590 TRANSACTIONS OF SECTION F. 



labour from productive to destructive purposes. ' Credit,' as Mr. A. H. 

 Gibson puts it, ' assumes that goods will be brought to market, or be produced 

 in due time, and sold, and that securities, which in reality have their capital 

 value based on future productive power, will not materially fall in current 

 market values through lack of confidence in future production. War materially 

 weakens both these assnmptions. When war shakes the foundations of con- 

 fidence, it is obvious that it must immediately cause a serious restriction in the 

 mobility or transfer of credit, and consequently reduce, for the time being, the 

 rate of current and future production, for production cannot obviously be 

 carried on without the transfer of credit; and the community suffers through 

 the restriction of credit.' 



Allusion has already been made to the difficulties of the accepting houses, 

 the bill-brokers and the Stock Exchange. These reacted on the resources of the 

 Joint Stock Banks, for the effect of the War had been to solidify assets hitherto 

 regarded as liquid. The financial life of the City appeared in danger of being 

 frozen at or near its source. This was not so in reality, for the ultimate basis 

 of credit is the future goods and services which can be relied upon to come to 

 market later. Not only does war make it uncertain that some of the antici- 

 pated future production will reach the market ; but also it makes a violent 

 alteration in the relative values of capital goods and consumable goods. ' For 

 the purposes of war only the right to goods, consumable now or soon, is 

 useful.'^' Thus there is inevitably a double revolution in credit occasioned by 

 war, first in the widespread falsification of anticipations, and secondly in the 

 valuation of immediate consumable commodities. Both tendencies arrest the 

 mobility of credit instruments and some of them become temporarily immobile ; 

 and, to the extent to which this phenomenon exists, credit temporarily ceases. 

 It is estimated that the assets which the Joint Stock Banks had available in a 

 comparatively mobile form — consisting of the gold and Bank of England notes 

 which they lield in their strong-rooms and tills and balances at the Bank of 

 England — did not exceed 15 per cent, of the liabilities to depositors. Loans at 

 call or short notice were largelv uncallable. Stock Exchange securities held 

 either as investments or collateral security were to a considerable extent unsale- 

 able ; durint? the first week they were altoffether unsaleable except at a dangerous 

 sacrifice. Bills of exchange in the banks' own portfolios might or might not 

 be met at maturity, and bills which the banks had accepted themselves might 

 have to be met out of the banks' own resources. Thus a large part of bankers' 

 resources were in danger of becoming immobile and solidified. 



There were four main causes which combined to ' immobilise credit ' at the 

 outbreak of War : 



(1) The fear by borrowers that they might have to repay immediately large 

 amounts of credit which the lenders had transferred to them previously on 

 condition that it was withdrawable on demand. A considerable part of this 

 borrowed credit had been retransferred to others who desired to anticipate the 

 proceeds of future sales or services and it was not callable immediately. 



(2) The actual calling in, or attempt to call in, by certain banks, financial 

 houses, and other institutions of large amounts of credit lent on demand. 



(3) The general fear (until Treasury Notes were issued) that, if the lender 

 insisted on the borrower repaying credit in the form of legal-tender currency, 

 there might not be suflScient legal tender to meet all demands. 



(4) The inability of foreign correspondents, owing to the collapse of the 

 exchanges and other reasons, to remit credit to this country to meet maturing 

 liabilities and other demand calls. 



Elsewhere we discuss the effect of the Emergency Measures. These have 

 aimed at re-establishing confidence, and they have succeeded in restoring the 

 mobility of many forms of credit immobilised at the outbreak of war. But this 

 is not a complete restoration of credit. As long as any Emergency Measures 

 remain, to that extent there will be a failure to reach the standard of normal 

 credit. Its main characteristic in this country was its spontaneous character, 

 and necessarily as long as artificial and extraneous devices are required, the 



'^ Econ. Journal, xxiv. p. 486. 



