THE WAR AND FINANCE

The national credits rest upon as insecure a
basis as the industrial credits. Mainly because so
large a proportion of the national income is spent
upon unproductive works like armaments. Here
in England we thus spend £80,000,000 a year
out of our revenue of say £200,000,000. The
Income tax is at war level in days of peace, and
we are spending our capital with both hands.
Yet we are much better off than either France or
Germany, whilst the credits of Austria and the
Balkan States are to-day in a most dangerous con-
dition. Italy has steadily improved her position
of recent years, but the Tripoli war was expensive,
and she was compelled to sell large blocks of
Exchequer Bills which are still unpaid. Russia
has such great resources that her credit probably
stands as high as any country in the world. Her
debt is enormous, but half of it has been incurred
in building railways, which produce a large income.
How all the countries now at war will finance their
immense expenditure no one can say. France and
Russia have huge war chests, and Germany is
following the example of revolutionary France
and issuing paper in huge quantities. Austria and
the Balkan States are bankrupt. They cannot
possibly carry on war for any length of time and
continue to pay interest on their debts.

Ill

THE STOCK EXCHANGE

WE shall probably never know whether the
German Government acting through the
Dresdner Bank or some other agent made a direct
attack upon the Stock Exchange. In days like
these everybody is suspicious, and numberless
things are placed to the credit of the German with
which he was only indirectly concerned. We
know that some time previous to the declaration
of war the Dresdner Bank advised its clients to
sell everything. We know that for many weeks
before the Austrian ultimatum Canadian Pacifies
were heavily sold from Berlin, whilst Brazil Trac-
tions and such like semi-speculative stocks were
sold by Germans via Brussels. But we do not
know — we only suspect — that the persistent selling
was part of a pre-arranged plan to smash the
London market. The German banks which have
been in the habit of lending money to the House
did in some cases withdraw their loans on the
Monday before the end of July settlement, after

21

22 THE WAR AND FINANCE

having stated that they intended to continue them.
This is further proof. The City, however, needs
no evidence. It has made up its mind that as the
German was guilty of duplicity in diplomacy, so
was he also treacherous in his finance.

There are hundreds of Anglo- Germans on the
Stock Exchange. Many of them to-day fervently
pray for a victory for the land of their birth. They
are only English by naturalisation, not by inclina-
tion. Most of them hate the country and despise
the British. Some are spies. But as London is
the most free market for stocks, shares, and gold
in the world, they have established themselves here.
They pay £5 for the naturalisation. It is a cheap
investment. The Committee could examine the
books of the Anglo- German firms, and might find
documentary evidence of the suspected plot to
smash the Exchange. There is enough circum-
stantial evidence to suggest guilt. I cannot see
that any harm would come of such an examina-
tion. If any firm with Anglo-German partners
refused to show their books they would naturally
be expelled.

But whether there was a plot or not, selling took
place and a panic arose. The arbitrage firms
could not get their money from abroad, and
they threatened to hammer themselves unless the

THE STOCK EXCHANGE 23

House was closed. Also the big lenders of money,
finding the position impossible, used their great
influence. It is believed that the banks wished a
closure. As so many of the members were
insolvent there was not much grumbling at the
decision of the Committee. The public were not
considered in the least. Indeed, the whole panic
has shown Mr. Lloyd George, the Banks and the
Stock Exchange engaged in protecting the big
financiers against the smaller people whose money
they were using and whose money they had lost.

The Stock Exchange has been losing money
steadily ever since the collapse of the Rubber
boom. Of the thousands of members, one-fourth
are insolvent to-day. The multitude of small
jobbers and brokers who never had much money,
now have none. But they are better off than the
large firms who, having great banking connexions,
utilised their credit and that of their Banks to
build up a huge, if partially unsound, business.
They made gambling in millions quite easy. But
the bulk of their gambling is merely legalised
robbing and little else.

