The following table shows the movement of gold coin and bullion1 to and from the United Kingdom for the years 1912-1918:

THE MOVEMENT OF GOLD COIN AND BULLION.1

Annual (and Monthly) Statements of Trade of the United Kingdom. 2 Figures for 1917 and 1918 are based on data furnished by the Chase National Bank, of New York City. Net exports are indicated by a minus sign.

According to the above table, there has been a net outflow of gold during the five years 1914-1918 of £120,505,196, whereas in normal times there is a considerable net import each year. As a means of liquidating commodity purchases from abroad, however, this net export of gold has evidently been of rather small relative importance. In fact, the total stock of gold in the United Kingdom before the war would not have gone far toward canceling the trade balance of the last few years. The gold coin held by banks (exclusive of the gold coin held in the issue department of the Bank of England) and in circulation on June 30, 1914, was only about £125,000,000. Figures for gold bullion stocks are not available.

As stated in the preceding section, the payments to British carriers for the transportation of foreign goods amounted to £135,000,000 in 1913. Figures for the period 1914-1918 have not been published, and, owing to Government ownership, may not be divulged for some time. Phenomenally high freight rates have prevailed during the war; but on the other side are the losses due to submarines and the withdrawal of vessels from carrying foreign commerce and their employment as troopships and for other domestic purposes. No data are available upon which even a reasonable guess as to the earnings of the British marine in the foreign trade may be hazarded; but these earnings have been one of the important offsets to the trade deficit of 2 billions mentioned above. However, even if the revenue of the British fleet derived from carrying foreign goods averaged as high an annual amount during the war as in 1913, it is likely that the net receipts were less because of the considerable payments which the British have made to Dutch, Japanese, and Scandinavian shipowners for the use of tonnage secured by charter, agreement, or requisition.

Various estimates as to the sales of holdings of foreign securities and other properties have been made. In the article by Hartley Manners, noted above, the statement is made that the Chancellor of the Exchequer in an interview granted to the London Observer on November 10, 1918, said that "practically the whole of our railway and industrial investments in the United States, amounting to about £600,000,000, were returned by us to the United States for sale or as

There is some importation of gold in ore and other forms, but this traffic is not sufficiently large to alter the gold movement figures given here to any considerable degree.

See "first interim report" of the Committee on Currency and Foreign Exchanges after the War (British).

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collateral against our borrowings." No indication is given in this statement, however, as to the amount actually disposed of. A recent report states that American securities actually sold by the Bank of England and the American Securities Committee from July, 1915, to January, 1919, amounted to £191,300,000, yielding an estimated annual interest of £9,100,000, and that additional securities owned by the committee and in the hands of its New York agents, to be sold as the situation requires, would make the total £308,640,000, and the annual interest lost to Great Britain £15,020,000. Fifty per cent of the pre-war total, then, or about £300,000,000, would seem to be an outside estimate of the American securities thus far disposed of during the war.

There are even less data available as to the amount of other foreign properties sold or hypothecated. Mr. Manners estimates the amount, including increases in foreign balances against London, to be about £200,000,000; but no basis for this estimate is given in his article and it includes the increase in current claims. Taking this figure for what it is worth, however, we have a total charge of £500,000,000 against the United Kingdom's creditor position as before the war.

Further, the United Kingdom has floated security issues abroad and secured loans from foreign Governments, an amount variously estimated at from £1,000,000,000 (figure given by A. B. Law, Chancellor of the Exchequer, in the House of Commons, Nov. 12, 1918, as reported in the New York Herald, issue of Nov. 14) to £1,300,000,000 (Mr. Manners in the London Observer, issue of Dec. 15).

On the other hand, Great Britain has extended a still larger volume of credit during the war to her Allies and to the dominions. In the speech of the Chancellor of the Exchequer above referred to, the statement was made that up to October 19, 1918, the United Kingdom had loaned its Allies £1,465,000,000, and £218,500,000 to the dominions, a total of nearly £1,700,000,000.

Summing up the data on foreign debts and properties given in the preceding paragraphs, we have approximately the following account to represent the situation for the period 1914-1918:

According to the above account, the United Kingdom has virtually maintained its pre-war creditor position, the decline being but 2 per cent, and the net amount available from this source to liquidate the unfavorable trade balance of 2 billions is but £100,000,000. The balance must accordingly have been largely liquidated by interest claims and carriage charges.

