616 TRANSACTIONS OF SECTION F. 



merely a hitch in the machinery of remitting money, and how far if at all are 

 they evidence of a depreciation in the value of each comitry's currency '! 



None of the belligerents vvill admit such a depreciation, though few impartial 

 observers, if such can be found, will deny its existence. As regards the English 

 currency, the argimient will probably be used that, unlike all the other belli- 

 gerents, gold is in free circulation, and that its export is not prohibited. But, 

 as Mr. E. L. Franklin points out, ' at the present time, notwithstanding that 

 there is no prohibition placed on the export of gold to neutral countries, no 

 bank or banker can be found who will avail himself of the benefits accruing 

 from such transactions, because it is the general opinion, whether justified or 

 not I will not say, that it is against the interests of this country for gold to 

 leave England so long as other Governments do not allow gold exports from 

 their countries.' 



The creation of credit has been necessarily profuse, one might almost say 

 necessarily reckless, in this country during the War; wages and prices are on a 

 war basis which can admittedly be only temporary. The result is inflation, 

 which in the opinion of many is reflected in an unfavourable rate of exchange. 

 What is to be the remedy? Let us turn back to our summary of the factors 

 which determine the level of exchange rates. From these we may dismiss {!)) 

 as a potential lever for influencing the rates between this country and others. 

 The interest on debts due from abroad will certainly decline rather than 

 increase during the War, and th« withdrawal of men from industry for 

 military purposes prevents any increase in the volume of our services to other 

 nations. The shipment of gold provides a possible palliative for an unfavour- 

 ablerate, and the criticism is often heard that gold reserves are valueless unless 

 use is made of them. In the present case, however, we are confronted with the 

 difficulty that our stock of gold is wholly inadequate to maintain exchange 

 rates, and that America, to which country most of the gold exported would 

 find its way, has ample supplies of the metal. Mr. Metz," indeed, argues that 

 the export of gold, the sale of securities, and the creation of credits all 'suffer 

 from the same evil, that they can be applied only once, and that, once availed 

 of. they weaken rather than etrenpthen the situation.' Mr. Davies, on the 

 other hand, can see only one practical way in which this exchange can be 

 rectified, and that is by 'the issue in the States of a large loan, free "of income 

 tTX, for account of Great Britain. There is not the .'^lishtest doubt, in view of 

 American public opinion on Germany's submarine warfare, and the extremely 

 favourable rate of exchange for American investors, that the United States 

 would have subscribed largely to the recent British War Loan, had it not been 

 for one factor, viz., that no provi.sion was made in the terms of the issue to 

 exempt foreign subscribers from the British income-tax.' 



Gold exports, therefore, cannot be relied upon as a permanent way out of 

 our difficulty, and the loss of our small stock might have serious results in 

 weakening confideme both here and abroad. There remain to us (a) and (d). 

 The trade balance may be permanently affected by the discouragement cf 

 imports into this country, by the encouragement of exports, by increased 

 economy of consumption, and by taxation. In speaking of imports and exports 

 it may be noted that we are not speaking merely of the trade with the United 

 States of America. Our trade is not and cannot be divided into compartments, 

 and. though the present difficultv is the exchange rate with America, this rate 

 can be directly influenced by trade transactions with other countries. 



In all these directions something has been done by exhortation in the speeches 

 of Cabinet Ministers and from the pulpit, but it may be doubted whether such ex- 

 hortations have had anv but the most sunerficial effect, nor are they likely to 

 touch more than the fringe of the question. Action of a more direct kind is 

 needed, and such action is not likely to meet with insuperable obstacles. Economy 

 should be enforced as well as preached, and the lesson should be the easier in 

 that Germany has already set an example to the whole world. But when all 

 these palliatives and remedies have been adopted there is little doubt that 

 there will remain a great deal to be done, and our weapon for this purpose 

 must be the raising of credits abroad. Here again the difficulties are merely 

 difficulties of detail and procedure, for no one doubts that the British Govern- 

 ment could raise money in the United States on favourable terms. 



