122 SECTIONAL ADDRESSES 
as a centre of foreign investment led to an attempt to meet this world 
demand. British capital was invested abroad to an extent exceeding 
the available export surplus, but this result was hidden by the fact that 
during the same period other countries sent their liquid capital to London 
in search of security. I shall return to that point presently ; at the 
present stage I wish to stress the fact that, if such funds had not been 
imported to this country, the underlying weakness of our position would 
have been revealed earlier. It would have been necessary to maintain 
even higher discount rates than those which prevailed and to pursue a 
policy of more severe deflation. The depression in trade would have 
been even greater than actually proved to be the case. This danger was 
averted by the importation of funds from other countries, although such 
importation created a danger of another character which will be presently 
considered. 
The case of France differed materially from our own case. When, 
after a period during which the value of the franc was stabilised, the 
French Government restored the gold standard, the franc was given a 
value of approximately one-fifth the pre-war value in terms of gold. 
But the wage, cost and price levels in that country were such as to suggest 
a value far higher than that actually given to the franc. The result was 
that while in Great Britain the gold wage level was about 75 per cent. above 
the pre-war level, in France it was even below the pre-war level, and even 
at the present time seems to be little if any above the pre-war level. It is 
precisely for this reason that the French at the present time are able to 
contemplate with equanimity the prospect of a return to prosperity with- 
out any rise in the price level of that country. Further, the undervalua- 
tion of the French franc acted as a veiled bounty upon all exports and 
a veiled tax upon all imports. The temporary effect was to increase the 
export surplus (which was further increased by the receipt of Reparation 
payments from Germany) and to enable the French to amass balances 
which were left within call in other countries. The funds that accumu- 
lated in this country were largely French funds. 
In the second place, as we have already seen, a large proportion of the 
savings of the people of different countries, instead of being invested in 
long-term securities, were held within call. Thus a vast amount of 
capital (estimated at two thousand million pounds), which should, and 
normally would, have been invested in industrial and other long-term 
securities, was held in liquid form and was moved about in search 
of security—security which included rapid realisability and was of 
more importance than a substantial difference in the rate of interest. 
That confidence which is generated by peace and normal economic 
development was lacking; the risk factor was overvalued. One result 
was that industries became heavily burdened with fixed-interest and 
short-term debts. In this connection it is important for the future to 
observe that the distinction between investment capital and what I have 
called liquid capital has lost much of its importance. The war has resulted 
in a large increase in securities (mainly issued by governments) which can 
be realised upon an international market with very little delay. These 
securities are now held to a greater extent than in the past by people who 
