The War and Our Financial Fabric

The War and Our Financial Fabric

The War and Our Financial Fabric opens with Walter William Wall surveying the difficulty political economists have faced in defining money precisely, contrasting this with the ordinary man's simple view of it as pounds, shillings, and pence. He traces money's origin from direct barter in primitive communities to the selection of scarce, durable articles such as iron for exchange, explaining that scarcity, not life-sustaining usefulness, confers economic value. He describes how governments later conferred legal status on such articles, decreeing that specific quantities would discharge taxes and debts, thereby distinguishing custom-based money from legal tender. Gold's status as Britain's standard of value, the sovereign, is explained as an arbitrary legal creation, with silver and bronze given lesser legal tender status. Wall then examines Lombard Street and the banking system, arguing that banks do not create money from nothing but convert, or liquefy, various forms of national wealth, such as securities, bills of discount, and loans, into usable currency. He analyzes a sample joint-stock bank balance sheet in detail, distinguishing pure deposits (money simply held) from loan deposits (wealth converted into currency), and argues that the so-called credit superstructure actually rests on tangible wealth rather than intangible credit. He discusses the cheque as the nation's real currency, contrasts it with legal tender notes, and explains the clearing house system and the role of reserves. He then turns to the Bank of England specifically, describing its dual nature as both a private profit-seeking institution and the de facto central reserve holder for the whole banking system, and explains the Issue and Banking Departments under the Bank Charter Act of 1844. He discusses the Bank rate, gold flows, and the mechanics of attracting gold through interest rate competition with other financial centers. Wall devotes considerable attention to rebutting theorists, particularly Mr. Cole and Mr. Tritton, on whether banks truly "create credit," arguing instead that profits and loans represent shares of real wealth rather than something conjured from nothing. He explores the psychological basis of public confidence in banks, arguing it rests on trust in sound management rather than on precise knowledge of gold reserve ratios, and that panics are a psychological phenomenon which the Bank of England and government can address through providing adequate currency rather than through rigid mathematical reserve formulas. The latter portion addresses the outbreak of the European War and its effect on British finance. Wall recounts how predicted panics and financial collapse did not occur, crediting both the navy's protection of trade and the government's issuance of emergency Treasury notes and £1 and 10 shilling notes as legal tender, which calmed public fears despite lacking full gold backing. He describes the suspension of normal banking caution during the crisis, the discounting of pre-moratorium bills by the Bank of England with government guarantee, and the resulting glut of cheap money in Lombard Street. He argues for maintaining a supplementary legal tender currency as a standing reserve mechanism for future emergencies, suggests such notes could be partly secured by Consols rather than solely gold, and contends that national wealth, not gold's arbitrary output, should be the true basis of currency and credit. The final chapter engages with Hartley Withers' claim that war shakes credit to its base because credit depends on civilization, arguing instead that true economic credit is better understood as confidence, and that Britain's wartime experience of robust public confidence despite extraordinary strain demonstrates that a moral, united civilization can sustain and even strengthen economic confidence during war, distinguishing this from Germany's purely material but morally bankrupt civilization.

By Walter William Wall · First published 1915 · Genre: Economics, Finance, Political Economy · 23 chapters · 56,631 words

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Treatises innumerable have been written about money. Famous and non-famous political economists have attempted a definition of money. These definitions have been divergent, and often irreconcilable. Political economists have found it no easier to arrive at a simple, understandable, explicit formula than literary critics have found it to define poetry. All of us have a vague idea of what money is, but it is so vague that it is well-nigh impossible to present it in a concise and precise phrase.

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banking · currency · money · British finance · gold standard · cheques · Bank of England · credit · legal tender · Lombard Street · commercial banks · bank deposits

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The War and Our Financial Fabric is listed on Textopian as an essay by Walter William Wall, dated 1915 CE.

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More by Walter William Wall