I will explain what I mean. A market is made
in " A " share by a dealer who lets in all the other
dealers on terms. The bargains go through brokers
who represent the " shop," which is in most cases

24 THE WAR AND FINANCE

supported by its banker. The dealer in chief and
the broker in chief also have bankers at their back.
The price of " A " share is pushed up artificially,
and when at five or ten times its real value the
public is let in, or lured in by a Press campaign
paid for by the *' shop " or those who act for it.
The moment a huge bull account is built up — and
this is easily done, as all the bankers, brokers, and
dealers will readily lend upon the stock — those
who have lent the money sell. This lowers the
price, and bankers, brokers, and dealers advise
getting out. A collapse ensues, and the insiders,
having sold all their stock, can buy back, and the
only people who lose are the foolish public. Some
notorious cases are Marconi, Brazil Rails, Brazil
Tractions. In these three alone milHons have
been lost. Under no circumstances do the public
get any sort of run for their money. They cannot
win, and it is not intended that they should. But
the collapse of such rigs really benefits no one, not
even the shops and the dealers, for the fall is
usually so rapid that not even the cleverest jobber
can escape being an unwilling bull, and not even
the most unscrupulous shop can ever completely
unload. On paper the robbing of the public by
the insider looks simple. In actual fact so many
complications ensue that more often than not

THE STOCK EXCHANGE 25

everybody loses money. But even when the fall
appears to have come to an end, the price is
usually out of all proportion to the real value of
the stock. For in the wild effort to keep up the
price and get in more buyers the finances of the
company whose stock is being manipulated are
strained. The capital is watered, the earnings
are thrown away in dividends. Nothing is sound,
not even the quotation.

Now the Stock Exchange to-day is suffering
from a succession of insane gambles such as
Marconi, Brazil Rails, Brazil Tractions, etc. etc.
Its clients have been ruined. The banks possess
the paper ; the brokers, the dealers, the shop, all
owe money to the Bank. And the actual value of
the stock, as I say, is still much too high. So
that one is not surprised that the situation is
impossible.

The feverish craving to make money quickly
has attacked all classes of financiers. The big
firms who float loans have been too eager. The
power of the public to absorb new issues is limited.
In days of good trade the bulk of the savings of
the nation go into trade. The investment demand
is curtailed. But as the Banks have always been
ready to lend, the underwriter and the financier
have joined in floating dozens of loans, few of

26 THE WAR AND FINANCE

which have gone. They were most of them reason-
ably sound. But there were too many of them.
The whole business was overdone. Banker, under-
writer, and financier are choked up with paper which
cannot be sold and which as long as the war lasts
never will be sold. Credit has been piled upon
credit. The rich man is only rich if he can sell
his paper. He may have a million pawned with
his Bank, but if he has £100 overdraft he is to-day
hopelessly insolvent, for he cannot pay interest on
his loan or the pawned stock, and he cannot in-
crease his overdraft.

Now the war came unexpectedly. It caught the
Banks overloaned, with little ready money. It
caught the brokers half-ruined through the mad
gambles of clients who could not pay up. It
caught the dealers with securities on their books
which they could not sell. It found the gambling
public penniless through over-speculation.

The Committee being just as hard pushed as
the Banks, the financiers, and the public, lost their
head and closed the Stock Exchange. This was
the silliest thing that they could have done.

If your house is on fire you try to save some of
the contents, you get fire engines. But you do
not lock the doors of the burning house and go
into the street. Closing the Stock Exchange

THE STOCK EXCHANGE 27

meant the destruction of the selling value of paper
in which it dealt. Most of it only possessed a
fictitious value, the value of a gambling counter.
Even the really fine gilt-edged stocks have a partly
fictitious value. For if you try to sell them,
so weak is the market that the quoted value
vanishes. The bulk of the business of the Stock
Exchange is speculative, and all speculative stocks
are fictitious as to their value, for it depends more
upon the state of the account than the dividend
paid. Tintos are a great gambling counter, so are
Perus. No one would buy such stocks for their
yield as an investment. It is nominal. The
closing of the House smashed such stocks.

The Committee were too panic stricken to
think. Other Bourses had closed, notably Brussels,
always a gambling centre, and Vienna, crippled by
the Balkan trouble, Paris, weakened by the same
wars, was troubled, and though the Parquet
remained open the Coulisse was shut up. The
temptation to save their own skin was too great
and the Committee yielded. With the result that
a Bank panic set in and the Banks had to close
also.

Numberless schemes have been suggested by
which the House can re-open. All are impractic-
able. Some suggest that the Government should

28 THE WAR AND FINANCE

guarantee the open account. This means that the
taxpayer should become a bull of the stocks now
held by the gamblers. And a bull who could
not win, who must lose 1 The serious man of
business would shudder at finding himself asked
to pay the cost of running an open account in
Little Chats., Dover A., Marconis, Cuban Ports,
Russo-Asiatic, or any other choice gambles.
Others hope that the members of the Stock
Exchange will form a Trust amongst themselves
to carry the open account. But who will find
the money ? The Banks would not see much
fun in exchanging a box of securities backed
by personal credit for a debenture in such a
Trust secured upon the hope that one day the
managers might be able to unload at a profit.
They say that about £80,000,000 would be needed.
But even if such a sum could be found no one
would buy from a Trust at any profit, for who
would be such a fool when all this stock was hang-
ing over the market, and the Trust always a seller.
Besides the formation of such a Trust would not
prevent anyone from dumping all their securities
on the market whenever any bad news came along.
That is the real danger to this or any other plan
of reopening.

