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suspended, but the enormous issues of Treasury notes, against every principle of that Act, render this technical abstention insignificant.

It may be admitted, however, that the aggregate effect of the various measures taken by the Government in a sudden and unexampled emergency has been for the time very pleasing ; but, in judging of the full effects of any economic disturbance, we must always distinguish between what economists call the short period' and the long period. With regard to the 'short period,' on the outbreak of war every one expected a series of earthquakes accompanied by the fall of financial houses great and small. It appears, however, from a calculation in the Times' that the insolvencies in England from August to December were less in number and in magnitude than in the corresponding period for the year before; they were, indeed, below the average, and there was no failure of any particular importance. In the same way people expected a great increase in unemployment; instead there has been a decrease, just as in insolvency; and except in Lancashire, no great industry seems to have been much afflicted, whilst many have attained unusual prosperity. It is true that exports have fallen off; but imports have almost reached the normal, and the ports are congested with undistributed cargoes. After six months of war there is apparently no real economic pressure so far as we are concerned, whilst we have the gratification of observing all the symptoms of increasing pressure in Germany. If these marvellous results and this astonishing contrast are to be ascribed to the financial measures adopted in England and Germany respectively, then the clamour of self-congratulation is at least pardonable if excessive. But are they to be so ascribed ? Is there not something of the simplicity of the post hoc ergo propter hoc in the conclusion ? And are the long period' effects likely to be equally satisfactory?

First of all, attention may be directed to the effects of the emergency measures on the foreign trade of the country. Unfortunately an adequate appreciation of this side of the question depends on understanding the working of the foreign exchanges; and this is a matter to which in this country very few people, even bankers, pay any regard in the ordinary course of their business. The ordinary man does not know even the meaning of the foreign exchanges. When he was told that the foreign exchanges were dislocated, he probably thought that it was part of the business of the navy to put them right. He was not far wrong, but it takes longer to clear the seas than to sign documents, and London could not wait. The bill on London had come to be recognised as the world's international currency. The bill on London was made good by a plentiful use of public credit. How much eventually will be added to the national debt in consequence is looked on as negligible in the midst of the flood of the other governmental expenditure necessary for the war.


In judging of this restoration of the foreign exchanges, two points ought to be borne in mind-one retrospective, the other prospective. The dislocation of the foreign exchanges was not due to any probability of a run on the Bank of England in what is called a foreign drain of gold. On the contrary, the real difficulty was that other countries owed to London so much gold that they were unable, or thought they were unable, to pay. They thought they were unable to pay because they were afraid of the effect of appearing to lessen their gold reserves. They were afraid of an internal commercial crisis. They were all dominated by the golden-calf theory of banking reserves. The principal offender (be it said with all respect) was the United States of America. As the event showed, only time was necessary for the exchanges to be restored in the usual way; but, as time was of importance, the action of the Government was enthusiastically approved.

The prospective point is now of more practical interést. Is the restoration likely to be enduring, or are the measures adopted in an emergency liable to have a setback later on? To answer this question, we must consider the measures taken, apparently not in the interests of foreign trade but of home trade and industry.

Here it is difficult to understand on what principles, if any,

the country was flooded by emergency currency. Notes for one pound and for ten shillings were issued as fast as possible, and at first were supposed to be intended to support the banks. The banks were to be allowed to borrow these notes from the Bank of England up to 20 per cent. of their liabilities. If the banks had acted on this privilege they could have borrowed and issued over two hundred millions of these notes, which, having regard to the banking system of this country, was an absurdly extravagant amount. Fortunately the banks scarcely made any use of the privilege. But long after the banking system of the country had settled down and it was never much upset for internal purposes—the Government continued to issue millions of these notes. By the end of the year the amount had exceeded thirty-eight millions; down to last January every week had seen an increase. After some contraction in January the weekly increases began again in February. Besides this, postal orders were made legal tender and were issued free of charge; that is to say, they were exactly like bank notes of small denomination, that could be issued by any private person who chose to give coin for them, and in general the coin was silver. They were convertible into any legal coin at the Bank of England. They ceased to be current and legal tender by the Proclamation of Feb. 4. The Treasury notes proper were convertible into gold, but the provision for convertibility was practically noneffective.* The notes were by the Act to be convertible at the Bank of England, but, in order to assist the Government and the Bank of England, the country banks were encouraged to use the notes as much as possible and to send any surplus gold to the Bank. An ominous foresight was shown even in the superscription of the Treasury notes; they bore no promise to pay in gold. In case of complete inconvertibility being adopted subsequently, they would be all ready and would not need to be reprinted. Even this flood of postal orders and Treasury notes does not complete the sum of the Governmental assistance to the country in the way of providing 'money,' since in other ways there has been a great extension of bankers' credit, the chief form of modern money. Even the war loan was made the basis of the most easy borrowing from the Bank of Englandultra-Teutonic in its easiness.