1 The Chase National Bank furnishes a figure of £1,220,000,000.

2 Foreign properties disposed of during the war have been estimated by some authorities at as high as £1,000,000,000. The figures given here may be somewhat low.

If it be assumed, as above, that but 12 per cent of the pre-war foreign holdings were liquidated during the war, it is reasonable to assume that the earnings of these investments during the war were at least 90 per cent of the normal. This is a conservative estimate, since the securities sold have been to a large extent disposed of in the last two years of the war and since the earnings of the American properties at any rate have in general been phenomenally high during the last four years. On this basis accruals in favor of the United Kingdom during the five years 1914-1918 were nearly £900,000,000. This amount alone would serve to cancel 45 per cent of the total trade balance.

As stated above, the net amount of carriage charges in the United Kingdom's favor during the war can not be ascertained. In view of the high rates earned, this amount is probably not much below the normal, and an estimate of £120,000,000 per year, or £600,000,000 for the period 1914-1918, is not unreasonable.

Taking into account the net shipments of gold and the net reduction in foreign holdings already discussed, and summarizing all these data, it appears that the trade balance has been liquidated somewhat as follows:

The item "Unaccounted for" is made up in part by the excess amount of bills of exchange and other current claims against London held by foreign interests over the amount so held in favor of the United Kingdom. Then it should again be stated emphatically that all of the left-hand items presented are estimates based on more or less satisfactory data.

While it is clear from the above discussion that the essential position of the United Kingdom as a great creditor nation has not been changed by the war, there are certain important qualifications of the above data which should be noted. Most important is the fact that the credits extended by Great Britain to Russia, France, Italy, Belgium, Serbia, and other countries are not all "good debts. A. Bonar Law, in the speech of November 12 referred to above, placed these loans to the Allies at half their face value, and this may prove to be a high estimate. Principal and income on some of these loans are uncertain, while there is no question but that the obligations of Great Britain to other countries will be paid in full. Against these uncertainties should perhaps be balanced the prospects of a large indemnity from Germany.

Even after allowing for a reasonable deduction for bad debts the United Kingdom is still a creditor nation to the net amount of at least £3,000,000,000, 75 per cent of her pre-war balance. Relative to certain countries her position has been weakened much more than this, because the international position of the United States, Japan, and some of the neutrals has improved during the war; but the United Kingdom may be expected to make a fairly rapid recovery

from the present somewhat disadvantageous position and to resume her purchases of foreign properties in a few years. Further, her great competitor in foreign trade, Germany, is virtually prostrated. The borrowing which has been done in the past emergency is governmental, a type of financing which is not at all indicative of the fundamental tendencies of the situation. With a return to With a return to peace activities the trade balance will soon be greatly reduced, and Great Britain will again become an exporter of capital to America and elsewhere.

[[PUBLIC_FINANCE, 1914–1918.

The domestic difficulties faced by the British Government in raising adequate revenue to carry on the war and in preserving at the same time a sound financial structure have been perhaps greater than those encountered in establishing satisfactory foreign relations. The cost of the war has, of course, been enormous and has required a tremendous extension of taxation and very large borrowings. The total national debt at the beginning of the war amounted to £708,000,000.1 By March 1, 1917, the debt had increased to the huge sum of £4,064,000,000;1 and in November last Stanley Baldwin, Parliamentary Secretary to the Treasury, reported the outstanding debt as totaling £7,073,045,000 on September 30, 1918.2 These figures include, presumably, all Government securities floated abroad and all loans extended by foreign Governments.

The interest charge on the pre-war debt amounted to about £24,500,000, and the present indebtedness will carry an annual charge of around £300,000,000. These figures give some idea of the burden placed upon the financial system of the United Kingdom by the war situation. The amount of public revenue necessary to liquidate these charges each year will for a long time exceed the total of all such revenue in a normal pre-war year. The total of debt has probably not yet reached a maximum, and certainly it will be some time after peace is established before any serious reduction of the principal can be attempted.

