The Audacious War

by Clarence W. Barron

They were enabled to do this because their London branches were independent institutions whose independence was recognized by the British government. The London branches were thus liquidated, collecting in and meeting their obligations at maturity, so far as possible.

Liquidation in acceptances is one of the keys to the success of the English loan. While England had the ability before the war to discount $2,500,000,000 of acceptances, and with the present expanded base of the Bank would, without war, have the ability to discount $3,000,000,000, or three times our national debt, there is now no large business offering. The discount credits can therefore be measurably turned to the war-loan account. One of the biggest acceptance houses in London told me that the post-moratorium bills, or the new acceptances made after the moratorium, could not amount to more than 80,000,000 pounds, or $400,000,000.

With the liquidation on account of pre-moratorium bills and the absence of new business I should estimate that the London money market was able to take care of the 350,000,000 pounds loan put forth in November by the government without much regard to the investing community.

With expanding trade and confidence, English investment interests can absorb the major part of this huge loan before next summer, when another loan of about equal size must be put forth, according to present calculations. This second loan will probably be for three or four hundred millions pounds sterling, bear 4 per cent, and issue at par. The November loan was issued at 95 per cent and it was announced in Parliament that the Bank of England would loan the issue price at one per cent under the Bank rate.

That the loan was fully subscribed is not contradicted by the small fraction of discount soon quoted on the full-paid loan. One could fully pay the loan, taking the discounts on undue maturities and sell at a fraction under 95 and still make a profit.

I believe the estimate of an annual English surplus for investment of $2,000,000,000 per annum is far too low. This figure is upon the basis that only about 20 per cent of the river of interest, dividends, and profits flowing annually to British pocket-books is available for reinvestment.

In the present war stress and with economy practised to-day more by the capitalist classes than the laboring classes, the amount of money for reinvestment should be far greater than this.

English finance will cut its cloth according to the pattern. If there is only $2,000,000,000 per annum of surplus earnings to put into the war, that money will be spent; and if England has 50 or 100 per cent more, that money likewise will be spent, but spent so judiciously that the largest possible sum from it is kept in channels of English trade. The British Empire will work and finance the fight thus within a circle, and right on its own base.

The surprising thing is that it can be called upon to extend financial help to its allies. But everybody except Germany was caught absolutely unprepared. The war was early on French soil, tying up the resources of some of the richest provinces of France. Russia had so little thought of war that, as I have previously explained, she had deposited from her great gold reserve so that it had been loaned out on time and therefore was not available for the start of the war. Hence we have the spectacle of Russia gathering up 8,000,000 pounds sterling in gold and sending it to the Bank of England and, on this basis, borrowing of the Bank 20,000,000 pounds sterling.

Of course, this is good banking and good business and a good alliance. The Allies are bunching their war orders and credits, and England is entitled to hold the bag since she is carrying the financial burden.