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* On Feb. 10 the currency note redemption account showed gold coin and bullion amounting to 24,500,0001., 'ear-marked' against a note issue outstanding of 36,102,8581. This is so far satisfactory, but the marking' would not mean much if the gold were needed for other purposes. In the debate in the House of Commons on Feb. 23 Mr Chamberlain said: "I do not care about seeing a great deal of gold in pockets of the people; I care about a large reserve of gold for an emergency. You get your gold together to use it when the emergency arises.' Mr Lloyd George expressed his entire agreement. What then becomes of the special redemption of the Treasury notes ?

That such and so great an inflation of currency and credit should raise prices, including the prices of food and other necessaries, seems never to have entered into the minds of any one in authority, The Cabinet Committee appointed to enquire into the rise of prices issued a statement in which eleven points were put down for investigation, but the inflation of the currency was not even mentioned. The check to the issues of the notes in January was the only sign that this old way of paying new debts is not to be indefinitely continued. The worst of it is, as all experience shows, that a rise in prices due to currency causes is never detected until it is so marked and general that the ordinary abuse of the speculator and the shippers and the railways and all the other brigands seems unequal to the situation.

There is, however, one way in which an inflation of prices is forced on the attention of the great financial authorities. Our imports for January 1915 were in aggregate value practically the same as for January 1914, whilst the exports declined 40 per cent. If the rise in prices encourages imports and checks exports, then there will in time be a difficulty in meeting the foreign payments, and the foreign exchanges will again be dislocated in a way that the Government will find not so easy to correct. Early in the war Germany began to feel this difficulty in meeting foreign payments, which is of course so far a comfort to us, but it recalls the old proverb about the house of one's neighbour being on fire: 'proximus ardet Ucalegon.'




THE European conflict began in the Balkans; it will probably end in the Balkans, for the closing period of this gigantic struggle will inevitably be protracted by fresh war in those regions, unless the present artificial and unnatural distribution of territories in the Peninsula can be replaced by a more reasonable and equitable arrangement in conformity with the principle of nationalities. Continued misery and unrest in the Balkans, the direct result of alien and unsympathetic rule, after threatening the peace of Europe for more than a generation has at last brought about the great conflagration. To those who repeatedly pointed out the danger and denounced the uselessness of ineffective remedial measures the dire catastrophe brings a melancholy justification. Like Cassandra, they have witnessed the fulfilment of their prophecies. And it may be predicted with equal certainty that, should the European conflict be followed by new arrangements ignoring the rights of nationalities in the Balkans, another struggle in those regions will inevitably ensue.

The ultimate cause of all the trouble, the 'fons et origo mali,' will be found in the Treaty of Berlin, the proximate cause in the Treaty of Bucarest. At the close of the war of 1877-1878 Turkish authority in Europe had been practically extinguished. An effort to effect its partial restoration was made by Lord Beaconsfield, aided by Count Andrassy, who had already secured Bosnia and Herzegovina as Austria's share in the Sick Man's inheritance, and by Prince Bismarck, who declared that the Balkan Christians were not worth the bones of a single Pomeranian grenadier. The denial of Crete to Greece was a crime which entailed a heavy retribution. The appropriation of Bosnia and Herzegovina by Austria was a gross wrong to Servia, which had twice taken up arms on Russia's side. But the treatment accorded to newly-born Bulgaria was the greatest crime of all. Scarcely two million Bulgarians received political independence under Turkish suzerainty; some 800,000 were given autonomy under a Turkish governor; while more than a million unhappy beings were handed back to

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