“Free trade,” says our German Jeremiah, “that mighty agent in the development of England’s supremacy, will, in all probability, give place to protection.”  We venture to think that it will be recognised that the Free Trade policy of the past gave us a well-distributed wealth which was an invaluable weapon in time of war, and that any attempt to impose import duties when peace comes will be admitted, even by the most ardent Tariff Reformers, as untimely when there is likely to be a world-wide scramble for food and raw materials, and the one object of every nation will be to get them wherever they can and as cheaply as they can.

If Stock Exchange business will be less, though this does not by any means follow, there is no reason why it should be relatively less here than in other centres.  As to rates of interest being permanently higher, the same answer applies.  It may be true, but there is no reason why they should be relatively higher in London than elsewhere; and, if they are high, it will be because there will be a great demand for capital, which will mean a great trade expansion; both in the provision of capital and in meeting the demands of trade expansion England will be doing what she has done with marked success in the past and can, if she works in the right way now and after the war, do again with equal and still greater success.

There is, however, a danger that threatens our financial position after the war, on the subject of which our German critic is discreetly silent, because that danger threatens the position of Germany very much more emphatically.  It consists in the way in which our Government is at present meeting the needs of war finance, not by compelling economy on the civilian population through taxation and borrowing direct from investors, but by manufacturing currency for the purposes of the war by means of the printing press and the banking machinery.  The effect of this policy is seen in the enormous mass of Treasury notes with which the country has been flooded.  Their total is now nearly 180 millions or perhaps 100 millions more than the gold which they were originally designed to replace.

It is also to be seen in the great increase in banking deposits which has been a feature of our financial history since the war began.  Some people regard this feature as a phenomenal proof of the growth of our wealth during the war.  I am afraid there is little foundation for this pleasant assumption, for these new deposits have been called into being by the banks subscribing to Government securities, whether War Loan, Treasury Bills, Exchequer Bonds or Ways and Means advances or lending their customers the wherewithal to do so.  By this process the balance-sheets of the banks are swollen on both sides, by the Government securities and advances to customers among the assets, against which the banks create new deposits, so giving the community as a whole the right to draw more cheques.

Every time the bank makes an advance it gives the borrower a credit in its books, that is to say, the right to draw cheques to that amount; the borrower draws on the credit and hands it to any one to whom he owes money; but as long as the advance is outstanding there will be a deposit out against it in the books of some bank or another.