threatened by the near approach of an invading foe, has inevitably suffered much more severely than London, and is likely to take longer in recovering the great position as a provider of capital which was given to her by the thrift of the average French citizen. Every one expects with confidence to see, when the war is over, a miraculous recovery in France produced by the same spirit which worked miracles after the war of 1871, aided and abetted by the subsequent improvement in man's control over the forces of nature, and also by the deep and world-wide sympathy which all will feel for France as the champion of freedom who has suffered most severely in its cause during the war. But it is impossible to expect, after what France has suffered, that she will be, for some time, in a position seriously to challenge London as a financial rival. All Englishmen will hope that the day when she will be in a position to challenge us again will come quickly.

As to Berlin, the only other possible rival to London in Europe, very little need be said. The German authority quoted above has already shown some of the difficulties with which Berlin has to struggle. He spoke of the narrow-mindedness of German finance, of the "petty quibbling" which often disturbs the relations between buyer and seller, of the "dubious practices of many kinds, infringements of payment stipulations, unjustifiable deductions," etc., and the "ruthless" action of the cartels. He acknowledges that though Germany had a gold standard "too much anxiety used to be shown when the gold export point was reached," and that "it was also feared that to export gold would incur the wrath of the Reichsbank."

With these disadvantages to struggle against, quoted from the mouth of a German observer, Germany has also succeeded by her ruthless policy during the war in earning the deep hostility of the greater part of mankind. Sentiment probably enters into business relations a good deal more than most business men admit, and for any country to set out to gain the leadership in trade and finance by outraging the feelings of most of its possible customers is an extraordinary piece of stupidity.

It seems, then, that apart from the relative weakening of London as compared with New York, there is very little need for us to fear any serious change in England's financial position after the war as long as the Government's faulty finance is not allowed too seriously to endanger the position of our gold standard. It is true that we shall not benefit, as much as we undoubtedly have in the past, from the "help of Germans" in developing our finance. But indirectly the Germans will still be helping us by the great stimulus that the war will have given us towards efficiency and hard work.

What we have to do in order to secure London's position after the war is to restore as soon as we can the system that had established it in the century before the war. We have to show the world that, far from any intention to abandon Free Trade, we mean to take a long step forward along the line of international activity which has been the source of our greatness in the past. We want, as soon as possible, to get back that freedom from Government control which has given us such elasticity and adaptability to our money market, our Stock Exchange and our Insurance business. A certain amount of Government control will inevitably have to continue for a time after the war, but the sooner we rid ourselves of it the sooner we shall restore to the London money market those qualities which, after the reputation that it has for honesty, soundness and straight dealing, were most helpful in building up its eminence.

Above all, we have to work hard both in finance and industry and commerce. Finance, which is the machinery for handling claims for goods and services, can only be active and effective if industry and commerce are active and effective behind it, turning out the goods and services to meet the claims that finance creates. A great industrial and commercial output, with severe restriction of unnecessary consumption so that a great margin may go into capital equipment, will soon repair the ravages of war, bring down the price of credit and of capital and make London once more the place in which these things are most cheaply and freely to be bought.

Finally, if we want to restore London as a place in which all the financial transactions of the world were centred, we must remember that we cannot do so if we restrict the facilities given to foreigners to come here and settle and do business. It is not possible to be an international centre with an insular sentiment.

III

WAR FINANCE AS IT MIGHT HAVE BEEN—I

November, 1917

Financial Conditions in August, 1914—No Scheme prepared to meet the
Possibility of War—A Short Struggle expected—The Importance of
Finance as a Weapon—Labour's Example—The Economic Problem of
War—The Advantages of Direct Taxation—The Government follows the
Path of Least Resistance—The Effect of Currency Inflation.

A legend current in the City says that the Imperial War Committee, or whatever was the august body entrusted with the task of thinking out war problems beforehand, had done its work with regard to the Army and Navy, transport and provision, and everything else that we should want for the war, and were going on to the question of finance next week, when the war intervened. Whatever may be the truth of this story, the events of the war confirm the opinion that if it was not true it ought to have been. We are continually accused of not having been ready for the war; but, in fact, we were quite ready to do everything that we had promised to do with regard to military and naval operations. Our Navy was ready in its place in the fighting line, and the dispatch with which our Expeditionary Force was collected from all parts of the kingdom, and shipped across to France, was a miracle of efficiency and practical organisation. It is true that we had not got an Army on a Continental scale, but it was no part of our contract that we should have one. The fighting on land was in those days expected to be done by our Allies, assisted by a small British force on the left flank of the French Army. That British force was duly there, and circumstances which were quite unforeseen made it necessary for us to undertake a task which was no part of our original programme and create an Army on a Continental scale, in addition to doing everything that we had promised beforehand to a much greater extent than was in the bargain.

But in finance there was no evidence that any thought-out policy had been arrived at in order to make the best possible use of the nation's economic resources for the war when it came. The acute crisis in the City which occurred in August, 1914, was a minor matter which hardly affected the subsequent history of our war finance except by giving dangerous evidence of the ease by which financial problems can be apparently surmounted by the simple method of creating banking credits. That crisis merely arose from the fact that we were so strong financially, and had so great a hold upon the finance of other countries in the world, that when we decided, owing to stress of war, to leave off lending to foreigners and to call in loans that we had made by way of accepting and bill-discounting arrangements, the whole machinery of exchange broke down because from all over the world the market in exchange went one way. Everybody wanted to buy bills on London, and there were no bills to be had.

There was also the internal problem which arose because some of the public and some of the banks took to the evil practice of hoarding gold just at the wrong moment, and consequently there was no available supply of legal tender currency except in the shape of Bank of