rease 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.

It is an easy way for the Government to finance the war by getting the
banks to manufacture money for it. Nobody feels any poorer for the
process, in fact, those who have new money in their pockets or in
their bank balance feel richer, but the result of thus multiplying
currency without any increase in the supply of goods and services to
be bought inevitably helps the rise in prices which makes the war
costly, puts the burden of it on to the wrong shoulders, and likewise
cheapens the value of the English pound as measured in other
currencies. This is why the evils involved by this process become so
relevant to the question now at issue.

If the Government is allowed to go on financing the war by increasing
the currency with the very reluctant help of the bankers, the
difficulties of maintaining our gold standard and keeping the
exchanges in favour of London will be very greatly magnified when
the war is over and our gold reserves are no longer protected by the
submarines and the high cost of shipping gold that they produce. It
therefore follows that all who have the true interests of the City at
heart should use all the influence they can to force the Government to
adopt a sounder financial policy before it is too late.

It is true that our war finance has hitherto been sounder than that of
any other warring Power, but it has fallen very sh