February 17, 1916. 
LAND AND WATER 
WAR AND THE BANKERS. 
By Arthur Kitson. 
THE present safety and strength of British Banks 
is due neither to the so-called " gold basis," 
nor to the abihty or honesty of the men who 
manage them, but to the public belief that under- 
neath the ridiculously small quantity of gold — which 
is nothing more than a very thin veneer, in comparison 
with the credit resting on it — rests the national credit 
comprising the entire wealth of Great Britain. Our 
legal tender paper money is " as good as gold," not 
because the Bank of England holds sufficient gold for its 
redemption — which, of course, it never does — nor any- 
thing like sufficient, but becausti this money is backed 
by over /i8,ooo, 000,000 of wealth of every description ! 
If Great Britain had been blessed at any time during 
the past half-century with a statesman who really under- 
stood this subject, and who had had sufficient inde- 
pendence and moral courage, the present system would 
have been scrapped, and a sound, rational banking 
system would have replaced it which nothing could shake. 
What basis for bank credit can be safer or stronger than 
the National Wealth ? W'hich would a Foreign Power 
prefer, the guarantee of a London Bank or that of the 
British Government ? How determined British bankers 
were that the obvious lesson of the 1914 crisis should 
be construed to their advantage, may be seen from the 
writings of one of their most able apologists, Mr. Hartley 
Withers. Mr. \\'ithers' book War and Lombard Street 
was published at the end of 1914, andhere is his diagnosis 
of the trouble and the lesson he wishes us to learn. In 
his preface he says : "I only produce this brief outhne, 
because there is one good reason for trying to make the 
meaning of these events clear at once. This is, that they 
gave a wonderful proof of the enormous strength of Eng- 
land's monetary power, and a full recognition of their 
strength may be useful now." In his first chapter 
(page 3) he says : — 
It (the financial crisis of July and August, 1014) was an 
unpleasant string of surprises, but it was not brought 
about by any internal weakness in the English banking 
system. The fury of tlic tempest was such that no 
credit system could possibly have stood up against it. 
In fact, as will be shown, the chief reason far the sudden- 
ness and fullness of the blow that fell on London was no- 
thing else but her own overwhelming strength. She was 
so strong, and so lonely in her strength that her strength 
overcame her. She held the rest of the world in fee with 
so mighty a grip that when she said to the rest of the 
world " Please pay what you owe me," the world could 
only gasp out ! But how can I pay you if you don't 
lend me the wherewithal .-' 
Curious Reasoning. 
It is a little difficult to know how to answer such 
reasoning. Let us examine his version of these important 
events. Financial authorities have been educating the 
public to believe that the safety of bank credit is due 
entirely to the fact that it is all redeemable in gold on 
demand. They have also fostered the belief that credit, 
unsupported by gold, is dangerous. They talk of Ger- 
many's " paper money pyramid " as worthless. Naturally, 
therefore, as soon as the Balkan trouble arose in the 
summer of 1914, the holders of cheques, bills, promissory 
notes and other forms of credit took the bankers at their 
word and rushed to have these credit instruments re- 
deemed in gold. And the bankers couldn't produce 5 
per cent, of the gold needed ! The hollow pretence of 
gold-redemption was at once exposed. Any commercial 
firm unable to meet its bills of acceptance when due 
is considered unsound, and is forced into liquidation, and 
the fact that various sums are due to the firm — but 
unavailable — is insufficient to save it. Why does not 
the same rule apply to the banks ? Everyone knows 
that the moratorium was a confession of insolvency for the 
time being and ruin was only avoided through Mr. Lloyd 
George's prompt assistance in offering the National Credit 
as security, and in issuing an abundance of one pound 
and ten shilling notes as legal tender — a measure sug- 
gested years ago by the late LordGoschen and vigorously 
opposed by Lombard Street and Thrcadneedle Street. 
Our banking system is surely reduced to hard 
straits when excuses, as those made by Mr. Hartley 
Withers, are offered as an explanation of the Crisis of 
1914 ! Expressed in plain terms, the gist of Mr. Withers' 
argument is as follows .— Whilst the payment of fbUgalioiis 
in gold on demand may be an evidence of financial strength, 
the inabililty to do so is an evidence of " ovcrivhelming 
strength ! " Mr. Withers even intimates that the crisis 
was due to the "madness or wickedness " of the public in 
demanding fulfilment of the bankers' obligations ! 
An Analogy. 
Supposing the Captain of a passenger ship should 
advise his passengers that in time of danger their only 
safety lay in each one possessing a ship's life belt, why 
should he consider it an evidence of their madness or 
wickedness if during a heavy storm or collision there 
should be a general rush foj- life belts ? And what would 
one say if, when the ship was sinking and the passengers 
had discovered that there were not enough life belts for 
even 5 per cent, of those on board, the Captain should 
say to those doomed to be drowned : " My friends, 
your fate is not due to any ' inherent weakness ' in our 
method of safeguarding the lives of those committed 
to our charge. The truth is, your predicament is a 
' wonderful proof ' of its ' overwhelming strength.' 
We have a monopoly of life belts, but we don't happen 
to have more than a few here. We lend them to other 
shipowners and our position is so ' overwhelmingly 
strong ' that we are always lending and consequently we 
can never keep more than a small percentage for our- 
selves ! " 
Can we wonder that the so-called " Gresham Law," 
which is a complete denial of the law of efficiency, is 
accepted as a mathematical axiom among men who 
can reason in the fashion of this financial expert ? If 
our " overwhelming strength" is due to the uncollected 
amount of gold oie>ing to us, what becomes of the much- 
vaunted " payable on demand " claims ? The Gresham 
Law — which is another of the many economic fallacies 
found in orthodox financial treatises, and which has 
SORTES SHAKESPEARIAN.^, 
By SIR SIDNEY LEE. 
PARLIAMENT : ORDER OF THE DAY. 
T^e Hvte approaches, 
That will with due decision ni'ike us know 
What we shtll say we have and what we 
ewe. 
Thoughts speculatize their unsure hopes 
relate, 
But certain issue strokes must arbitrate : 
Towards which advance tht war. 
MACBETH, v.. iv., 16-21. 
MINISTERS ON THRIFT. 
It is a good divine that follows his own 
instructions; I can easier teach 
twenty what were good to be done 
than be one of the twenty to follozv 
mine oivn teaching. 
MERCH.\NT OF VENICK, I., U.. 13* 
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