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CREDIT, INDUSTRY,



AND



THE WAR



EDITED BY

A. W. KIRKALDY, M.A., B.Litt., M.Com.



2/6



NET



UNIVERSITY OF
CALIFORNIA

SAN DIEGO




.



CREDIT, INDUSTRY,
AND THE WAR



BEING REPORTS AND OTHER MATTER
PRESENTED TO THE SECTION OF
ECONOMIC SCIENCE AND STATISTICS OF
THE BRITISH ASSOCIATION FOR THE
ADVANCEMENT OF SCIENCE. MANCHESTER,
1915



EDITED BY

ADAM W. KIRKALDY, M.A.,

B.LITT., OXFORD, M.COM. BIRMINGHAM,

PROFESSOR OF FINANCE IN THE UNIVERSITY OF BIRMINGHAM,
RECORDER OF THE SECTION

WITH A PREFACE BY

WILLIAM ROBERT SCOTT, M.A.,

D.PHIL., LiTT.D., F.B.A.

ADAM SMITH PROFESSOR OF POLITICAL ECONOMY IN THE
UNIVERSITY OF GLASGOW, PRESIDENT OF THE SECTION



Published by Authority of the Council



LONDON

SIR ISAAC PITMAN & SONS, LTD., 1 AMEN CORNER, E.G.
AND AT BATH, NEW YORK AND MELBOURNE



PRINTED BY SIR ISAAC PITMAN

& SONS, LTD., LONDON, BATH,

NEW YORK AND MELBOURNE



EDITOR'S NOTE

IT is hoped that this book may prove to be the foreword to an effort
to help in the solution of some of the economic problems which
either are, or soon will be, pressing upon the attention of this
country.

The discussions arranged by the Economics Section of the
British Association at Manchester aroused considerable interest,
and there was a widespread demand that they should be available
to a more extensive public than could attend the meetings. Under
the circumstances immediate publication was deemed to be essen-
tial. Thus, although the Reports were interim, and the discussion
on Industrial Harmony, not only as incomplete as such discussions
must necessarily be, but also somewhat inconclusive, being pre-
liminary, and the views expressed being by no means identical, it
was decided to publish with as little delay as possible.

My work as Editor has been considerably lessened owing to the
invariable helpfulness and promptitude of the several contributors.
Especially am I indebted to Professor Scott and Mr. Egbert Jackson
for assistance in preparing the matter for press. I would take
this opportunity to thank very sincerely the permanent officials
of the Association for their exceeding kindness in assisting, not
only in the publication of this book, but on many occasions in my
work as Recorder during the present year.

Each contributor is solely responsible for his own facts.



A. W. KIRKALDY.



THE UNIVERSITY,
BIRMINGHAM.

November, 1915.



iii



PREFACE

BY PROFESSOR W. R. SCOTT, M.A., D.Phil., Litt.D., F.B.A.

Adam Smith Professor of Political Economy in the University of Glasgow ;

President of the Section of Economic Science and Statistics,

British Association for the Advancement of Science.

ECONOMIC questions have assumed increasing importance during
the course of the present struggle, and in all probability their
importance will continue to increase for some years after it is ended.
The meeting of the Economics and Statistics section of the British
Association afforded an opportunity of collecting and discussing
the opinions of a large number of persons whose views were
of interest or carried weight. Accordingly, the Organising
Committee decided to concentrate discussion upon those
problems which were of immediate and pressing importance.
It appeared that there were three groups of these, namely
the prevalence of industrial unrest, the manner in which
the labour absorbed by the war was replaced, and the state of
credit, currency and finance as affected by the war. The Committee
recognised that these problems could not be dealt with adequately
by the method usually adopted by the section by means of separate
papers. After a considerable amount of discussion it was decided
that the best way of treating the problem of the minimising of
industrial friction was, in the first instance by assigning one day
for a full discussion of this subject. A report of the speeches will
be found in the following pages. As a result of that discussion a
research committee has been formed which will report to the next
meeting.

