Finally, if we want to restore London as a place in which all the financial transactions of the world were centred, we must remember that we cannot do so if we restrict the facilities given to foreigners to come here and settle and do business.  It is not possible to be an international centre with an insular sentiment.

III

WAR FINANCE AS IT MIGHT HAVE BEEN—­I

November, 1917

Financial Conditions in August, 1914—­No Scheme prepared to meet the
Possibility of War—­A Short Struggle expected—­The Importance of
Finance as a Weapon—­Labour’s Example—­The Economic Problem of
War—­The Advantages of Direct Taxation—­The Government follows the
Path of Least Resistance—­The Effect of Currency Inflation.

A legend current in the City says that the Imperial War Committee, or whatever was the august body entrusted with the task of thinking out war problems beforehand, had done its work with regard to the Army and Navy, transport and provision, and everything else that we should want for the war, and were going on to the question of finance next week, when the war intervened.  Whatever may be the truth of this story, the events of the war confirm the opinion that if it was not true it ought to have been.  We are continually accused of not having been ready for the war; but, in fact, we were quite ready to do everything that we had promised to do with regard to military and naval operations.  Our Navy was ready in its place in the fighting line, and the dispatch with which our Expeditionary Force was collected from all parts of the kingdom, and shipped across to France, was a miracle of efficiency and practical organisation.  It is true that we had not got an Army on a Continental scale, but it was no part of our contract that we should have one.  The fighting on land was in those days expected to be done by our Allies, assisted by a small British force on the left flank of the French Army.  That British force was duly there, and circumstances which were quite unforeseen made it necessary for us to undertake a task which was no part of our original programme and create an Army on a Continental scale, in addition to doing everything that we had promised beforehand to a much greater extent than was in the bargain.

But in finance there was no evidence that any thought-out policy had been arrived at in order to make the best possible use of the nation’s economic resources for the war when it came.  The acute crisis in the City which occurred in August, 1914, was a minor matter which hardly affected the subsequent history of our war finance except by giving dangerous evidence of the ease by which financial problems can be apparently surmounted by the simple method of creating banking credits.  That crisis merely arose from the fact that we were so strong financially, and had so great a hold upon the finance of other countries in the world, that when we decided, owing to stress of war, to leave off lending to foreigners and to call in loans that we had made by way of accepting and bill-discounting arrangements, the whole machinery of exchange broke down because from all over the world the market in exchange went one way.  Everybody wanted to buy bills on London, and there were no bills to be had.