LAND AND WATER. 
August 21, 1915. 
FINANCIAL EFFECTS OF WAR. 
By A Financial Correspondent. 
nes tlie lest di value .■' 
k'alue depends on what people want or think thev 
If nobody wants a tiling it cannot have vahie. If 
IX finance, as in many other things, war does this 
much for lis — it brings us down to the reahties of 
hfe. It does away with kite-flying and ail that 
paperchase of make-believe currency that is dis- 
counted in the money market in the hope tiiat 
something will turn up before it falls due. War brings 
us down to bedrock and asks of every nation. What is 
the real basis of your finance? Are you skilled in mak- 
ing and handling paper, or is there any real stuff behind 
your paper — stufl that is wanted when stern necessity 
becomes the test of value? 
V 
want. 
you can persuade enough silly men and women with 
money in their pockets to think that they want any kind 
of rubbish that ) ou want to sell, you thereby give it value 
and sell it to your own satisfaction. That is why in times 
of peace the loud-voiced or insinuating advertising ex- 
pert is the chief arbiter of value and gives it by his wiles 
to tiie wares of those who pay him best for so doing. 
Energy and industry and organisation, which might be 
used for turning out more of the things that mankind 
really needs, are diverted by the advertiser to producing 
things that people with money can be made to believe 
that they want, and the marts of the world become 
Vanity Fairs decked with vulgar gauds and stupid 
fripperies. 
Now is the day come when producers of the realities 
of life reap their profit. Growers of food and of stuff 
that makes stout raiment, and hewers of coal, and ship- 
masters — the folk who make and grow and carry to us 
the real needs of life — are coming by their own. At 
all times we live on them, because without their work 
we must all starve or die of cold, but somehow we have 
arranged our economic affairs so queerly that those on 
whom we live get a much smaller share of the good 
things of the earth than the purveyors of fripperies. 
Standards of Value. 
One of the first effects of war is to rectify the stan- 
dard of value, and to wipe out, for the time being, the 
activities of a large number of people who ministered 
only to our weaknesses and our follies. It is very hard for 
them, for they were probably quite unconscious of the 
realities of the means by which they lived and had no 
notion that they were parasites. They went into pro- 
fessions and businesses without thinking about the 
matter, and now war suddenly tells them that they are 
not wanted, or not nearly so much as skilled mechanics 
or even as farm labourers. If there is satisfaction in 
seeing mankind brought back to the economic facts of 
life, there is sorrow in the loss thereby entailed on inno- 
cent people; but there is this consolation, that if thev 
have any quickness in adaptibility they will soon find 
work that IS wanted. For everyone who can work and will 
work and will go to the place where work is offered is 
wanted to-day. Mummers, manicures, barristers, exotic 
and expensive caterers, bookmakers, sharepushers, and 
an the presiding geniuses of speculation, fashion- 
mongers and chroniclers of personal tittle-tattle, all these 
must find some new work to do; it is an uncomfortab e 
process for them, and all who can help them throrh 
must lend a hand. Artists and musicians aTe n e vfn 
vorse case, for they minister to the best part of us Ind 
Sh-rtl '''' -' '^^^^ -' ^-^ - -ney f^r^its 
cultivation. 
uum H^Lif '^-^IP"!-^^^ - '^ '^>' ^ome beneficent 
of the War Loan, and the state of the Bank Return. 
I'imnce is a weapon in a life-and-death struggle and, as 
such, is treated seriously. The Stock Exchange, thank- 
ful for the help given to it at the lime of last August's 
shock, still submits to having mbilmum prices imposed 
on it and a string of regulations devised to prevent our 
enemies financing themselves at our expense. It 
grumbles at the absurdity of some of these regulations, 
but accepts them as inevitable and with a good grace on 
the whole. In Herlin no one is allowed to publish a 
quotation of any kind. New issues of securities by 
anyone but the CJovernment have to pass a searching 
scrutiny here before they are permitted, or more prob- 
ably forbidden, to appear; and it is safe to presume that 
in Germany no one is allowed even to think of them. 
In such a war as this the Governments absorb the 
financial resources of their countries. There are fewer 
kites flying in Lombard Street, but there are many more 
Treasury Bills — Government promises to pay. 
Currency Inflalion. 
In the good old mediaeval days. Kings who wanted 
sinews of war used often to create them by debasing 
their currencies, that is by putting less gold or silver 
into the coins that they struck and giving them their 
old shape and size by adding base alloys. The con- 
sequence was that the coins fetched less and up went 
prices. Modern Governments achieve the same end, 
with the same result, by printing paper, or getting their 
banks to print paper. The note circulation of the 
Reichsbank has gone up by ;^i 76,000,000 since the 
war began, against which there has been an increase of 
^52,000,000 in its holding of gold, and the German 
system of national pawnshops has placed ;^52, 000,000 
worth of paper at the disposal of the borrowers who have 
taken advantage of their facilities. The Bank of France 
has increased its note circulation bv ;^,'23 1,000,000 and 
decreased its gold by ;^5.ooo,ooo,' and the Imperial 
Bank of Russia shows an increase of ^^195, 000,000 in 
Its paper out and a decrease of ;^;6,coo,ooo in its hold- 
ing of gold. The Bank of France has thus produced 
;6"236,ooo,ooo worth and the Imperial Bank of Russia 
/, 201,000,000 worth of uncovered paper. 
Here we have been more subtle in our method, and 
have done most of our inflation through cheques and 
bank deposits. It is true that we have been blessed with 
a new form of paper currency, the £\ and los. Treasury 
Note, but there are only some i;49,ooo,ooo of theni, 
against which ;^28,50o,coo is held in gold, so that the 
amount of uncovered paper is a mere ^20,500.000. The 
Bank of England's note issue has been increased by 
;{, 13.500,000, but so also has its holding of gold, fo'r 
the provisions of the Bank Act are still observed, which 
make the Bank of England hold, above a certain limit, 
gold against every note that it issues. 
14 
The Bank's Deposits. 
But. the total deposits of the Bank have risen by 
£155,000,000, implying so much creation of book- 
keeping money, most of which has been produced by 
an addition of i," 147,000,000 to the securities held by the 
Bank; and the great joint-stock banks have added 
.6162,000,000 to their deposits, chiefly by means of 
subscribing to Government issues of War Loans, Ex- 
chequer Bonds, and Treasury Bills. For when banks 
take up Government securities they hand over cash, in 
one form or another, to the Government, and the 
Government pays it out to contractors and others, and 
they pay it back into the banks and so increase the 
volume of deposits. In this way we have inflated the 
amount of buying power in the hands of the public with 