The remaining subjects presented considerable difficulties. It
soon appeared that the problem of outlets for labour after the war
was vast and that it introduced many elements which were at present
hypothetical. Therefore, for the present, attention was concentrated
on one aspect of this problem, namely the extent to which there had
been a replacement of the labour of men by that of women since the
war. The position during the summer was one of change ; and in
order to present some definite picture of the situation to the meeting,
it was necessary to organise a very extended investigation no less



VI PREFACE

than eighteen investigators having contributed to the inquiry.
The Conference which initiated and directed the research consisted
partly of members of the Organising Committee, partly of .experts
who had special knowledge regarding some branch of the inquiry.
Prof. Kirkaldy, the Recorder of the Section, acted as Secretary of
the Conference. The inquiry was prosecuted actively in the London,
Birmingham, Leeds, and Manchester districts. In London, a sub-
committee was formed with Professor L. T. Hobhouse as Chairman,
Mr. J. St. G. Heath as Hon. Secretary, and Mr. E. F. Hitchcock as
Secretary. Professor Kirkaldy organised the investigation in the
Birmingham district with the co-operation of Miss Anne Ashley.
The interim report which will be found in this volume is necessarily
tentative in character, and is limited to the places in which investi-
gations could be made. The phenomena investigated are in a state
of transition, and it is hoped that at the next meeting of the
Association a further report will be presented.

A second Conference, also composed of members of the Organising
Committee, together with experts, was constituted, with Mr. J. E.
Allen as Secretary, to report on the effects of the war upon credit,
currency and finance. The inquiries involved were long and detailed,
and information of great value was placed at the disposal of the
Conference by its members and by others who were consulted upon
a number of special points. In this case, also, the Report contained
in the present volume is an interim one. It was presented to the
section over a fortnight before the introduction of the recent
Budget, in view of which its discussion of taxation will be found of
considerable interest. It is expected that at next year's meeting
further information upon several subjects discussed in it will be
available.

If the address for which I am responsible be added it will be seen
that, as far as the time at our disposal allowed, a serious attempt
has been made by co-operative effort to focus and direct economic
opinion upon the outstanding economic problems of this stage of the
war. It is the earnest hope of those who took part in the work that
their efforts may be of some service to the nation at this juncture.
It is the practical needs of the situation that have made it seem
desirable to issue these results in a form which is necessarily incom-
plete. Those concerned in the preparation of them would have pre-
ferred to have waited for more complete details and for a more



PREFACE VU

matured judgment upon the facts already collected. By sharing
the observations which have been made so far, it is to be hoped
that these will be amplified or corrected by others and thus progress
may be made as rapidly as possible.

It is my privilege, as President of the Economic Section and as
Chairman of the two Conferences, to thank most warmly those who
have contributed to the production of this volume. The Council of
the British Association was good enough to make a special grant
to us under the exceptional circumstances. Without it the Confer-
ence on Outlets for Labour could not have proceeded. Professor
Kirkaldy, as Recorder of the Section and as Secretary of the Confer-
ence already mentioned, has been invaluable. Mr. Allen, the
Secretary of the other Conference, was most thorough in his work
upon the various stages between the inception and the completion
of the Report. To Miss Anne Ashley, Mr. St. G. Heath, Mr. Hitch-
cock, and Prof. Hobhouse we are very greatly indebted, as well
as to the investigators who worked with them. It is most remark-
able how men engaged in great affairs responded to the invitation
of the Credit Conference. We owe more than I can express to the
alacrity with which they placed the stores of their experience at the
disposal of this body.

W. R. S.

UNIVERSITY, GLASGOW.
September, 1915.



CONTENTS

MM

EDITOR'S NOTE iii

PREFACE BY PROFESSOR W. R. SCOTT, F.B.A. . . v

I. ECONOMICS OF PEACE IN TIME OF WAR

BEING THE OPENING ADDRESS BY PROFESSOR W. R.
SCOTT, PRESIDENT OF THE SECTION OF ECONOMIC
SCIENCE AND STATISTICS, BRITISH ASSOCIATION FOR
THE ADVANCEMENT OF SCIENCE .... 1

