The war and our financial fabric

While this book was in the press, interesting views upon the note currency and the gold reserves were expressed in the House of Commons by Mr. Austen Chamberlain and Mr. Lloyd George. They coincide largely with my own views. The opinions were expressed during the discussion on February 23rd on the Chancellor of the Exchequer’s statement on the financial arrangements made with France and Russia.

Mr. Austen Chamberlain said, to quote from the report in the Morning Post:—

“Mr. D. M. Mason the previous night urged the Government to withdraw the Treasury notes now in circulation here. He (Mr. Chamberlain) had held for a long time that gold in the pockets of the people was not a very useful reserve for any national purpose, that we carried about the same amount of gold whether it was a time of crisis or not, and that that gold was not readily made available for the international currency when the need for it in that capacity arose. Therefore, he held that the internal circulation of gold was, on the whole, wasteful use of it, that it was an out of date use of gold, and that the greatest development of our financial system had been the substitution of paper for gold. The largest substitution had been in the form of the cheque. Provided that the issue of notes was not an artificial inflation of the currency but a response to a real need for currency, then the more they could substitute notes for gold for internal use the better, and the more economical, the more civilized, and the more advanced the currency system became. What he cared about was seeing a large reserve of gold centralized for use in an emergency, and if they had secured the reserve of gold and the emergency arose, then the most foolish thing they could do was to fail to use the gold. The gold was got together in order that in an emergency, when the exchange went against them, the adverse balance of the exchanges might be corrected by the use of the gold, and unless the gold were used in that way it seemed to be a pure waste of it to hold it in reserve. That was not a doctrine that was popular in any foreign country that he knew. But it was a sound doctrine, and he hoped that the whole influence that we could bring, through the Chancellor of the Exchequer, in the councils of the Allies would be directed to making them use their gold resources freely when those gold resources were required. They had to study the psychology of the people. If the Government used their gold freely they very soon restored confidence in the public mind. He hoped that our influence would be used to persuade our Allies that in this matter the boldest course was the safest course, and that States were as unwise to hoard gold as individuals within States were.” (Hear, hear.)

Mr. Lloyd George, in the course of his speech, said: “As to the matter of currency, he was completely in agreement with Mr. Chamberlain, who put the position so effectively that he could not usefully add anything. He thought it desirable that there should be considerable reserves of gold in the Bank of England or in the Treasury, and equally desirable that it should be freely used whenever the emergency arose. We were on the road to a much more efficient use of our gold reserve if we used paper currency within safe limits. Our issues of paper currency were well within safe limits. (Hear, hear.) Not only so, but there was no country to be compared with us in this respect. Foreign countries, he thought, had always been nervous about using their gold. The fact that we used it freely showed that was not our view. There was too much disposition even to-day to worship the golden calf. (Laughter.) This country had always gone on the principle that the gold was there to use whenever there was a demand for it, and that practice had never failed us up to the present. It was true that we had never had such a strain put upon it as during the past few months, and it was probable that that strain would increase during the next six or twelve months, when our purchases abroad would be much heavier than ever before, and our sales to other countries considerably less. He did not like to prophesy, and he hated bragging, but he did not mind saying that the resources of gold we had got would carry us through any emergency that we could possibly foresee. (Cheers.) That was his firm conviction, not merely from his observation, but from careful inquiries in the City and elsewhere. He agreed, however, that there was no special merit in paying debts in gold where paper would do equally well, and thought it wasteful, burdensome, and not particularly useful.”

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