February 3, 1916. 
LAND AND \V A T E R 
THE LONDON GOLD MARKET. 
By Arthur Kitson. 
[This is the third of the articles which Mr. Arthur Kitson 
is contributing to Land and Watf.r on the British 
Banking system, more particularly in its relation 
to British trade and commerce. The first, "Capturing 
German Trade," appeared in the issue of January 
20th ; the second on the " British Banking System," 
in the issue of January 2jth.] 
r 
FINANCE, as taught in our standard financial 
books and by our orthodox professors, reminds 
one of Enghsh history as it was taught in British 
schools fifty and more years ago. At that 
time the average scholar could recite from memory the 
names of all the Kings and Queens of England from 
the Saxon invasion to the accession of Queen Victoria in 
( hronological order. He could tell you the dates of all 
the great English battles and which side won ; but of 
the intellectual, economic and social development of 
the English people — in fact of the real history of 
Englancl — he knew nothing, for the simple reason that 
the history books told him nothing. It was assumed 
that the lives of monarchs and their Court favourites, 
their virtues, vices, intrigues and wars were the only 
things that mattered, and chronicles of these events, 
interlarded with Court gossip, passed for EngUsh history. 
-Similarly, British books on Finance such as one finds 
recommended by our Schools of Political Economy and 
by the Press generally, are usually confined to a history 
of the rise of the Baiik of England, a description of the 
money market, the rules and practices of our Banking 
Companies and a eulogy of the whole system as well 
as the usual tribute to the honesty of our bankers. In 
short, the writers of these books tell their readers only 
one part and the least important part of their subject. 
They show how efficient, safe and profitable (to the 
banker) is the British Banking system, how advantageous 
(to the banker and bullion dealer) is London's free gold 
market, what a wonderfully elastic and economic currency 
the cheque system provides. But the most important 
and essential part, viz., the relation of this system to 
industry, its effect upon British enterprise — whether 
stimulating or deadening — its cost to the nation, etc., in 
short, the public side of the question, is ignored. 
Banking, in the eyes of the banker and his share- 
holders, may possibly be nothing more than a dividend- 
making business, first and last, but from the public 
standpoint, it is a necessary part of the great National 
Economic Machinery for the production, exchange and 
distribution of wealth. And the raison" d'etre of the 
banker and his institution upon whom special privileges 
have been conferred by British Gov^ernments, is to be 
justified by showing that- he- is "doing his bit" in 
sujiporting and developing British trade and production. 
Like all inventions. Banking Systems are merely 
means to certain ends, and they should be judged solely 
by their efficiency in accomplishing those ends. And just 
as an Eastern traveller, who having confined his visits and 
observations to some Sultan's palace with all its riches 
and glories, without noticing the degradation, the poverty 
and misery of the inhabitants, might write of the wealth 
and prosperity of that country, so the average financial 
authority is apt to write of the marvellous success of our 
Financial System, because he has seen only the prosper- 
ous side, the big dividends and the wealth which— thanks 
to our special laws — our bankers are able to amass, 
whilst the bankruptcies and failures, the burdens and 
anxieties which this system imposes on labour and capital 
are unknown to him. An example will make this clear. 
The most popul^ir and recent book on this subject is 
" The Meaning of Money," by Hartley Withers, a well- 
known financial writer for the Press and at present the 
holder of a recently created office in the Treasury. 
In a chapter extolling London's banking methods, 
Mr. 'Withers instances the great money crisis of 1907 
which struck the United States and created such havoc 
in industrial, commercial and financial circles. This 
crisis, which it is now known was deliberately engmeered 
by a clique of Wall Street gamblers, reacted on all the money 
markets of the world, particularly that of London, " The 
business of nmnaging the exchanges of the world during 
commercial crises, "says Mr.Withers, " is obviously thrown 
on London, as things are at present, by its position as 
the only monetary city which is prepared to produce 
gold on demand." Gold was shipped from Europe to 
New York in large quantities — estimated at some 
{25,000,000 sterling, according to Mr. Withers — most of 
which went from London. As this amount would have 
depleted the reserves of the Bank of England, the bulk 
of it had to be drawn from abroad by the usual method 
of raising the Bank Rate. " It was," says Mr. Withers, 
" a very remarkable demonstration of London's complete 
control over the World's exchanges " since " four-fifths 
of the amount shipped to the United States were sup- 
plied by foreign contributions." He adds : — 
It was thus shown by the events of tliis memorable crisis, 
that London's tremendous responsibility of providing 
gold when it is required anywhere by a pressing emergency, 
is one that can be bravely and cheerfully borne as long 
as England is in a position, by applying sufficient twists 
of the monetary screw, to force other nations to contribute 
<thcir share to the common necessit}'. 
Now this is] very comforting and reassuring to 
the reader who knows little or nothing of the practical 
side of the question. But the most interesting part of 
the story has been conveniently omitted. It is true that 
our banks " weathered the financial storm with ease," 
as the late Lord Avebury expressed it, but at whose 
expense? The Bank Kate was raised to seven per cent., 
and kept there for nearly three months, and although 
this enabled the banks to " weather the storm " by 
acquiring gold from abroad, incidentally it ruined hun- 
dreds of British merchants and producers and played 
havoc with our trade generally. 
If there is any truth in the statements made so fre- 
cjuently, that every advance in the Bank Rate of one per 
cent, costs British borrowers somewhere between £50,000 
to £100,000 per week, then this " twisting of the monetary 
screw to force other nations to contribute their share 
to the common necessity " served also to squeeze from 
the British i>roducers somewhere between £2,500,000 and 
£5,000,000 in the shape of increased interest charges, to 
enable our bankers to save the American banks from the 
result of the machinations of a gang of unscrupulous Wall 
Street gamblers ! But this is only a part of the story. 
When the Bank Rate runs up, as it did in 1907, all our 
banks begin reducing overdrafts and refuse accommoda- 
tion to thousands of British merchants and manufacturers 
who are often in sore need of such help. In consequence, 
enterprise ' checked, production decreases, workmen are 
thrown out of employment or put on half-time, the public 
reduces its demand for goods, and business generally 
is depressed ! Moreover, it takes months and sometimes 
years for the nation to recover from the effects of such a 
crisis. If the total losses caused to this nation by the 1907 
panic could have been carefully estimated, it would 
have been found to far exceed in amount all the gold 
sent by our philanthropic bankers to save the American 
bankers from the just punishment their recklessness and 
unscrupulousness deserved. 
The necessity which our bankers find imposed upon 
them of rendering aid to foreign banks during financial 
crises, is one of the penalties this country is compelled 
to pay for the questionable advantage of maintaining 
a free gold market — the only one in the world. 
Perhaps it will be convenient at this point to deal, 
once and for all, with this question of a free gold 
market. The bankers' bogey, which is invariably raised 
whenever a drastic change is proposed in our Banking 
or Currency laws, is the fear that London may cease 
to be the World's monetary centre. Any interference 
with the system which compels us to provide a free gold 
market (chiefly for the convenience of foreigners) Ls 
represented as fraught with the gra\est commercial ami 
financial dangers to this country. What advantage is 
it then to our industries, our trade and commerce that 
London should maintain its financial position as the 
World's banking centre ? Soon after the United States 
currency crisis, the present writer put this question to 