II. THE PROMOTION OF INDUSTRIAL HARMONY

PROFESSOR A. W. KIRKALDY .... 17

SIR C. W. MACARA, BART 22

MR. WILL THORNE, M.P 33

SIR HUGH BELL, BART 36

PROF. L. T. HOBHOUSE 40

COUNCILLOR JAMES JOHNSTON, J.P. ... 43

MR. G. PICKUP-HOLDEN 50

MR. ALFRED EVANS, J.P., GENERAL SECRETARY OF

THE NATIONAL UNION OF PAPER WORKERS . . 58

REV. P. H. WICKSTEED, M.A 60

MR. ALFRED SMALLEY, J.P 63

PROFESSOR W. R. SCOTT 65

III. OUTLETS FOR LABOUR AFTER THE WAR

REPLACEMENT OF MEN BY WOMEN IN INDUSTRIES 68

IV. THE EFFECTS OF THE WAR ON CREDIT, CURRENCY

AND FINANCE ....... 193

V. ECONOMIC PROBLEMS AFTER THE WAR.

BY THE VEN. ARCHDEACON WILLIAM CUNNINGHAM,
D.D., F.B.A 254

INDEX 267



CREDIT, INDUSTRY, AND
THE WAR



CHAPTER I

ECONOMICS OF PEACE IN TIME OF WAR,

being the Opening Address to the Section of Economic
Science and Statistics of the British Association

BY PROFESSOR W. R. SCOTT, M.A., D.PHIL., Lrrr.D., F.B.A.,

President of the Section.

THE economists of great distinction who have presided over this
Section of the Association in past years have usually addressed
themselves to the discussion of the progress of Economic Science
in relation to some problem which had become striking or significant
at the time when each meeting was held. It has fallen to my lot
to prepare an address at a period when the Empire is involved in a
war of tremendous moment both to our country and to the world.
Not the least dominant phase of this epoch-making struggle is the
economic one ; and it is inevitable that, on this occasion, considera-
tion should be given to some of the reactions of this great war upon
industry, credit, and finance.

It is both remarkable and significant how silent British economic
theory has been upon what may be described as " the economics of
war." No doubt there are volumes, treatises, and isolated passages
which record the effect of some specific war upon prices, or upon
credit, or upon the national finances. Or, again, other works may
deal with some practical inconvenience which the writer experi-
enced ; but, when the total result is estimated, it will be found
that by far the larger part of the scanty discussions of this subject
is either purely historical or else purely practical. In the vast
majority of cases our writers have confined themselves to an analysis
of the effects of some specific war on finance and commerce with a
view to suggesting measures towards counteracting the inevitable

1



2 CREDIT, INDUSTRY, AND THE WAR

losses, instead of studying the principles of war in general with a
view to strengthening the national resources in preparation for
future hostilities. Thus, while British economists have said
something about former wars, they are almost wholly silent concern-
ing wars to come. This is a fact of immense significance. It demon-
strates beyond the possibility of doubt or cavil that in this country
there has been no such thing as a mobilisation of economic opinion.
On the contrary, our economists can claim with justice that they
have been ever on the side of the world's peacemakers, not with
false lip-service but through serious and sustained reasoning.

Once Mercantilism began to decline, it is astonishing how little
one finds in British economic literature relating to causal relations
between war and industry. What there is usually appears as a side
issue in some other investigation. For instance, at the end of the
seventeenth century, during the eighteenth century, and in the early
years of the nineteenth, there was a long controversy over the nature
of credit, with frequent digressions upon the character of public
debts, which was in effect the consideration of the financing of past
wars. In its extremest form one theory represented public borrow-
ings as " a mine of gold " a statement which influenced both
theory and practice during the eighteenth century. The exaggera-
tion of " the fund of credit " no doubt seems strange and almost
laughable to us now, but it does not differ greatly in principle from
the vague popular opinion that a nation can become richer by
increasing its taxes. A public debt as the Midas of the eighteenth
century is as much a fairy tale as the modern conception of taxation
as a species of " manna falling on the country in a fertilising
shower." Naturally there was a reaction from the magic claimed
for a state-debt, and the opposed type of thought urged that sup-
plies, even for war, should be raised during the period in which the
expense was incurred. The citation by John Stuart Mill of a passage
from Chalmers, in which the latter view is expressed, is almost the
only echo of this controversy in more recent times. During the
last fifty years, if a few occasional writings, such as those of the late
Sir R. Giffen " On Consols in a Great War," 1 be excepted, our
standard economic works have scarcely anything to say on war,

1 Works, II, pp. 189-203. The calculation was that Consols would fall
15 per cent, at the opening of hostilities. The fixing of a minimum price
during the first months of the war has made it impossible to confirm or refuse
Giffen's forecast.



