If they and their work ceased, we should all starve, and the financiers would have nothing behind the pieces of paper that they handle. If finance and the financiers were suddenly to cease, there would be a very awkward jar and jolt in our commercial machinery, but as long as the stuff and the means of carrying it were available, we should very soon patch up some other method for exchanging it between one nation and another and one citizen and another. The supremacy of the London bill of exchange was created only to a small extent by any supremacy in London's financial machinery; it was based chiefly on the supremacy of England's world-wide trade, and on our readiness to take goods from all nations. The consequence of this was that traders of all nations sold goods to us, and so had claims on us and drew bills on us, and bought goods from us, and so owed us money and wanted to buy bills drawn on us to pay their debts with. So everywhere the bill on London was known and familiar and welcome. If the Americans are able and willing to develop such a world-wide trade as ours, then the bill on New York will have a vogue all over the world just as is enjoyed by the bill on London. Then London and New York will have to fight the matter out by seeing which will provide the best and cheapest machinery for discounting the bill, that is, turning it into cash on arrival, so that the holder of it shall get the best possible price at the present moment, for a bill due two or three months hence.

In this matter of machinery London has certain advantages which ought, if well used and applied, to stand her in good stead in any struggle that lies ahead of her. London's credit machinery has grown up in almost complete freedom from legislation, and it has consequently been able to grow, without let or hindrance, along the lines that expediency and convenience have shown to be most practical and useful. It has been too busy to be logical or theoretical, and consequently it is full of absurdities and anomalies, but it works with marvellous ease and elasticity.

In its centre is the Bank of England, with the prestige of antiquity and of official dignity derived from acting as banker to the British Government, and with still more practical strength derived from acting as banker to all the other great banks, several of them much bigger, in certain respects, than it. The Bank of England is very severely and strictly restricted by law in the matter of its note issue, but it luckily happened, when Parliament was imposing these restrictions on the Bank's business, that note issuing was already becoming a comparatively unimportant part of banking, owing to the development of the use of cheques. Nowadays, when borrowers go to the Bank of England for loans, they do not want to take them out in notes; all they want is a credit in the Bank's books against which they can draw cheques. A credit in the Bank of England's books is regarded by the financial community as "cash," and this pleasant fiction has given the Bank the power of creating cash by a stroke of its pen and to any extent that it pleases, subject only to its own view as to what is prudent and sound business. On p.33 is a specimen of a return that is published each week by the Bank of England, showing its position in two separate accounts with regard to its note issuing business and its banking business: the return taken is an old one, published before the war, so as to show how the machine worked in normal times before war's demands had blown out the balloon of credit to many times its former size.

If the commercial and financial community is short of cash, all that it has to do is to go to the Bank of England and borrow a few millions, and the only effect on the Bank's position is an addition of so many millions to its holding of securities and a similar addition to its deposits. It may sometimes happen that the borrowers may require the use of actual currency, and in that case part of the advances made will be taken out in the form of notes and gold, but as a general rule the Bank is able to perform its function of providing emergency credit by merely making entries in its books.

A Bank Return

Issue Department

Notes Issued            £56,908,235 Government Debt        £11,015,100
                                  Other Securities         7,434,900
                                  Gold Coin and Bullion   38,458,235
                                  Silver Bullion             ---
                      -----------                        -----------
                      £56,908,235                        £56,908,235
                      -----------                        -----------

Banking Department

Proprietors' Capital    £14,553,000 Government Securities  £11,005,126
Rest                      3,431,484 Other Securities        33,623,288
Public Deposits          13,318,714 Notes                   27,592,980
Other Deposits           42,485,605 Gold and Silver Coin     1,596,419
Seven Day and other
Bills                      29,010
                      -----------                        -----------
                      £73,817,813                        £73,817,813
                      -----------                        -----------