TRANSACTIONS OK SECTION F. 589 



guaranteed the Bank of England against any loss which it might sustain in 

 carrying out this scheme. This guarantee received statutory sanction by the 

 Government War Obligations Act, 1914 (5 Geo. 5, c. 11). Loans to the Stock 

 Exchange were next taken in hand. Under a scheme for Government assist- 

 ance, dated October 31, as regards Account to Account Loans which had 

 been made on the security of stocks by lenders other than banks ' to whom 

 currency facilities were open,' or members of the Stock Exchange, the Govern- 

 ment arranged with the Sank of England to advance 60 per cent, of the sums 

 outstanding on July 29, securities being valued for purposes of such advance 

 at the making-up prices of July 29. The Bank undertook not to press for 

 repayment until twelve months after the conclusion of peace, the rate of interest 

 being 1 per cent, above Bank Rate, with a minimum of 5 per rent. Tiie banks 

 to whom currency facilities are open undertook not to press for repayment of 

 Account to Account Loans nor to require further margin until twelve months 

 after the conclusion of peace. The total advances on foreign bills under the 

 Government Guarantee were 120,000,000?. The sum advanced on pre-Moratorium 

 bills to enable acceptors to meet their engagements at maturity was 60,386,000/., 

 and it was estimated that at the end of the War bills aggregating 50,000,000?. 

 would remain in ' cold storage.' "' The advances to the Stock Exchange by the 

 ]5ank of England under the Treasury scheme of October 31 were returned at 

 .520,0597.-- The way was now prepared for completing the July settlement on 

 the Stock Exchange, and a patched-up settlement was effected on November 18. 

 Meanwhile, though the Exchange remained closed, dealings in stocks had been 

 effected by negotiation and a scale of minimum prices had been drawn up by the 

 Committee. The general Moratorium having come to an end on November 3, 

 there was no reason to delay the opening of the Exchange, and this event took 

 place on January 4, 1915, under somewhat drastic regulations imposed by the 

 Treasury. 



IT. The Direct Effects of the War upon Credit. 



Having traced, descriptively, the external results of the earlier months of the 

 War on credit, we propose in the present section to inquire into some general 

 questions relating to the effect of a state of war of the magnitude of the 

 present struggle upon credit considered as far as possible in isolation from 

 Emergency Measures. From the point of view both of practical finance and of 

 economic theory, the consequences of a remarkable and sudden strain upon credit 

 are of surpassing interest. While the outbreak of previous great wars has 

 occasioned somewhat similar disturbances, the long period of cessation from 

 contests between great Powers as well as the more highly developed organisation 

 of modern credit render it advisable to consider the jxtsition at the present time 

 cl« novo. From the standpoint of the economist it is unfortunate — while from 

 that of the citizen it may have been fortunate — ^that complete materials for the 

 observation of the unmitigated effects of the present War upon credit have been 

 largely modified by corinteracting influences, many of which were deliberately 

 designed to counteract the direct consequences of hostilities as affecting the 

 credit system in this country. In particular, as already shown (above, p. 587), 

 the closing of the Stock Exchange took place before Great Britain was involved 

 in war. Accordingly direct observation of the exact effects of war on credit 

 cannot be made with completeness, though we consider it advisable to record 

 such results as we have been able to obtain. 



Credit is an organic growth. The normal condition assumes a certain 

 degree of stability in the environment in which it works. In the usual credit 

 cycle, though conditions vary as between the maximum and minimum points of 

 expansion, in both a great number of the factors which affect the calculations 

 of business men remain the same or are altered only to a very slight extent. 

 War on a large scale either changes all conditions or (what is temporarily of 

 equal importance concerning credit) it gives rise to the fear that all conditions 

 may be altered. On the material side, war makes great inroads into the store 

 of commodities and many calls on services while it deflects a large amount of 



-^ Hansard, Commons, Ixviii. p. 1545. 

 "Ibid. Ixxi. p. 853. 



