How can she advance money to Russia, Belgium, France, and other countries at war or just going into the war, and ask no foreign assistance, no overseas help,—except to be let alone,—expand her home trade and wages, pay with a lavish hand, and still pile up real gold both at home and over the ocean?
The first answer is because she does expand trade; because she does pay and pay promptly; and because she does protect her own trade.
The United States does not protect its trade or its citizens anywhere in the world to-day. It shivers in war-time, and borrows of everybody else when it has a panic of its own.
There is only one way to make trade, and that is to pay and protect. England, through centuries of fighting to protect both trade and the trader, has learned the way to the highest freedom in both trade and finance.
Therefore, before this most Audacious War was set afoot England had a very small stock of coin gold but a very large stock of gold credit-bills.
For years England has held in her cash box from $1,800,000,000 to $2,500,000,000 of the commercial credits of the world. With goods and trade-honor behind these promises to pay gold, she had no need of the metal but only of command of the seas, that her gold might come in when needed. When the war broke out, $600,000,000 of these gold promises to pay were of German and Austrian origin. The big London bankers who had their names on the back of such acceptances could not in honor underwrite any more commercial bills. They knew their capital was involved in collection of those already out.
But Britain said the commerce of England must go on as well as the war. The people who held these acceptances were promptly invited to turn them into the Bank of England, which held the guaranty of Great Britain behind it, and receive the money therefor; the discount rate after maturity to have 2 per cent added thereto, 1 per cent to go to the Bank for expenses and 1 per cent to the government for reserve fund to cover any losses. Of such bills $600,000,000 were promptly discounted.
I hear that two banks, the London City & Midland with its $525,000,000 of deposits, and Lloyds' Bank, both refused to rediscount. They believed the investments in commercial paper they had made were perfectly good, and that they were as well able as the Bank to wait for payment until one year after the war if necessary.
But to date more than half of these rediscounted bills have been paid.
It may be of financial interest to narrate how payments could be accomplished when by the King's orders there could not be any "dealings with the enemy" and payment to either side was forbidden by both. Yet the Dresdner Bank and other big German and Austrian banks have to date met fully one half their London obligations.