The Committee realise this, and have decided to

/

THE STOCK EXCHANGE 29

prohibit any sales of Trustee stocks under prices
fixed by them. They also prohibit sales for account.
All sales must be for cash. But this action of the
Committee can have no good effect. It simply chokes
off any business. No one can now sell Consols,
however hard pushed he may be, except at the
fixed price. The scheme which was intended to
stimulate business has killed it. As one member
put it "Anyone can sell below the minimum
except a member of the Stock Exchange — Banks,
Insurance Companies or private holders— not a
member of the House I " " Fixed minimum prices
are the absoliite negation of Stock Exchange
business," writes another member. The plain truth
is that the scheme was formulated in the interests
of the dealers, not the brokers. It is completely
unworkable unless we get an almost instant peace.
Even in this happy conclusion a reopening of the
House with free markets and cash down would
be infinitely better, for in most of the stocks whose
quotations are definitely fixed, there is hardly any
market at all.

IV

THE BANKS

THE Banks have long been loooked upon as
sacrosanct. Something quite holy. Above
all criticism. The Bank Managers are pontiffs.
Head Offices are Temples of Mammon, more
gorgeous than those of any other faith. Solemn
airs hang round the Bank. Those who run them
are supposed to be High Priests of Finance.
" Safe as a Bank " became a proverb. But to me
the ordinary Bank Manager has appeared one of
the funniest things in the world. His pompous
manner put on to hide his entire ignorance of
finance. His patronising airs when he kindly
allowed you to borrow on gilt-edged security at
one per cent, above Bank Rate. His childish
rules and regulations. All these appealed to my

sense of humour. Yet it was all verv sad indeed

»

when you came to analyse it.

These bankers handle the money of the com-
munity. Some of it when placed upon deposit
receives interest, but more than half the money is

30

THE BANKS 31

at the disposal of the bank without charge.

£1,200,000,000 of cash is held by our bankers
to-day. Each year the sum grows larger. In

1880 it was only £356,000,000. Money rolls in
and profits go on increasing. The Banks have a
capital of £85,750,000, and total liabilities of
nearly £1,400,000,000. They make 22*39 per cent,
on the capital. But so inefficiently are they
managed that in spite of, or perhaps because of,
their 9000 branches, they only earn 1*38 per cent,
on the funds employed.

This absurdly low return is due to the system.
The great joint stock banks have been fighting for
business in two ways. One by establishing
branches all over Great Britain, the other by
amalgamation. In 1880 there were 101 banks.
To-day there are only 77. Every year sees the
number of independent banks lessen. It is
impossible to adequately supervise each branch.
Therefore books of rules have been devised. The
book of rules is the law — the bible of the Bank
Manager. He dare not infringe one single clause
under pain of instant dismissal. The officials are
reduced to mere machines. All initiative is
stamped out. Anything not provided for in the
book of rules must be referred to head office.
But even the general manager is rule bound.

32 THE WAR AND FINANCE

There are not more than three intelligent general
managers in the whole of London. The rest are
excellent officials — no more. The severe discipline
destroys individuality. But it fosters honesty.
Bank clerks and bank managers are rigidly honest ;
they are too stupid to be anything else. The
machine works admirably in days of peace, but it
breaks down in a crisis. Of this we have had a
bitter experience during the past month. When
the bank managers met Lloyd George there were
only two who were prepared to act on their own
initiative without reference to their Boards.

The banks all work upon the same lines. They
utilise about 40 per cent, of their available funds
in making advances. Some banks do not state
separately how much they use in discounting bills,
but if we may judge from such returns as are avail-
able, the banks utilise about 13 per cent, in this
direction. The average amount of cash kept in
hand is 12 per cent., but some of the largest banks
keep from 15 to 17 per cent, cash in hand. The
latest bank returns show a large increase in this item.
The public must not be misled. Some of the
banks have borrowed large sums of paper money
from the Government upon which they pay interest,
therefore their position is very little improved
although the cash looks larger. Cash in hand is the

