263 



Leading ARTICLES in the Reviews 



IF BRITAIN WENT TO WAR, 



\\ HAT Wi.iLU Happen in the City? 

 I'liE Round Talle. that admirable arena for the dis- 

 cussion of the serious problems of the Empire, publishes 

 this month a most luminous and interestmg article on 

 the credit system of the world, and how it would be 

 affected by war. The article, entitled " Lombard 

 Street and War," is anonymous, but it has been 

 described by the Times as " one of the most remarkable 

 articles on what we may call the natural history of 

 ' the City ' that has 1 een published for some time. 

 The writer displays an ;unount of knowledge of the 

 working of the London Money Market and a degree of 

 insight into the forces which govern it which is unusual 

 and refreshing. That it is written • with a purpose ' 

 makes its scientific breadth all the more surprising." 



LONDON AS THE NERVE CENTRE OF THE WORLD. 



The wnter says : — 



An infinile number of strands binds all the great nations to 

 one another, and, like the nerves of the human body, these 

 stran<ls radiate from the great nerve centres of credit. 



The art of banking is to speculate vith success on the chance 

 that only a small proportion of creditors will ask for their 

 money in gold at the .'ame moment. But they may all 

 demand it. 



Gold must be always available somewhere. And it is always 

 available, but only frcm one place in the world. London, 

 alone among the great financial centres, has undertaken the 

 task of meeting tveiy legitimate demand in gold at all times 

 and to any amount. No other banking nation has ventured to 

 face the risk of meeting not only the demands of its own 

 depositor', but of the world itself. If Germany has to pay 

 gold to Turkey for a loan newly granted, she gets it from 

 London ; if New Vork wants gold, she gels it from London ; if 

 the .Argentine or Kgypt or India have had good harvests and 

 want gold, they get it from London. 



She undertakes to supjily on demand not only the countless 

 depositors in her own bank, but Ihe world at large. Anybody 

 in the world who keeps money in London or can raise a credit 

 or get an advance in London can gel gold from Ihe Bank of 

 Kngland. 



lONIXJN'S GOLD RKSERVE. 



The Bank of France holds gold to Ihe amount or;f 128,000,000; 

 ihiBankof Kus>.ia, / 125,000,000; lhcKeichsb3nk,/55.ooo,cxX); 

 while the Hank <•! England, with world-wide liabilities, has 

 only /j5,ooo,ooo lying in bullion or coin in the vaulls of the 

 Bank of Kngland, together with the stock of metal held by 

 other banks, in all, perhaps, /^jo, 000,000. It is estimated that 

 ibis sum is equal to not much more than six per cent, of the 

 lolal di posits of the banks of the United Kingdom. While the 

 slock .'callcrcil aUiut among the d;(fcrcnl banks is a valuable 

 standby, the final reverse is tlie reserve of the Hank of Lnglaml. 

 That is the restive which all the banks in the United King- 

 di ID fall back on. In 1907 .America drew nearly ^{^15, 000,000 

 in two inunihs fiom I.ondon. The Hank of Kngland's reserve 

 fell ever ;^6,coo,oco in two weeks. Tl.ere is no other nation 

 which has been able lo undertake these tremendous respon- 

 sibilities. 



Since 1895 the world's gold hat increased by ;f i,ooo,cco,ooo. 

 .\ great portion of this huge sum has paiv^ed tlirough London, 

 t ccause London is a free market. Only /J20,ooo,coo his 

 I lyed there. 



IK WAR lnt(>KF. 01 1. 



What, then, is likely to happen on the outbreak of such a 

 war ? Suppose, for instance, Gcimany declared war against us. 

 A crisis in the Money Market nculil be at once precipitated. 



Everybody would be seeking to place themselves in a position 

 lo meet their engagements. Money would diy up, and the 

 Bank rate would be forced to a high figure. At the same Ume 

 there would Le a tremendous fall in value of all securities on the 

 Stock Exchange, so great a fall that the Stock Exchange might 

 even have to be closed. Banks would have to "carry" their 

 customers who had borrowed against seeurities, and would find 

 a large part of their assets unrealisable. '1 he discount market 

 — ;.(•., the bill marke:— would be no belter cfl". 



London finances Germany by means of acceptances to the 

 (Xlent probably of about /70,ocio,ooo sterling at any one lime. 

 This means that accepting houses in London will have made 

 themselves responsible during the two or three months after Ihe 

 outbreak of war for the pajment, mainly to the Joint Stock 

 Banks, of ;£'70,<X)0,oco, against bills drawn on German account, 

 which these banks and others will have bought in the discount 

 market. But the accepting houses would only be in a position 

 lo pay the whole of this lar^c sum if they receive, as they would 

 in the ordinary course of affairs, the same amount from iheir 

 German clients, lo finance whose business ihe bills were drawn. 

 It is quite probable that these clients would not or could not 

 pay. It is prob.ible that in any case, whether their money were 

 received or not, the discount market would be so hopelessly dis- 

 organised that a "moratorium" would have to be declared. 



WOUI.D I.ONDO.N PUT UP ITS SHUTTERS? 



The whole credit system rests on the supply of banking 

 currency. If this currency is withdrawn no one can meet his 

 debts, ijecause no one has the means to pay. The whole 

 money market would be slruck with paralysis. As Bagehot 

 said, all thai would be left would be a mass of failures and a 

 bundle of securities. In any case the sudden stop of the 

 discoimt machinery would cause incalculable damage and 

 confusion to trade and enterprise throughout the world. 

 Everything would cicpend on the aclion of our foreign clients 

 as a whole. If they took fright and demanded immediate 

 payment in gold, London might have to put up her shutters 

 as a free gold market, simply through lack of lime to save 

 herself by the realisation of some of her immense assets abroad. 

 Would we ever recover? 



London might never regain her place Gold would flow in 

 again, no doubt, lo pay lor the interest on our present invest- 

 ments, which amounts to something like ;;^iSo,ocx3,ooo per 

 annum on a cajiital invested of /'3.3CO,ooo,(XX) sterling. The 

 most dangerous period, therefore, will be ll;e few days or weeks 

 after ihe declaration of war, or if it was quite clear war was 

 inevitable the fesv days before that declaration, when our 

 enemies might attempt lo withdraw as much money as possible. 



IJut if we were defeated our position as the world's 

 financial centre might be lost for ever. 



The moral of this is. according to the writer, that 

 " The British fleet is the best protector of London's 

 gold reserve." To vary the phrase, Lombard Street 

 floats in the British Navy, and the nerve centre of the 

 world depends for its safety upon the maintenance of 

 the standard of two keels to one. 



Fry's for February is as varied as e\ cr. The experi- 

 ence of an amateur \ct. will furnish mui h guidance to 

 those whom poverty (oiiipels to look after the health 

 of their own horses. Walter Dexter describes Charles 

 Dickens as tramp, and tjuotes passages to prove his joy 

 in tnimping through the t oiintry. Mr. Dexter .suggests 

 that readers of Dickens should find out from his works 

 his favourite walks, and tramp as he did. Lord Lyveden 

 tells of curling as developed amidst tiie winter sports 

 of Switzerland. 



