498 TKANSACTIONS OF SECTION F. 



having approached completion, though necessarily the maintenance of rein- 

 forcements involved a steady drain on the number of workers. But in the early 

 summer the campaign for increase of munitions brought about a further dis- 

 location. This was a minor one in point of numbers involved, but it has to be 

 noted that it was likely to produce a disproportionate effect upon industry 

 owing to the normal floating supply of labour having already been used up. 

 When the latter change is completed it is to be hoped that, apart from minor 

 adjustments, the transition will be accomplished and the national industry 

 will be established on a war-basis. The two most critical periods occasioned 

 by war are first the change from, peace organisation to war organisation, and 

 .secondly the converse change after the conclusion of hostilities on a large 

 scale. Ricardo pointed out long ago that the outbreak of war after a long 

 peace was likely to cause distress and a commercial crisis. The great expansion of 

 credit since the last great war introduced an added difficulty. The improvement 

 of transport and communication has linked the whole world together by tenuous 

 filaments of credit. These had proved sufficient to bear a normal strain, but 

 one must experience a certain amount of apprehension when these delicate threads- 

 were rudely hacked and hewn by the sword. The financial interests of the 

 country, like the class of entrepreneurs, were confronted suddenly with totally 

 new conditions. The old landmarks were gone, and at first a certain amount of 

 blind groping was inevitable. The leaders in finance and industry were sud- 

 denly involved in the fog of war, and the compass by which they were wont 

 to steer proved unreliable. Moreover, the situation was such that quick 

 decisions were called for just when rapidity of correct judgment was peculiarly 

 difficult. The most urgent problem was the maintaining of the credit of the 

 banks amongst their depositors. Here the essential soundness of the credit- 

 system in July of last year was of paramount importance. Credit resembles a 

 highly elastic body : if it is greatly expanded a comparatively slight pressure 

 may cause a rupture ; if, on the other hand, it is not unduly distended, it will 

 bear a ehock, though with some quaking, which would shatter a more solid 

 substance into fragments. The comparative equanimity of depositors, added 

 to the inherent soundness of the banking system, was a feature of great 

 strength in times which were in the highest degree anxious. The closing of 

 the Stock Exchange and the temporary breakdown of the foreign exchanges 

 made some measure of external assistance from the State essential, though in 

 the future there will no doubt be considerable discussion amongst economists 

 as to the precise form which it should have assumed. 



An unexpected outbreak of hostilities is experienced first in the domain of 

 credit, but the disorganisation soon manifests itself throughout the whole range 

 of productive processes. In the general upheaval the normal course of demand 

 is shifted to an unusual extent. That for all kinds of supplies for the forces 

 at once increases, while tHe consumption of other kinds of goods is subject to 

 considerable fluctuations. Some raw materials are no longer obtainable, having 

 been wholly produced in countries with which communication has ceased, others 

 are procurable only in reduced quantities, while the supply of others was at 

 first uncertain. Again, the state of credit reacted on foreign trade, rendering 

 exporting difficult, and in some cases impossible for a time. All this means 

 that a large diversion of labour and capital became necessary in the first months 

 of the war ; and again in the spring of this year the insistent demand for more 

 and more munitions added to the dislocation. With the progress of specialisa- 

 tion in industry there was the apparent risk that such diversion of productive 

 power could only be accomplished at great sacrifice. It would seem that the 

 greater and greater use of specialised machinery, with the corresponding; 

 specialisation of skill, would make the change very difficult, and one which would 

 involve great loss of capital and unemployment. After a year of war we see that 

 the latter problem has dropped below the horizon, though it is likely to emerge 

 again on the return of peace when the converse change from war conditions to 

 peace conditions takes place. As regards capital, manufacturers have developed 

 the adaptation of men and machines to certain special purposes. _ In many 

 cases the demand for the products of these industries has diminished very 

 greatly, and it would seem that the fixed capital must remain either partly or 

 wholly unemployed during the war. Recent economic investigation has shown 



