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Art. 3.-THE ECONOMIC CONDITION OF ENEMY

COUNTRIES.

IN surveying the financial and economic position of enemy countries, the wish is apt to become father to the thought. In spite of every desire to be judicial and to avoid the pitfalls of patriotic partiality, it is difficult to escape completely from the temptations of national bias. As'all is yellow to the jaundiced eye,' so are the figures of German or Austrian or Turkish trade and finance liable to be distorted by their enemies into evidences of imminent disaster. This one-sided view and its attendant exaggeration are much to be deprecated. Nothing is gained by painting the devil blacker than he really is. It is much more serviceable in the long run to look at an opponent's position with an eye to his strength as well as to his weakness. We can adopt this binocular method with the less reluctance because even the fair and moderate view need not cause us the least misgiving.

But while deprecating trop de zèle on our side, we are bound to add that it needs discountenancing far more in Germany. Germany is remarkably anxious to make it known that there's nothing rotten in the State. But the official attempts to 'make the worse appear the better cause' are almost childishly transparent. It is difficult to decide whether the Imperial Chancellor, the 'Cologne Gazette,' and the Vice-president of the Reichsbank, all of whom have insisted so loudly on the strength of Germany's economic position, are engaged in a pre-arranged game of bluff, or are the victims of a portentous self-delusion. A really impartial view of the situation is entirely at variance with German official optimism, whether real or assumed. It would almost seem as if deceptive boasts, similar to those which have characterised the Berlin Press bureau, were being used in the home campaign in order to hearten the German taxpayer for the heavy pecuniary sacrifices that lie before him. The only alternative theory is, that those who ought to know the real position are in such a state of ignorance that they cannot distinguish favourable from unfavourable factors, and so read into a superficial prosperity the signs of unassailable stability.

On no other assumptions can the boastings of the

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Cologne Gazette' be explained. In one number it published fabulous statistics of German national wealth and a panegyric of Germany's fiscal policy. In another number it reported at great length a lecture purporting to show that Germany is much more prosperous than England. In a third number a long semi-official telegram from Berlin insisted upon the wonderful harmony between Germany and Austria, the success of the Austrian loan, the confidence expressed by German personages of all sorts, and the fact that there was a temporary improvement in the statistics of unemployment.

At a meeting of the central committee of the Imperial Bank not long ago, the vice-president asserted that not only the German money market but the general economic situation in Germany had shown thoroughly satisfactory development. It is noteworthy, too, that the speakers at several company meetings claimed that the mining industry, as a whole, is producing to the extent of about 50 or 60 per cent. of the normal output.

It may be admitted that Germany escaped the full force of the great financial crisis which broke upon England when war was declared; but one not very creditable reason for this comparative immunity was that she owed us many millions sterling on trade account which she has omitted to pay, and which form part of that 'prosperity' of which she has lately been boasting. It is easy to make a pretence of solvency when you are jingling other people's money in your pockets. The quasi-panic in London was largely the product of German financial intrigue. The dumping of securities on our Stock Exchange, the discounting of German bills at the London banks, and the secret removals of gold before the declaration of war, were all part of the elaborate mechanism by which Germany hoped to smash our credit. She avoided for the moment some of the emergency expedients that had to be adopted here. The German Government, for instance, was not forced to guarantee the payment of foreign acceptances, for the simple reason that the balance of indebtedness was very largely and of malice aforethought on Germany's side. Nor was a moratorium resorted to; and much has been made of the fact. But at the beginning of the war the restrictions covering the issue of notes by the Reichsbank

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were suspended-a measure which had much the same effect as the suspension of the Bank Charter Act would have had in England. All banks were relieved of the necessity to pay in gold. Although gold imports were made impossible by the closing of the seas to German shipping, yet for a couple of years previously active preparations had been going on with a view to husbanding and increasing the stock of gold in the country.

It is not, however, by the immediate consequences of a war crisis, but by its effects in the long run, that the strain of endurance must be tested. It is too early yet to look for the more serious results of economic pressure in Germany. The great cities, if far from normal, are at any rate not suffering from any close menace of privation. Six or eight months are, of course, no adequate test of the endurance of a rich and determined nation; and it would be foolish to deny to Germany either of these qualities. To a considerable extent, in Germany as in England, the lack of work caused by the war in many branches of trade has been balanced by increased activity in others, bringing down the percentage of unemployment. The manufacture of guns, ammunition, military equipment, airships, and war vessels is going on at the highest possible speed. Although many of the working classes are protected against the pinch of unemployment and even able to earn good wages, this abnormal production does not dispose of the growing feeling of anxiety with regard to trades which are not benefited by the war.