THE BANKS 83

first line of defence, the only one that was of the
smallest avail in the recent panic. Cash at call,
which averages out at 11 per cent, of the total funds
available, is the bank's second line of defence. This
is money lent out to discount houses and bill brokers
and is only partially available. If all the banks got
afraid and called in their second line of defence
Lombard street would smash in twenty- four hours.
None of the banks dared to call upon the second
line last month. The moratorium if it helped to
protect their deposits also protected the discount
houses who owed money to the banks. The third
line of defence is the item of investments. These are
carefully made and amount to about £240,000,000.
Probably the banks have utilised about £20,000,000
in depreciating these investments since 1889.
Some banks out of sheer indolence invest far too
heavily. Investments in gilt-edged stocks look
pretty in a balance sheet and are invaluable for in-
surance companies whose first consideration is a
steady income. They are the worst things the
banks can hold. When a panic comes the bank
needs all its resources, but in days of panic invest-
ments are unsaleable. To-day with every Bourse
in Europe closed the £240,000,000 is almost waste
paper. If the war lasts three years and the Stock
Exchange remains closed during the whole of that

c

34 THE WAR AND FINANCE

period the investments of the bankers will not be
worth £120,000,000.

The soundest and most liquid form of invest-
ment is a bill. Here the money is always coming
in and going out. The risk of loss by depreciation
is nil, whilst under careful management the risk of
bad debts is equally small. But the bill business
requires constant attention and some capacity.
Therefore many bankers neglect it. If the Joint
Stock Banks had 30 per cent, of their money
invested in bills they would be much sounder
to-day. If the Birkbeck Bank had invested its
huge funds in bill discounting it would never have
collapsed.

I have said that the curse of our banks is the
rigidity of their rules, which leads to indolence
and brain atrophy. None of our banks have any
system of information bureaus. In every foreign
bank can be found a complete dossier of every
limited company in the world, and attached to this
dossier are the expert opinions of various people
upon the enterprise. Foreign bankers spend money
freely in acquiring information. They send capable
people all over the world who are continually
studying the financial position. They check these
experts by other experts. They try to arrive at an
accurate judgment. As a result of this efficiency

THE BANKS 85

the great French and German banks have captured
a large trade which English banks once had and
should have to-day. We lend more money than
anyone else in the world, yet our banks know less
than any small French or German provincial bank.

I have travelled all over the world. Everywhere
I have found the foreign banker hard at work
collating information, storing up facts, and pushing
for trade. The book of rules of an English bank
does not provide for an intelligence department.
Had our great Joint Stock banks known as much
as the German ** D " Banks, does anyone think
that they would have been compelled to go on
their knees to Lloyd George, beg for a moratorium,
and close down for five days. The idea is absurd.
They would have smashed the " D " banks, got
the acceptance houses out of trouble, and England
would have scored a huge first success over
Germany before even the war began. If the banks
had had an intelligence bureau they would have
known a fortnight before war was declared that
the Dresdner had cleared the decks for action and
left little to chance.

But they crawled at the feet of the Chancellor,
and so perilous was their position that they gave a
floating charge over all their assets. These assets,
be it noted, include the money of their customers.

36 THE WAR AND FINANCE

which is not their property at all. They could
not get gold, for there was not enough in the
country to go round. Paper money had to be
printed, and it was lent to them at 5 per cent,
interest. But as the interest was to be paid
monthly, the charge worked out at about 5j per
cent. Mr. Lloyd George grumbles because the
banks are costive. How can a bank lend money
on bills of lading or help its traders when it has to
pay 5^ per cent. ? A bank is not a philanthropist.
It must make some profit. The exaction of such
huge interest was foolish, because no bank that
was not in dire straits could afford to push the £l
and 10s notes on such terms. The Chancellor
wished to make the new note issue popular. He
did the very thing to curtail it. Indeed, one of
the Joint Stock banks which took £1,250,000 of
these notes returned £750,000 in a week or two.
It saw no reason why it should pay 5^ per. cent,
for currency when it could discount its own paper
on much better terms.

The arrangement made to put the exchange
market upon its legs was equally absurd. It was
preposterous to guarantee the Bank of England
against loss in buying bills " without recourse."
The result will be a loss to the taxpayer of about
£50,000,000. This loss would not matter if the

THE BANKS 87

experiment had proved successful, but the ven-
ture was a complete failure. The exchange
market was not reinstated. The only thing that
happened was that stacks of doubtful bills in
London were shot into the Bank of England to
be a burden upon the taxpayer.

