Certain economic conditions peculiar to Great Britain may perhaps be regarded as affording a psychological explanation of the pre-war condition of English banking. England has been primarily a maritime country. Her ships had covered the globe and brought to this island great wealth and power. With the development of this wealth her men of commerce have used their own capital in their business. When they turned to manufacture what the world asked should be carried in British ships, each manufacturer, a strong individualist, used his own capital. Side by side with this development, the banking of England took on an international aspect in order to minister to the needs of this growing maritime commerce. When War came in 1914, we had, therefore, the one great international banking centre in London, the carrying trade of the world, and an individualistic manufacturing class operating on its own capital. This fundamental economic force of sea-power educated the banker in all that appertains to international finance. His thoughts and convictions have this international scope and vision; they are of another order from the postulates and beliefs of the American banker, who sees the world from the point of view of the manufacturer and producer. The Englishman has built up an outlook of his own on financial life; London is its heart, international trade its very blood, bills of exchange its veins. He has developed a highly organised instinct; and that is just the point. Fabre, the great naturalist, tells us that instinct is to be compared to a narrow and intense beam of light, along which the creature moves with unerring precision, so long as it does not slip into the deep blackness on either side; while intellect is a diffused, universal radiance by which mankind may choose the path. It is therefore only natural that the English banker is unable to see that after-war problems of industrial finance are not to be solved by reliance on his international outlook and instinct. Capital will be scanty; production must be encouraged; internationalised banking will be England's enemy as surely as is international Bolshevikism. In 1916 a committee of eminent bankers was appointed to consider the best means of meeting the needs of British firms after the War as regards financial facilities for trade,' etc. They reported as follows: 'The British banks afford, we believe, liberal accommodation to the home producer. British bankers are not shy in making advances on the strength of their customers' known ability and integrity.' This may be the conclusion of the banking world, but it is not that of the industrial community. The following questions when answered will determine: What, prior to the War, was the ratio of unsecured overdrafts on the balance sheets of the Joint Stock banks to those on the books of the American National Banks? One may doubt if it was 5 per cent. What percentage of the excess of accounts receivable and goods manufactured and unmanufactured over accounts payable will British banks loan to any reputable customer on unsecured overdraft? Will it be from 80 per cent. to 100 per cent. as with American banks? Finally, can the manufacturer at all times be just as certain of absolutely unsecured credits to this amount, as the money broker of discounting his approved accepted bill? The committee reported in favour of the establishment of a Trade Bank, which has since been created. This should prove an eminently useful institution, but, inevitably, it will not even touch the points pressing for solution. The name-paper of one single American Department Store would absorb its entire issued capital. Obviously, the great desideratum is to make readily available as bankable credit the accounts receivable, raw materials, and goods manufactured or in process of manufacture; all of which items are grouped together in the States under the title of 'quick assets. No single Trade Bank can accomplish this. It cannot possibly have the necessary knowledge of the applicant's position, as can the banker with whom he has dealt for years. There is no time nor opportunity for examination, nor should the manufacturer or trader be diverted from his business by considerations of this nature. Even if the Trade Bank made such advances, what would be the expense? If stockholders' money be lent, that will be costly; if funds be borrowed from another bank, the cost of the Trade Bank mediation must be added. The function of the Trade Bank, as constituted, must 2 K be to finance worthy promotions, whether of new companies or of new projects by old companies. To the extent that the bank attempts to make liquid the ‘quick assets' of traders and manufacturers, the method is slow. cumbersome, and expensive; and the magnitude of the task is wholly beyond the capacity of such a bank. Only when 'quick assets' become immediately, readily, and cheaply transferable into bankable credit will the problem of financing British industrial production be solved. Only the great British banks of deposit can effect this object, and only directly on behalf of their own customers. But this must be accomplished at the cost of financing German accepted bills of exchange. When my Russian friend stated that German success in exploiting Russia depended on British capital, he had in mind the fact that Germany to-day is economically as bare as the palm of one's hand. Everything exportable has been eaten up, shot away, worn out. Germany's exports are and must be manufactured