THE WAR LOAN.
THAT the war loan would be a success was so widely assumed in advance that the public may not fully appreciate what a remarkable achievement this success has been. In the first place, the amount of the loan was absolutely unprecedented. The sum asked for is almost exactly half of the total National Debt of the United Kingdom, so that at one swoop we are in- creasing our National Debt by fifty per cent. The second important point to note is that this operation has taken place at a time when the whole world is spending at an exceptional rate, and when a large part of the world is borrowing with equal rapidity. At the time of the Boer War, when we raised relatively insignificant sums, with a considerable interval between each issue, the rest of the world was at peace, and there was practically nothing to prevent other countries contributing to our loans. At the present time there is no country, except perhaps the United States, which is in a financial position to lend a single sovereign to Great Britain; and owing to the laws of neutrality it is improbable that the United States will be able, even if willing, to lend any appreciable sum. We are therefore entitled to assume that the whole of the £350,000,000 for which the Government have asked will come out of British pockets. A. third point on which City opinion lays much stress is the absence of " stagging " on the present occasion. That is a point on which out- siders cannot express any positive opinion for the lack of positive information. It is, of course, notorious that in the case of most public loans speculators apply for much larger sums than they have any intention of taking up, hoping to be able to sell again at a profit. On this occasion it is stated in the City that no such " stagging " has taken place. This is a very important point when the present subscription for the loan is compared with the subscription for, say, the £30,000,000 loan raised for the Boer War. In that case the loan was subscribed for about ten times over, but everybody knew that a considerable proportion of the over-subscription was due to " stagging." In the present case City opinion declares that the subscription is entirely bona-fide.
Nor has there been any artificial contrivance for floating the loan, with the single exception of the arrangement made by the Bank of England to lend upon the security of the loan. As may well be imagined, the German Press has seized upon this arrangement, and the Frankfurter Zeitung, a leading financial organ, makes the deduction that the Bank of England is financing the whole loan : " It will not be a loan of capital that has been saved, as in Germany, but a loan by the Bank of England." That such a deduction should have been made from the incidental offer of the Bank of England to advance money on war loan stock must be attributed to the excessively rhetorical language in which Mr. Lloyd George dealt with this offer. Undoubtedly the offer shows public spirit on the part of the Bank of England, but at the same time it is perfectly sound business. The loan is issued at the price of 95, with a Government promise of redemption at 100. All the Bank of England undertakes to do is to lend money on loan stock, taken at the price of 95, for a limited period, at one per cent. below current Bank Rate. The Bank of England cannot possibly lose, because the stock will tend to appreciate rather than depreciate as the time for redemption draws nearer. Moreover, as the Bank itself fixes the Bank Rate, it has no difficulty in guarding itself against any risk of lending on unprofitable terms. So that in effect what the Bank has offered to do is to extend its ordinary business on terms profitable to itself. It is another example of the new spirit of patriotic enterprise which has distinguished the recent management of the Bank of England. But to deduce from this fact the suggestion that the loan is provided by the Bank of England is an obvious absurdity.
This huge sum of £350,000,000, which has been raised so rapidly and so easily, represents in effect only a small portion of the available financial resources of Great Britain. The Germans are naturally anxious to prove that their financial resources are equal, if not superior, to our own. Let us take one simple test. It is furnished by the money market of the most important industrial and commercial country remaining outside the area of the present war— namely, the United States. The value of the German mark,
as expressed in American currency, has now fallen by ten per cent. ; the value of the English sovereign still remains at a premium. That means, in effect, that Germany owes money to the United States which the latter has difficulty in recovering, while, on the other hand, the United States owes money to Great Britain which it is difficult to transmit. This question of the liquidation of the American debt to Great Britain has been one of the most serious diffi- culties of the money market since the outbreak of the war. As is generally known, Sir George Paish has been sent on a mission to the United States to try to come to some arrangement with American financiers. The trouble is that the American bankers, while, of course, fully admitting their liabilities, dislike the idea of sending gold to London. They are afraid that if all the gold that America owes to England were sent across the Atlantic there might be serious financial stringency throughout the United States. It is believed that Sir George Paish is making some kind of credit arrangement by which the debt can be provisionally liquidated without the necessity of sending gold. But this great difference between the financial standing of England and Germany in the American money market furnishes an excellent measure of the relative financial resources of the two combatants.
