WAR FINANCE.
[To THE EDITOR OP TED "SPDCTATOR."] SIR,—You were recently good enough to insert a letter from me giving in a popular form the elementary principles of war
finance. Later developments in Europe have brought pro- minently before us the various ways in which a great war may be financed, and also the many interests which it affects. The study of these at the present moment is not only interesting but instructive.
Germany, isolated by our blockade, is compelled to be self- supporting, and the self-denial which we preach but do not practise is forced upon her by the closing of her oversee, trade.
Such imports as escape the blockade are probably paid for by small exports through neutral countries, and although it may seem strange, her finances are helped by the absence of any foreign indebtedness of moment; she retains her stock of gold, and her Government by its travesties of facts cunningly in- stils into the people complete confidence in ultimate victory, and the belief in the payment of large indemnities upon the conclusion of peace. All this has served to impart a fictitious value to Germany's currency and to encourage subscriptions to her loans. Hor currency continues to circulate at a dis- count of ten to twelve per cent., the Government taking care to keep the banks well supplied so as to avoid any stringency.
When the Government requires a loan it is found by the various credit institutions upon the " pig upon bacon " principle out of the currency ; and after it has served its war purposes it is immediately again returned into the circu- lation. The currency is like a mill-stream which will turn a dozen mills, its waters being returned into the stream to he used again and again, but with this significant difference : the currency becomes diluted by over-issues and confidence in its ultimate value becomes shaken, for although one can juggle with reports of battles, it is not possible to do so with an economic condition such as we see in Germany, founded as it is upon the multiplication of paper issues. Every loan will become more difficult and produce less, and confidence in its repayment will gradually disappear, when a financial collapse must take place.
We have in this country to deal with very different con- ditions. In addition to providing for our war expenses, we have to provide money for our allies and we have to keep the trade of the country going. To do this and to maintain the stability of the money market we must support our foreign exchanges.
We are not, and cannot become, a self-supporting country. We are largely dependent upon our imports for our food and clothing, and in war time our imports must always greatly exceed our exports. During the past nine months the excess of imports has reached £295,000,000; it is really considerably less, for wo receive from foreign countries large payments for freights, interest on loans, foreign investments, &o. ; but crediting all these, the balance of trade against us is very
tosu n stability d o n of ot o want large. This, in the last resort, would have to be paid In gold ; but America and our other creditor
gold; and we, having regard to money market, do not want to part with more gold than wo can help. To ease the situation we have just issued in America an Anglo-French Loan for B100,000,000 to be used for exchange purposes. Those who know the shortage of loanable capital in America, and the reluctance to invest in foreign loans, will appreciate the splendid. success which has attended this issue ; but we shall require more money for exchange purposes, and if we cannot secure it on moderate terms in America, the Government might consider the issue of an exchange loan, payable in American bonds at fixed prices, together with a small premium. These bonds could be sent out to America and sold when the rate of exchange required strengthening. We shall also require to borrow further for our general war purposes. An endeavour should be made to place any future loan on a more popular basis. The great objection the small investor had to the last loan was his inability to withdraw the whole or part of his subscription if he required it. He might be allowed to withdraw up to £50, subject to notice. We know that this privilege is much esteemed, although not greatly used, at the Post Office Savings Bank. A loan issued on the credit of the Allies—England, France, and Russia—would be popular, and appeal to a very large cosmopolitan clientele. It would also get over difficulties which would attach to the issue of a further English loan by reason of the "rights" belonging to the 4i per cent. Loan.
While there is every sign that Germany is approaching very difficult times in her finance, we seem hardly to have made a beginning in this country with our power to borrow. We have scarcely touched our huge savings. We have relied perhaps too much upon our banks and great financial institu- tions. The need that all should participate in the next loan must in some way be brought home to the people, and when once they really understand their country's financial strength, that there can be no better security than a Government loan, and the urgent necessity that every individual should bear his share of the burden, there should be no difficulty in floating a large popular loan.
We cannot all join the ranks, and we cannot all make munitions of war, but we can all do " our bit " in providing the funds necessary to carry on the war until we can secure a glorious and enduring peace.—I am, Sir, cte., WILLIAM B. Fouwoort,
Formerly President of the Liverpool Chamber of Commerce.
Bromborough Hall.
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