The food question depends very much upon the extent of the supplies obtained from or through neutral countries. Germany, at the beginning of the war, had large stores of foodstuffs; and, although there is evident fear of a shortage of wheat, as shown by the official decree for the Government control of the corn supplies and for the strict regulation of the sale of bread, commodities generally are not yet so much above the ordinary level of prices as to suggest the immediate approach of famine. Every day, however, makes the position worse. The food supplies, with a few exceptions, are not being replenished as fast as they are being used. In another six or eight months the outlook will have become graver, and the problem of feeding the people much more difficult.

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The economic position depends to some extent upon the military and much more upon the naval position. If Germany were making any appreciable headway in the field, if she were diminishing the superiority of our Fleet over her own, then the economic factors that are beginning to threaten her would at once become of relatively minor importance. A great naval victory would mean for Germany the liberation of her external trade, and would revolutionise as if by a stroke of magic the economic conditions. To recognise a possibility so influential is not, however, to admit its probability. At all events, until it really happens, we need not allow our point of view to be changed, or our measure of the situation to be revised. It would be just as futile to base one's estimate of Germany's economic position upon the most wildly fanciful postulate as to base it on a grotesque minimising of actualities.

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It will be useful to take a closer look at the financial position first. Nothing has, perhaps, surprised people in England more than the large and persistent increase in the German Imperial Bank's stock of bullion during the last two years, and especially since the outbreak of the war.

From about 70,000,0001. in July 1914, the nominal gold-store has risen to nearly 112,000,0001. It is, however, by no means certain that this figure represents gold absolutely. We have heard of laths painted to look like iron, and it is not scientifically impossible to paint paper to make it resemble gold. It was stated not long ago that in certain cases the deposit of war stock at the Reichsbank would be regarded on the same footing as gold; and the execution of such a brilliant piece of hypothetics might explain a good deal in the nature of reassuring totals. On this point we have the independent views of such an eminent authority as the Swiss Bankverein, a banking concern in Switzerland with many branches. The Bankverein remarks in a recently published memorandum:

The issues of the Imperial Government having evidently absorbed all the means which the public has had available or is able to mobilise by pledging securities, the Prussian Government is now said to have issued 75,000,0001. sterling, which loan will be handed over in toto to the Reichsbank; the Bank can place the issue to the War Loan Society and will receive thereagainst notes issued by this Society which the Reichsbank is authorised to regard as gold cover for the issue of an equal amount of its own banknotes. This procedure amounts in reality to an issue of Reichsbank notes against the Prussian loan, and seems to be adopted with the object of disguising the enormous growth in the fiduciary note issue of the Reichsbank.' (The italics are ours.)

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If we assume that the whole of the alleged gold is real tangible gold, how has the increase of 42,000,0001. since July been brought about? In the first place, the War Chest, amounting to 12,000,0001. in gold, has been transferred from the Spandau fortress to the vaults of the Imperial Bank. Then, doubtless, some part of the stock consists of the proceeds of the new tax collection on fortunes, of which about one-half, or 30,000,0001., should have been paid in just before the war broke out. Much of the gold that was in circulation has been gathered in by the Bank, and extraordinary pressure is still being exercised in all directions to gather in the rest.

If we look at the total gold stock in the abstract, without reference to its relation to the general currency question, the financial position of Germany would appear to be strong. To a certain extent, indeed, it is strong. There is all this gold to draw upon for war expenditure. So long as the stock goes on increasing, or even remains undiminished, the apparent stability of German finance will be satisfactory-to Germany. The real function of a gold store is to guarantee issues of paper money; and, so long as the paper money does not exceed the gold store, except within defined limits and with State security, it is performing this function on sound principles and to the advantage of the community. But Germany's note issue immensely exceeds its stock of gold, always supposing that it is gold. The note issue on Dec. 31, 1913, amounted to 253,000,0001. (not counting Treasury notes), as compared with gold in the Reichsbank amounting to about 105,000,0001. This means that 148,000,0001. of paper had no chance whatever of being redeemed in gold; in other words, Germany is keeping

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