had been the only, or even the predominant, means
of payment in England. But, as every office boy
knows, it was not. Legal tender—gold
and Bank of England notes—was hardly ever
seen in commercial and financial transactions on a
serious scale. We paid, sometimes, our retail
purchases of goods and services in gold; and Bank
notes were a popular mode of payment on racecourses
and in other places where transactions took place
between people who were not very certain of one another’s
standing or good faith. But the great bulk of
payments was made in the cheque currency which our
bankers had developed outside of the law and could
create as fast as prudence—and an eye to
the supply of legal tender which every holder of a
cheque had a right to demand—allowed them
to do so. While cheques provided the currency
of commerce, another form of “money” was
produced, again without any restriction by the Act,
by the pleasant convention which caused a credit in
the Bank of England’s books to be regarded as
“cash” for balance-sheet purposes by the
banks. These advantages gave the English system
a freedom and elasticity, in spite of the strictness
of the law that regulated the issue of paper currency,
that enabled it to work in a manner that, judged by
the test of practical results, had one great advantage
over that of any of the rival centres. It alone
in days before the war fulfilled the functions of an
international banker by being ready at all times and
without question to pay out the gold that was, in
the last resort, the final means of settling international
balances.
It is the object of Lord Cunliffe’s Committee
to restore as quickly as possible the system which,
has thus been tried by the test of experience, “After
the war,” they say in their Report, “our
gold holdings will no longer be protected by the submarine
danger, and it will not be possible indefinitely to
continue to support the exchanges with foreign countries
by borrowing abroad. Unless the machinery which
long experience has shown to be the only effective
remedy for an adverse balance of trade and an undue
growth of credit is once more brought into play there
will be very grave danger of a credit expansion in
this country and a foreign drain of gold which might
jeopardise the convertibility of our note issues and
the international trade position of the country....
We are glad to find that there was no difference of
opinion among the witnesses who appeared before us
as to the vital importance of these matters.”
The first measure that they put forward as essential
to this end is the cessation at the earliest possible
moment of Government borrowings. “A large
part of the credit expansion arises, as we have shown,
from the fact that the expenditure of the Government
during the war has exceeded the amounts which they
have been able to raise by taxation or by loans from
the actual savings of the people. They have been
obliged therefore to obtain money through the creation
of credits by the Bank of England and the Joint Stock