ECONOMICS OF PEACE IN TIME OF WAR 3

and there is nothing which can be construed into a preparation for
hostilities.

But the cultivation of peace by British economists in avoiding the
study of the mobilisation of national resources for war has not
merely been negative ; it was also positive in proving the advantages
of peace and the tendency of enlightened economic views to promote
it. More than two hundred years ago Sir Dudley North wrote that
" the whole world as to trade is but as one nation or people, and
therein nations are as persons. The loss of trade with one nation
is not that only, separately considered, but so much of the trade
of the world rescinded and lost, for all is combined together." 1
In the same spirit David Hume urged that " our domestic industry
cannot be hurt by the greatest prosperity of our neighbours." 2
Before the end of the eighteenth century men of open mind not
only recognised that war was a great evil, but also that there was
nothing in international commercial relations to cause it or justify it.
And so Burke spoke of the condemnation of war as a commonplace
and " the easiest of all topics." Even victory accompanied by
substantial material gains is described by Hamilton as but " a
temporary and illusive benefit." In one passage he writes : " The
emphatic epithet of ' The Scourge of God ' has been aptly bestowed
upon the extensive warrior. . . . Riches, thus collected, no more
resemble riches acquired by industry in advancing the happiness of
the nation than the mirth of intoxication is worthy of being com-
pared to the permanent flow of spirits which health and activity
confer." 3 The undercurrent of the work of all the great British I
economists has been ever on the side of peace. Adam Smith |
suggested measures to prevent wars being undertaken wantonly. 4
Ricardo shows how free commerce " diffuses general benefit and
binds together by one common tie of interest and intercourse the
universal society of nations throughout the civilised world." 5
It would be wearisome to multiply quotations from the long line
of great writers, for already enough has been said to prove that the
encouragement of the best possible relations with other countries
has always been a prominent feature of their teaching.

1 Discourses upon Trade (1691), p. viii
* Essays, I, p. 347.
8 Progress of Society (1830), p, 411.
Wealth of Nations (ed. Carman), II, p. 411.
Works, pp. 76, 160.



4 CREDIT, INDUSTRY, AND THE WAR

This conclusion leads on to the discussion of a new problem.
May it not be urged that British economists have been either too
selfish or too idealistic too selfish in inculcating material welfare
as an end, to the neglect of those national interests which are now
seen to be vital, or too idealistic in seeking a cosmopolitan golden
age which has proved to be but a dream ? That is in fact, have not
our economists in their devotion to peace neglected the economic
preparation for war ? While it is true that the essential teaching
of the master minds has been thoroughly pacific, at the same time
they recognised that, while war was an evil, both to the world and to
us, it was one that might be forced upon the nation. But it would
be a dangerous error to conclude from the rare mention of warfare
in our economic literature, that economists had no ideas upon the
subject. Adam Smith has shown with considerable detail that the
sinews of war consist of consumable goods. x Therefore, since his
time it was recognised that, if war should come, the strength of
the nation on the economic side was to be found in the efficiency
of its productive system, in the soundness of its credit and finance,
and in the success of its schemes of social betterment which provided
a vigorous and patriotic population. To have contributed some-
thing towards the making of free men in a free land is an achieve-
ment of which the economists of this country have no reason to be
ashamed. Moreover, with freedom there is the power of initiative
and organising ability. And if more than twelve months of war
have taught us anything, it is how much modern warfare involves
just those qualities of initiative and organising ability which are
required for the successful prosecution of industry and commerce.
To the economist it must be a matter of profound regret that cir-
cumstances have made it necessary to divert these powers from the
arts which sustain and brighten life towards causing the evils of
death and destruction. Still it is the hard and grievous fact with
which we have to reckon ; and, to make the reckoning complete,
account has to be taken of the genius of our people in which the
work of British economists may claim to have some share. We
should not be misled by that curious national trait which no foreigner
ever completely understands namely, our inveterate habit of
praising the methods of our rivals as if they were unapproachable
in their excellence. In the seventeenth century it was the Dutch