The bewildering notices issued by the Treasury
were all so vague and ill- worded that not a man
in Lombard Street knew what they meant. No
doubt they were issued with good intent. But
they should have been drafted by people who
understood the money market. Clarity of expres-
sion is essential in business. The notices were
written by lawyers whose very existence depends
upon an involved terminology which never fails to
bring grist to the law courts.

The Treasury does not understand that words
alone cannot help either the banks or the
acceptance houses whose whole assets with the
exception of about 15 per cent, in cash are locked
up in paper that cannot be negotiated. Credit
has gone. It cannot be restored by legal notice.
The trader needs accommodation on sound lines.
He cannot get this if the banks are charged Jew
rates for Government help. The acceptance houses
are full of paper which till the war is over has no
value.

V

THE MORATORIUM

TT^HEN panic struck the City and the Stock
▼ ▼ Exchange closed, the Government did an
extraordinary thing. They proclaimed a mora-
torium. They closed the banks for five days. It
was the act of people who lost their heads. The
Stock Exchange is a private institution ruled by a
committee. Some of the most important members
were, for the moment, insolvent. These gentlemen
closed the House to save their skins. The arbitrage
houses and a large number of members who could
not pay up, either because they could not collect
their foreign debts or because the fall in prices had
eaten up margins and left them in debt to the banks
brought great pressure to bear upon the committee.
The banks closed because there was a severe
run upon their gold supply. If the Government
had acted promptly they could have remained open.
Public confidence in the banks has now been
restored. It would never have been shaken at all
had the Government exercised a little foresight.

88

THE MORATORIUM 89

Both banks and Stock Exchange closed to save
themselves. However much we may despise their
cowardice, we can understand it.

But the moratorium was inexpHcable. Those who
owed money and could not pay because their funds
abroad were locked up, might easily have been
protected by a partial moratorium, such as has
been established in many countries. The ordinary
trader, the shopkeeper, the merchant, the manu-
facturer, did not need any protection. They were
shocked at the suddenness with which war came
upon them, they were frightened by the Stock
Exchange panic, but they were amply protected
by the general good sense of the nation. The
average Englishman is quite honest. He always
pays when he has got the money. He is not
accustomed to either ask for or give long credit.
Therefore his commitments are never very heavy
or out of proportion to his business. The strain
caused by the declaration of war would have been
disagreeable, but in a few weeks matters would
have adjusted themselves.

The Government gave us no chance to accom-
modate ourselves to war conditions. It chloro-
formed the trader. It did not consider that by
protecting the banker and the acceptance houses, a
small section of the community, it was injuring the

40 THE WAR AND FINANCE

whole trade of the country. A manufacturer
accustomed to collect his accounts monthly, but
who pays his wages weekly, was completely upset.
He did not know whether his customers would pay,
but he clearly recognised that he must pay his
workpeople. In such a case the moratorium meant
an increase of the unemployed. The wretched
small shopkeeper, accustomed to give long credit,
found that the middleman who supplied him was
asking for cash down, whilst his customers were
pleading the moratorium. The measure meant
stark ruin to him. To keep his shop open he had
to pay cash, if he wanted to keep his customers he
could not ask for cash in the face of a moratorium.
The rogue who lived upon his wits chuckled; He
saw a way of evading allliabilities for the moment.
He doubled his orders, he lived like a prince upon
credit, he dunned everybody who owed him money
and he refused point blank to part with a shilling.
He laid in a huge stock of provisions on credit,
and he thus helped to rush up the prices of the
necessaries of life. The action of the politicians
had exactly the opposite effect to what was
intended, a common occurrence when things are
done in a hurry. The moratorium was intended to
help the needy and the honest. It nearly ruined
them.

THE MORATORIUM 41

There was some excuse for protecting the
bankers, for a run on the banks had to be stopped
at any cost. But a suspension of the Bank Act
and an issue of paper money would have had a far
better effect than the moratorium and would not
have affected public credit. It would have been
sound policy to protect those who were owed
money abroad which they could not collect. It
was to the advantage of everyone in the City that
the acceptance houses should be protected. But
these houses have now been sheltered under the new
scheme by which the Bank of England buys bills
and does not ask for its money until a year after
the war has ended. This should have been carried
into effect before the banks closed down. Then
the second line of defence to the banks would have
remained and the Bank Holiday need not have been
extended. If depositors will keep their funds at
their bankers, if traders will continue to use cheques,
the machinery of the banks will run smoothly.

The banks, whatever Mr. Lloyd George may
say, have on the whole acted reasonably. They
cannot be expected to take risks in days like the
present.