It is indeed a particular example of the general proposition that in the main Great Britain is a creditor country and Germany a debtor country. The industries of Germany have for many years been financed largely by capital borrowed from England and France. On the other hand, British capital not only suffices to finance British industries, but overflows to finance industries and industrial developments all over the world. The sum of £350,000,000 now being advanced to our own Government is a mere fraction of the huge volume of capital that British citizens have invested outside the United Kingdom. It was estimated some years ago by Sir George Paish that our income from foreign and Colonial investments amounted to £140,000,000 a year. If we were now to put the figure at £150,000,000 a. year, we should probably be within the mark. This figure may profitably be compared with the figure of £160,000,000 which was the estimated receipt from taxes in the current financial year before the new War Budget was introduced. At the moderate rate of interest of four per cent. a revenue of £150,000,000 repre- sents a capital of £3,750,000,000. If the urgent need should arise, a considerable portion of this could doubtless be called up, though, of course, at a heavy loss. There is, however, no reason whatever to anticipate any such necessity. So far from the present war seriously trenchin., upon our economic resources, it is in many directions largely adding to them. The temporary interruption to commerce and industry which followed the outbreak of the war has come to an end. With the single exception of the cotton trade, and some partial depression in the coal trade, all our industries are at present flourishing. Precise statistical evidence of this statement is not easy to obtain, because none of the statistics obtainable can possibly cover the whole ground. One can only make inferences from such figures as are available. For example, the figures of the exports of British manufactures show that our export trade, which dropped from £44,000,000 to £24,000,000 between July and August, rose in October to nearly £29,000,000. This figure, of course, is considerably less than the corresponding figure for October, 1913, which was nearly £47,000,000, while in October, 1912, it was over £48,000,000. But it has to be remembered, first, that a good many of our normal exports are now prohibited by law ; secondly, that we have lost completely the German market, which in normal times is one of the most important markets for British goods ; and, thirdly, that a considerable portion of the manufac- turing activity of the country is absorbed by the Govern- ment demand for munitions of war. Taking all these facts into account, the steady growth in our export figures since the outbreak of the war is a remarkable proof of the industrial prosperity of the country. A similar inference can be deduced from the figures of unemployment in the insured trades. These rose with a bound upon the declaration of war, but have since come steadily down- wards, till they are now but little above the figures for the corresponding period of 1913.
Indeed, the very prosperity of our industries is in one way an injury to our military position, for many of the men who should be enlisting in the Army are refusing to do so because the demand for their labour is so brisk. " I have got a good job," many of them reply to the recruit- ing agents, " and I am not going to give it up." So far as these men are engaged in industries which contribute to the supply of munitions of war or of other national neces- saries, no serious evil results ; but so far as these potential soldiers are merely engaged in the production of luxuries with which the nation could well dispense at the present crisis, the loss of their fighting capacity is a real national loss. On this point it is well to protest once again against the mischief that is wrought by silly people who argue that they ought to continue their luxurious expenditure in order to " make work." At the present time, as most people instinctively feel, expenditure on luxuries is un- patriotic. In the first place, the money spent on luxuries ought to be employed either in subscriptions to the war loan, or in the payment of Income Tax, or in voluntary subscriptions to assist the families of our soldiers and sailors ; and, in the second place, many of the people who are kept employed in the production of luxuries ought Instead to be giving their services in the field. This latter consideration, of course, does not cover the question of women's employment; but it is far better that rich people should give direct financial assistance to women who are thrown out of work than that they should keep those women at work on the production of articles of luxury that can at the present time be dispensed with.
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