Comparisons of public debt and national wealth and income are more or less unreasonable, but such comparisons give at least some clue to the nature of the problem of repayment. The national wealth of the United Kingdom has been variously estimated at from £13,375,000,000 (Helfferich) to £16,460,000,000 (Giffen), and the national dividend amounts to about £2,470,000,000. According to these figures, it will require considerably more than 10 per cent of the total income of the nation on a pre-war basis to meet the interest charges on the public debt. Income and wealth on the higher price level are of course much larger now. Nevertheless, these data suggest that it would be a long process to liquidate this debt by methods of taxation directed primarily toward income other than that received from Government securities owned, and that to avoid an unreasonable burden upon current wages and profits it will be necessary to lay heavy taxes upon the income or principal of the debt itself.

A writer in the London Times, issue of November 27, 1918,3 makes an interesting analysis of the national finances as affected by the war. According to this writer, the situation is not one that need cause great

1 Statesmen's Year-Book for 1918.

Reported in New York Tribune, issue of Dec. 1, 1918. * Reported in Financial America, issue of Dec. 20, 1918.

anxiety, since the prospective revenue will amply provide for the financing of the present debt.

The situation is presented in this article somewhat as follows:

The total amount expended from April 1, 1914, to March 31, 1919, will amount to about £9,976,000,000, as against a total revenue during this period of £2,686,000.000. This means that the amount of £7,290,000,000 must have been borrowed. Against this amount should be placed as an offset the amount of about £1.800.000.000 covering loans to the Allies and the dominions. A further deduction which should be made is the value of the realizable assets (munition plants, factories, ships, supplies, etc.) purchased by the Government during the war. A conservative estimate of the amount recoverable from such expenditures is £1,500,000,000. Subtracting the sum of these deductions from the gross debt contracted during the war gives a net debt liability of £3,930,000,000. Further, the present probability is that the actual revenue for 1918-19 may be some £60,000,000 more than the estimate and the actual expenditure from £100,000,000 to £200,000,000 less; and in that case the net war debt would be only about £3,700,000,000 and the total net debt (including that which existed before the war) no more than £4,400,000,000.

Such an increase in the national debt would clearly be a manageable amount, involving at 5 per cent an annual charge of not more than £242,000,000. If, as expected, this year's realized revenue reaches £900,000,000 instead of the estimate of £842,000,000, the Government might drop the excess-profits duty, which is estimated to yield £300,000,000 this year, and still have, on the existing basis of taxation, a revenue of £680,000,000 (including £80,000,000 from the extra income tax that would come from the taxation of profits at present not liable to income tax because taxed under the excess-profits duty). This amount would more than take care of a normal Government expenditure plus the increased debt charge.

Certain general facts as to the total tax revenue during the war years are of interest in this connection. The amount raised by taxation during the period 1914-1918, including the estimated amount for the current fiscal year, will amount to £2,389,000,000. For a normal five-year period, on the basis of the last pre-war figure, the amount would have been £825,000,000. The additional tax revenue for the five years, then, may be reckoned as about £1,600,000,000. This amount would have been sufficient to wipe out more than twice the amount of the total national indebtedness before the war. The figures given in the above analysis are undoubtedly fairly accurate and the analysis is sound. Nevertheless, the writer is perhaps too optimistic. An indefinitely continued interest tax burden as great or nearly as great as the present rate is not a pleasant prospect. Further, the "offset" of £1,800,000,000, comprising British loans to other Governments during the war, should probably not be counted at over 50 per cent of face value, as pointed out in the preceding section.

MONEY AND BANKING.

The monetary and banking system of the United Kingdom has been elaborately discussed in textbooks and elsewhere, and any extended discussion of these matters would be out of place here. Some of the important effects of the war upon this system, however, will be briefly discussed in this section.

The Bank of England is the oldest institution of its kind; among modern nations Great Britain was the first to establish solidly the gold standard as the foundation of its monetary system, and London has long occupied a dominant position in the financial affairs of the world. As might be expected, then, the history of money and banking in Great Britain has for a long period been a record of sound finance. Nevertheless, the unprecedented conditions of the war have made it necessary to restrict gold domestic circulation, redemptions, and foreign outgo, and the result has been that during the war a fiat rather than a gold standard has been in operation.

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