We must support the credit of Great Britain.
We must show the world that although we are at
war we can carry on our business. Silly people

42 THE WAR AND FINANCE

say " Business as usual," but there was no meaning
in this phrase as long as the moratorium lasted.
No one can carry on business if a legal debt can be
held up. The metal exchange is closed. No one
could deal in copper if they were not sure when
they would be paid.

There is no moratorium in Germany. Russia,
Norway, Sweden, and Holland have only a mora-
torium that refers to foreign bills of exchange.

We have escaped the horrors of war. Our land
has not been ravaged like Belgium or France. Our
population goes on its way unconcernedly. To the
stranger who does not read the newspaper placards
or see the recruiting offices, Great Britain presents
her usual normal aspect. We take things with
stolid patience. There is no sign of panic anywhere.
The only people who appear terrified are Cabinet
Ministers who issue strange and ill-considered edicts
every day. They are terrified lest we should get
drunk, so they have closed the public houses at
eleven. They are terrified lest we should learn the
truth about our Army and our Navy, so they have
established a Press censorship — meddlesome, incom-
petent and untruthful. They are terrified lest we
should remain honest and thus deprive the attorneys
who rule us of their bread and cheese, so they pro-
claim the astounding news that we may refuse to

THE MORATORIUM 43

pay our just debts. Whatever they do they do
wrong. People still drink beer and whisky. News
still creeps out, and sad to say some honest people
remained in England who persisted in ignoring the
moratorium.

We are not panic-stricken. We are calm and
determined to fight the war to a finish. We are
not hard up. We have plenty of the world's
wealth. Our trade is fairly good, everything
considered. We remain patient under our futile
edicts, we are simply sorry for the people who
make them. We shrug our shoulders and
charitably declare that the Government is doing
its best. We cynically ask each other what we
can expect of men who are at once lawyers and
politicians — a quintessence of chicanery.

But we don't want our business interfered with
by any moratoriums. We don't want rules
enacted which may breed rogues. Englishmen
all the world over have had a good name for
honesty. They have paid their just debts. They
don't want to shelter behind the law. They wish
to behave like honourable men. The moratorium
led the world to think that our character had
changed. It has not. But what has changed is
the character of our statesmen.

VI

HOW TO SAVE THE SITUATION

THE question which every Englishman must
ask himself to-day is "What can we do
to save the situation ? " Credit is broken, securi-
ties are unsaleable, the moratorium dislocated
trade, exchange is shattered, the banks cannot pay
their depositors more than four shillings in the
pound, the Stock Exchange is closed, the metal
exchange does no business. Delay cannot mend
matters. The banks as a body are opposed to
either the reopening of the Stock Exchange or
the cancellation of the moratorium. They are
afraid that the first would produce heavy sales.
Margins on loans would run off and bankers would
be faced with losses which they could not recover.
They think that when the moratorium is cancelled
they may be faced with another big run in the
event of an attempted German invasion. There
is little or no chance of the exchange market
reviving whilst the most important kingdoms of

the earth are at war.

44

HOW TO SAVE THE SITUATION 45

Nevertheless Great Britain must find money to
carry on the war, and if she is to float loans she
must attempt to revive credit and trade, and keep
an open market in commodities and securities. The
bulk of the wealth of the nation is invested in
these. A millionaire might wish to lend his million
to the nation, but how can he ? It is already
locked up in (1 ) A deposit account ; (2) A current ac-
count; (3) Trustee securities ; (4) Foreign securities;
(5) Loans ; (6) Real Estate or house property.
The closing of the Stock Exchange stops him from
selling his securities, he finds it difficult to either
sell or mortgage his property because no one is
any better off than he is. How then can he help
the Government? The matter is of extreme
urgency. We are now committed to an army of a
million men. We shall perhaps spend £500,000,000
in the first year of the war. No one will grudge
this. Everyone knows that the more money we
spend judiciously the quicker will the war be
over.

It is absurd to imagine that we can go on
peddling out Exchequer bills. It is equally absurd
to think that the Joint Stock banks will buy
paper currency at the London deposit rate. It
is impossible to believe that the Chancellor when
he issued the little treasury notes could have

46 THE WAR AND FINANCE

thought that he was going to finance the war in
this way. He can only put them into circulation
through the banks and the banks cannot afford to
take them, and indeed have no means of placing
them with the public. We must make some big
national loan issues. We must provide not only
machinery for selling old securities to pay for
new ones, but also machinery for placing the new
loans.