1 Wealth of Nations, I, p. 407.



ECONOMICS OF PEACE IN TIME OF WAR 5

who were said to be our commercial masters, and very similar things
were written later about the French. Therefore, to everyone who
is patient enough to look beneath the surface, there is no reason
to be perturbed by the commonplaces that are to be found in every
newspaper concerning " the triumphs of German organisation."
No doubt there is very much we can learn from them in systematic .
arrangement, but what is of first-rate importance is the different
spirit that informs the two methods. German organisation involves
a mechanical rigidity, and its initiative is severely limited. Ours, ;:
on the other hand, is spontaneous and free. No doubt it is slower
in starting often it may seem to us to be painfully slow but what
it can achieve in the end is something greater, for it is the expression
of the free soul of a free people. Therefore, for this reason alone,
there can be no doubt as to the successful result, for, whether the
time required be long or short, the goal of victory must be reached
by that nation which can bring initiative to bear upon the economic
side of war. And, however much we in our part of the contest
may have suffered at the beginning from the peaceful habit of mind
that limited our preparations to a bare minimum, we have in our
industrial organisation, however much at times we may depreciate
it ourselves, a wonderfully developed instrument, which only needs
to be made available for supplying the almost innumerable needs
of modern armies. That there has been delay in making some parts
of it available as quickly as was desirable and seemed possible, arose
in part from the conditions under which our system has grown up
and under which it works. Freedom of enterprise depends to a very
large extent on the circulation of rapid and reliable information.
British initiative has been accustomed to base its judgments upon
data collected from various sources. Modern warfare has intro-
duced secrecy and the suppression of news. This, it appears to me,
has been one cause, and perhaps the main one, for the slowness of
the adjustment of our organisation to war conditions. Initiative
has been deprived of one of the important aids upon which it was
accustomed to rely. Therefore the problem, which it is to be
hoped is at present in process of solution, is how to avoid the
disclosure of information which might be of value to an enemy
and at the same time to supply our productive workers with sufficient
data to enable them to form accurate opinions as to how their
efforts can best help the national cause.



6 CREDIT, INDUSTRY, AND THE WAR

In a country in which the ideal of peace has flourished there must
always be a considerable dislocation of industry when it diverts
its peace-organisation to the purposes of war. As regards Great
Britain that dislocation has exerted its force in two distinct waves.
First there was the mobilisation and then the recruiting for the new
army, concurrently with which there was the diversion of demand
caused by the provision of the manifold needs of the forces. At
the beginning of the present year this first change might be described
as having approached completion, though necessarily the mainte-
nance of reinforcements involved a steady drain on the number of
workers. But in the early summer the campaign for increase of
munitions brought about a further dislocation. This was a minor
one in point of numbers involved, but it has to be noted that it was
likely to produce a disproportionate effect upon industry owing to
the normal floating supply of labour having already been used up.
When the latter change is completed it is to be hoped that, apart
from minor adjustments, the transition will be accomplished and
the national industry will be established on a war-basis. The two
most critical periods occasioned by war are, first, the change from
peace organisation to war organisation, and secondly, the converse
change after the conclusion of hostilities on a large scale. Ricardo
pointed out long ago that the outbreak of war after a long peace
was likely to cause distress and a commercial crisis. The great
expansion of credit since the last great war introduced an added
difficulty. The improvement of transport and communication has
linked the whole world together by tenuous filaments of credit.
These had proved sufficient to bear a normal strain, but one must
experience a certain amount of apprehension when these delicate
threads were rudely hacked and hewn by the sword. The financial
interests of the country, like the class of entrepreneurs, were con-
fronted suddenly with totally new conditions. The old landmarks
were gone, and at first a certain amount of blind groping was
inevitable. The leaders in finance and industry were suddenly
involved in the fog of war, and the compass by which they were
wont to steer proved unreliable. Moreover, the situation was such
that quick decisions were called for, just when rapidity of correct
judgment was peculiarly difficult. The most urgent problem was
the maintaining of the credit of the banks amongst their depositors.
Here the essential soundness of the credit-system in July of last



ECONOMICS OF PEACE IN TIME OF WAR 7

year was of paramount importance. Credit resembles a highly
elastic body : if it is greatly expanded a comparatively slight
pressure may cause a rupture ; if, on the other hand, it is not unduly
distended, it will bear a shock, though with some quaking, which
would shatter a more solid substance into fragments. The com-
parative equanimity of depositors, added to the inherent soundness
of the banking system, was a feature of great strength in times



Online LibraryAdam Willis KirkaldyCredit, industry, and the war; → online text (page 1 of 28)