FRENZIED FINANCE.
[To TER EDITOR 01 Tar "SPROTATOR."] SIR,—There is a letter in your issue of last Saturday under the heading "Frenzied Finance" which purports to review a
short communication of mine on the Bank Charter Act which you published the previous week, and to which please permit a short rejoinder. I do not venture to describe the letter of your correspondent as "frenzied," but still less is it "finance," yet its manner is discourteous and its matter, to say the least of it, uninformed. There is hardly a sentence in the letter which is not a deliberate misquotation of what I wrote you.
I content myself with one invention, and that not the most serious either. I had written (September 12th) :—
"The banks hold probably amongst their assets over two hundred millions in securities, paid for, and written down to record low values. The banks should take out against these securities one hundred and fifty millions of the emergency currency."
Your correspondent's criticism as to this suggestion reads as follows :—
" That the banks of Great Britain should be invited to invest £150,300,000 of their clients' deposits in the purchase of depreciated stocks is a barbarous incitement to fiscal plunder and loot."
There is nothing gained by bringing before your readers the signature appended to this letter ; enough to say that it adds no authority at all to the subject matter it pretends to criticize : and the entire letter exhibits just the tone and temper we should most carefully avoid.
Our• nation is to-day in the earliest stage of war on a scale unprecedented. That our mechanism of exchange should be adequate and our currency elastic is of quite incomparable
importance. A little farther down the road no one doubts but that the Bank Charter Act will be suspended, with large issues of legal tenders against securities. Why, then, the present constriction of the industrial body ? Why was not this done six weeks ago when, in a speech in the House of Lords, Lord Lansdowne expressed his belief that it had been already done ? Instead of this there has been some peddling issue, not to the public, but to the banks, of rather more than twenty-seven millions in fiduciary pound and ten-shilling notes. But ar•e they even fiduciary? No one can tell! There is a curious and rather confused reference to them in a very important article, "Lombard Street and War," in the Round Table quarterly review this month.
The writer says of the pound notes : "Since they are presumably convertible into gold, and since the only gold from which they can be met is the reserve of the Bank of England, the transaction is in essence equivalent to a sus- pension of the Bank Act." But I read it quite the other way ; that if they are convertible at the Bank, therefore the Bank Charter Act is not suspended.
And what are other nations doing in this crisis, and is there nothing we can learn from abroad ? We all know how amaz- ingly adroit Berlin banking has been the last fifteen years.
What has been Berlin's finance of war The very day after war was declared Berlin issued eighty millions sterling of legal tenders; she has since increased that sum by over thirty millions. Nor is that all. Her Government has created a Department of Loans; loans are being made even against household furniture, and the sums advanced take the form of paper promises to pay, and these promises are actually legal tender money. The Imperial Bank of Russia in the last forty days has increased its note issues by over ninety millions sterling. If we turn to France, the very home
of cautious banking, the French Government has issued through the Bank of France enormous amounts of un- secured paper•—the notes as small as one franc. What amounts have been issued I have not yet learned. In the United States, again, there have been vast issues of legal tenders against securities, as provided for in the Vreeland Act. Ottawa, too, as in 1907, has protected her community by immense issues of legal tender notes against securities. All these important nations have, in a few weeks, expanded their monetary mass one or two or three pounds per capita. It is left to England, which country carries the whole Atlas load of the Foreign Exchanges, to issue a little vulgar ugly ten- shilling note per capita, and no one knows whether or how this note is secured! Why, I ask, are we alone to be side- tracked by a number of really absurd experiments, if as I believe these are one and all unnecessary, instead of promptly resorting to that form of relief which three times since 1844 has never failed to protect trade and finance equally.
Look what this moratorium has done. Because we are a Free Trade nation our foreign exchange, that is, our foreign bill market, is of cosmic dimensions. It is bad enough that the moratorium breaks by Act of Parliament every contract between man and man in these islands. But what about the " tribute " on the three to four thousand millions sterling we have invested abroad ? It shatters and shutters all that. The United States has prodigious sums to remit us at this moment; she is perfectly able to remit these sums. Did she know it, these vast remittances would immensely improve our money market, to receive and pay liberal prices for all her exports. Had she put into operation the new currency measure she enacted last December, she could and would have sent us quite easily the sixty millions of gold which is my loose estimate of what she now owes here and withholds. But our moratorium has saved her the necessity. Her new Currency Act is an absolute dead letter, and the United States has fallen back on the old Vreeland Act of 1909.
In brief, these are the reasons why such a mind as Mr. William Lidderdale's would be at this moment worth a dozen Dreadnoughts to England. It is the most dangerous delusion to foster that because we have a 5 per cent. Bank Rate the volume of currency is sufficient. With Stock Exchanges closed and in the grip of a moratorium we are necessarily a long step on the road to swapping. Wait till we see the Clearing House returns for the past month !—I am, Sir, &c., [The security for the £1 and 10s. notes is clear. They will always be accepted by Government tax-collectors. No man can refuse his own cheque or matured bill of exchange. There need not, then, be any fear of depreciation of a paper currency which is well on the safe side of the gross amount of annual taxation. If the State and the local authorities take £300,000,000 a year in rates and taxes, no one will be afraid of notes up to, say, £150,000,000. They will always be worth their face value for tax-paying purposes. Why bother to turn them into gold when they can be kept against the paying out of rates and taxes P—En. Spectator.'
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