Germany has financed herself by mobilising the
whole wealth of the nation. Every kind of com-
modity, every species of property, grain and brie
a brae, ironworks, and millinery are convertible
into legal tender on a Government valuation. The
Reichsbank has absorbed all the gold and bullion,
and has issued paper. It has made loans on all
kinds of securities. It has started war banks in
all the large towns. These give traders the
accommodation they require. It began its financial
mobilisation concurrently with the declaration of
war. The wealth of Germany has been estimated at
£16,000,000,000 and the yearly income of its citizens
at £2,000,000,000. I ought to mention that this
estimate was made in peace time. The amount bor-
rowed from the war banks has not yet been published.
The loans upon commodities and real estate are
now handled by a separate bureau, therefore we

HOW TO SAVE THE SITUATION 47

cannot say exactly how much wealth has been
mobilised. But we do know that about £100,000,000
of paper money was created in the first fortnight
of the war, and that to-day the amount is
about £200,000,000. It is said that the notes
are at a discount of twenty per cent., but this
statement has not been confirmed, and it is doubt-
ful whether it is true. But whether it be true or
not it is clear that Germany had no other means of
carrying on the war than by issuing notes.
Whether they stand at a discount or not she must
go on printing them and go on making loans
against all classes of securities. She must provide
money for her citizens to live upon, and she must
give them the funds with which they can subscribe
to the war loans. France in 1870 issued notes,
suspended the right of conversion into gold, and
ceased to publish the gold reserve of the Bank of
France, yet the notes never fell below par. It will
be remembered that the Bank of France started
the war of 1870 with about £52,000,000 in specie.
Germany began her campaign six weeks ago with
£75,000,000. We need not trouble to examine
how either France or Russia can finance the pre-
sent war. Their combined hoard of specie is proba-
bly about £350,000,000. Russia annually produces
about £5,000,000 of gold within her own territory.

48 THE WAR AND FINANCE

The stock of gold in Great Britain is compara-
tively small. It has been guessed at anything be-
tween £50,000,000 and £100,000,000, let us say
£75,000,000. No one knows how much gold is
carried in the pockets of the people. But it must
not be forgotten that our colonies have an annual
output of nearly £50,000,000jf gold. This, of
course, is paid for in Bank of England notes which
are convertible into gold. If we had a forced
paper currency we could pay for this gold in paper.

It is clear that with our whole wealth immobi-
lised we must adopt heroic measures. I suggested
when the Stock Exchange closed that we should
issue paper money not convertible into gold against
the security of trustee stocks up to 50 per cent, of
their face value. These stocks have been hall-
marked by Government. There can be no ques-
tion as to their value. The interest upon them is
as secure as that upon Consols themselves. The
banks hold about £240,000,000 of these securities.
The insurance companies are large holders. Nearly
every rich man possesses some. If we issued up
to 50 per cent, of the face value to anyone who
deposited the stock at the Bank of England we
could provide enough currency to pay for the war
for an indefinite period. We could utilise our
gold supply in paying for our outside food supplies.

HOW TO SAVE THE SITUATION 49

Not only should we put our rich people in funds
and enable them to subscribe to the war loans but
we should also put the banks in funds. They
would benefit in many ways. They would
be able to send back the Treasury notes on
which they pay interest. They would obtain
currency and save their gold. Customers
who now have loans running would be able to
repay at least a portion of these loans, and thus
make the assets of the bank more liquid. Roughly
speaking, the banks which now only have 15 per
cent, in their first line of defence would increase
this amount to 50 per cent., an enormous liquid
reserve, quite enough to keep them safe, even if
the war lasted half a dozen years.

The issue of currency against trustee stocks
would allow the Stock Exchange to reopen at
once. All really solvent firms hold large blocks
of trustee securities. They would raise money
upon them. Their clients who owe them money
could reduce their debts in a like manner. Many
limited companies have lent money to the Stock
Exchange. That money is locked up and cannot
be released until the House opens. Dividends
cannot be paid by such companies, but if they
could raise money on their reserves, which are
often invested in part in trustee stocks,

D

50 THE WAR AND FINANCE

they would obtain much - needed working
capital.

The Government could not possibly come to
any harm, for, though they would not get any
interest upon the notes issued, they would be
certain of getting all their money for war expenses,
also they could pay for the Colonial gold with such
notes, and thus add to the stock of gold and make
the general position sounder. They might even
charge a nominal figure of 2 per cent, interest.
That would not hurt anyone.

The whole trade of Great Britain would revive
under the flow of currency. No one has any money
to-day ; no one can borrow, no one can sell. No
one, however patriotically inclined, can lend to the
Government. But once we had a paper currency
the business of buying and selling would revive,
dealings in securities would be re-established,
dividends would be resumed, and an approach to
normal would be attained.