products; and she has neither cotton nor wool nor copper. Nor has she, as any financier will admit, the possibility of payment in gold. She must have great credits even to begin to supply her own internal needs; without external aid, it would be quite hopeless to think of giving long credits to Russia, impoverished as Russia is. Germany will get little if any credit from America, firstly, because America has little machinery for granting large international credits; secondly, because she will need the money herself, and has never been in the habit of lending anything she can use herself; thirdly, because she will never lend money to any one who will use it against her, and it is her habit to examine into the ultimate effect of a grant of credit. Germany, therefore, must come to London. Come she will, and with her portfolio full of bills drawn and accepted to tickle the niceties of the English banking palate. What is the situation which will then exist and the reception she should receive? There will be a great diminution in available banking credit after the War. We cannot develope the argument at length; it depends solely on the proposition that there has been a profound and widespread destruction of all forms of saved-up property, that is, of capital; that there is in the world to-day less food, less clothing, less coal, less steel, less of everything, than in 1914. And it is quite irrefutable that no issues of currency, no inflation of credits, increase capital. Again, Germany's opportunity to make large profits will be immense. Given the raw wool and cotton, she can sell clothing to Russia at profits many times larger than her ante-bellum return, provided she could obtain from London requisite credits to purchase the cotton, operate her mills, and give the necessary credits to Russian merchants. Equipped as she is, Germany can, in the international money market, pay the highest price for credit. Once obtained, she will use it most profitably; and the security will be adequate and certain. No other nation in the world will be so well prepared as she to compete in London for banking credits; none will have a banking system so perfectly adjusted to furnish bankable accepted bills; none will have such thoroughly digested information available respecting trading opportunities and pitfalls; none will have a body of workmen so ready to work long hours and to produce so much and so cheaply. In the chaotic and disorganised condition of international trade, Germany will be best prepared to choose aright the path to safety and profit. If British international finance after the War continues to regard banking credit as a huge reservoir, the flow of which may be properly directed to whatever quarter will pay highest, then Germany, whose system is unique in the world, will get most of the money. There will be little left for British trade, which has to-day no organised banking aid whatever, and will not be able to pay, under the conditions of the future, a competitive price. Germany will therefore absorb, first for her own needs, secondly to enable her to finance Russian trade, and thirdly to control the commerce of China and South America, the greater part of the available capital of England. British trade will be drained of its life-blood. The days when, as it might be said, there was enough capital to go round, will then be long past; and an energetic Germany with the banking power of the British Empire at her service, with enhanced profits and cheaper labour, will accelerate the downfall of British commerce. Whatever the glory and profit which her proud position as the world's financial centre has in the past brought to England, the price in the future may be too high to pay. In the last analysis, it is production which creates capital; and with the loss of industry will disappear the capital that constitutes banking credits. One might, indeed, concede almost everything till this last point, and then protest. One might agree that the free untrammelled international money market of London before the War was a great national good and glory; one might acquiesce in the wisdom of granting to Germany, under former conditions, credits not given under existing machinery to British merchants; one might prefer free trade in money, insist on British trade being conducted only on its own capital, and answer all objectors by the consideration that to be the financial centre of the world brought its rewards as well as its penalties. But, after the War, British banking, with grossly insufficient capital to supply every need, must lie under the despotic necessity of choice whether the British manufacturer or the German is to go to the wall, whether Russia is to be the economic satellite of Germany or the field for British commercial energy, whether, in short, it is to be Germany or Britain which shall during the next fifty years enjoy commercial supremacy in Europe. Surely, this nation must pause before it permits a system of banking, however hallowed by custom, to determine such a question to the gradual extinction of England's greatness. The question is simple. Shall the banking world in any form or under any pretence lend English capital to Germany, when English trade must depend for its very life upon the money so lent? The answer is equally simple: the existing banking system of loans secured by accepted bills must be modified to reach a solution. There is only one alternative: the decline and fall of the British Empire. |