That there are many objections to the scheme I
am well aware. There are hundreds of members
of the Stock Exchange who hold no trustee
securities. They will reply that they are no better
off, but 1 do not agree. Those who hold Russians,
French Rentes or other foreign Government bonds
American and Canadian bonds, would be able to

HOW TO SAVE THE SITUATION 51

borrow on them freely, for money would be
plentiful and confidence would be restored, the
House would be open, the members making money
once again. Some of the bankers would object.
They have been building up a gold reserve. One
or two of the big banks have quite respectable
private hoards. But I think that they need not
worry. Their gold would not lose in value. It is
conceivable that if the war lasted a long time,
which God forbid, their gold would go to a
premium. It certainly would not deteriorate.

The impecunious financier, the insolvent
member of the Stock Exchange would, it is true,
remain hard up. But nothing is going to help
such people. War means destruction. The weak
must go to the wall. The gambler must suffer.
That is inevitable. But to-day the rich and
careful man who has put his savings into trustee
securities is no better off than the speculator. He
cannot borrow because the banks have no money
to lend. All the savings are locked up.

There is a chance that the paper thus created
might depreciate. The nation would have to re-
deem its paper, but it need not be redeemed in gold
until some time after the war was over. The right
of redemption would have to be retained by the
Government. The nation must, of course, bear the

52 THE WAR AND FINANCE

cost. It might be heavy. But it could not be much
heavier than the cost of issuing loans at a high rate of
interest or a heavy discount. Not even a British
Government can borrow in war time on the same
easy terms that it can secure in days of peace, and
unless some means be taken to mobilise the wealth
of the nation it cannot borrow at all.

We must not forget that there are no foreign
nations capable of lending us any money to-day.
We cannot look to the United States. President
Wilson considers that the making of a loan is a
breach of neutrality. Norway, Sweden, and Den-
mark are solvent, but they are not rich enough to
finance Great Britain. We ourselves must find
what money is needed to carry on the war. We
must lend money to Belgium, to Japan, to South
Africa, to India, and to Egypt. How can we pos-
sibly find this money? The Stock Exchange is
closed, the banks are only open as a clearing-house
for cheques — they are no longer big lenders of
money. The whole continent of Europe with its
huge reservoir of wealth is in a state of war.
Capital is being destroyed daily, depreciation goes
on hour by hour. We are perhaps the richest
Empire in the world, yet when war was declared
we had not enough money to go round, and we
had to shut the banks whilst we printed a few

HOW TO SAVE THE SkcJAtlOl^ SB

notes. How then can we meet the immense cost
of this war unless we issue paper money ?

We must mobilise our wealth, not recklessly
as Germany has done, but carefully. Let us begin
with our trustee stocks. If we have to pile pig
upon pork let us choose the best pigs in the
market. Trustee stocks are not local, they are
imperial. I cannot see any other way out of the
trouble. We must act and act at once. Things
will not be mended by waiting for something to
turn up. Depreciation and dry rot grow apace.
I do not say that my scheme is perfect, but when
half the civilised world is at war a perfect scheme
is impossible.

Mr. Lloyd George may not be a financier, but he
is a great orator and therefore possesses the power
of crystallising the truth in a simple phrase. He
told us that the war would be fought " with silver
bullets." France and Russia have a good supply.
Germany has no more than ourselves, not quite so
many. But our Colonies will give us fifty millions
a year, therefore we can wear down our foe whose
bullets must be exhausted sooner or later ; ours
cannot be exhausted. In three years we should
have built up a gold supply of £150,000,000, quite
good enough for a note issue of five hundred
millions of paper.

5L THE WAR AND FINANCE

The gold bugs will scream. But they must
remember that after all gold is but a token of
value, a mere convenience. No one uses gold in
the States, yet I do not suppose the credit of that
great country has suffered. In Scotland, where
every man is born to finance, gold coins are rare,
even here in England we have become quite used
to paper during the past few weeks. But we want
more of it, we want to be able to realise our wealth,
which is undeniable. Our credit, which is second
to none, will prevent any long-continued deprecia-
tion of the paper.

I want people to understand how serious the
financial situation is to-day. Until they do they
will not move, I want them to realise the vastness
of the fight. Until they do they will not rouse
themselves. We must have a million men in the
field. We must have more ships, more airships,
more guns. We must spend money with both
hands. And we can only get that money by at
once immobilising our vast wealth. To immobilise
quickly we must issue paper money.

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