THE ECONOMIC STRENGTH
OF GREAT BRITAIN
' 1 J
MACMILLAN AND CO., LIMITED
ST. MARTIN'S STREET, LONDON
V LV A li life
THE ECONOMIC STRENGTH OF
That the present war, in spite of its magnitude,
has only touched the fringe of England's normal life
is a fact so palpable that it has ceased to be disputed
except in a few socialist papers. At the beginning of
the war, in the first few days of excitement, there was a
fairly wide anticipation that a great economic up-
heaval must result from war upon such a scale ; but
as the days went by and the excitement to some
extent subsided people discovered to their astonish-
ment that the economic situation was getting better
instead of worse. It has continued to get better, and
even the astonishment is no longer expressed. Most
people have already forgotten the terrible prophecies
of economic disaster that used to be commonplaces
among us in all abstract discussions upon the conse-
K quences of a European war. From the human point
N of view we may be shocked at the contrast between
the even tenor of our own lives and the fierce struggle
I that is raging only a few hours distant across the
v Channel ; but from the economic point of view we
2 THE ECONOMIC STRENGTH
have grown accustomed to the fact that the war has
left this country almost scatheless.
Our streets during the working hours of the day are
as fully thronged as ever ; the theatres, which were
deserted in the early days of the war, are now well
attended ; the music halls are crowded. As regards
the definite problem of employment precise figures
have been available since the establishment of the
system of National Insurance against Unemployment.
The insured trades include house-building and ship-
building and various engineering trades in which em-
ployment in normal times is apt to be irregular.
Altogether about 2j million workpeople are insured,
so that a fairly representative picture of the condition
of employment throughout the kingdom can be
obtained from the precise figures of unemployment in
these insured trades. The figures show that the rate
of unemployment was slightly greater during the five
months March to July, 1914, than in the corresponding
months of 1913. On the outbreak of war in the
beginning of August the rate of unemployment
rose with a bound ; but in the early days of
September it began rapidly to decline and has
continued to decline, till in November it practi-
cally reached the level of 1913, which was a year of
remarkable prosperity. In particular, the shipbuild-
ing trade is flourishing, and shipbuilders are said
to be overwhelmed with orders for new tonnage.
As a set-off against these satisfactory conditions,
there is undoubtedly a serious depression in the cotton
trade. This does not, however, result in actual un-
employment. The cotton trade is probably the best
OF GREAT BRITAIN
organised of British industries, and it has long been
the custom in that trade to deal with periods of
trade depression, not by discharging employees,
but by working short time. By this excellent custom
the workpeople attached to each mill are kept together,
and the cost of a period of depression is borne by all
of them collectively — and by their employers — in-
stead of falling with cruel severity on a few individuals.
In normal times the operatives engaged in the cotton
industry earn very large family incomes, so that they
can face a period of reduced working time without
suffering any real distress. The causes of the present
depression in the cotton trade are complicated, and
are not all directly connected with the war. The
situation, though still bad, is considerably better than
it was. The difficulties arising from the breakdown
in the financial machinery of exchange with the
United States are being surmounted ; the difficulty
of shipping cotton goods owing to the high rates for
freight and insurance which ruled at the outbreak of
the war has been greatly dimim'shed ; the improved
prospects of the trade are marked by the increased
quotations for shares in cotton mills.
The only other direction in which anything like a
serious state of depression exists is among the pro-
fessional classes and the classes engaged in producing
luxuries. The closing of the Stock Exchange, for
example, threw out of employment a large number of
clerks. The male clerks in many cases were young
enough to enlist in the army ; but the female typists
were left without occupation. Architects and lawyers,
actors and writers, have also found a diminished
4 THE ECONOMIC STRENGTH
demand for their services, and the same is true of
jewellers, dressmakers and photographers. Most,
however, of these sufferers from the war are middle-
class people who have been in the habit of living
within their means and saving for the future, so
that their misfortunes, though very real, are not
crushi ng .
That there is nothing approaching destitution in
any part of the country is proved by the experience
of committees voluntarily created on the outbreak of
the war to deal with distress. Here, for example, is
a letter which the present writer received the other
day, quite casually, from a personal friend who
happens to be a secretary of a " Committee for the
Prevention and Relief of Distress " for the whole of
one of the northern counties of England : —
"It is such a long time since I have written
to you. I have been pretty busy in one way
or another, but not as far as distress goes.
There is practically none. So this Committee
has had nothing to do except to arrange
hospitality for Belgians."
On receipt of this letter, the present writer consulted
the Secretary of the Charity Organisation Society
and asked him whether his general experience coin-
cided with this particular information. The reply was
that he was receiving reports similar in character from
all parts of the country.
These are incidental proofs of the statement with
which this paper began that, while England is
engaged in the greatest war the world has ever
OF GREAT BRITAIN 5
known, her people are still enjoying with very
little interruption their ordinary lives. The primary
explanation of this apparently strange phenomenon
is England's sea power. Owing to her command
of the sea England is able to carry on the greater part
of her over-sea commerce with almoct the same con-
fidence and security as in time of peace. That means
that her industries are still fed with most of the raw
materials they require ; that her people can still buy
most of the foreign foods they are accustomed to
consume ; that her manufactured goods can still be
sold in most of her usual markets. What she has lost
is the very important market which Germany pre-
viously offered for British goods, and the almost
equally important supply of materials of various kinds
produced in German factories. She has also suffered
by the decreased power of her Allies to buy British
goods in consequence of the interruption to their
trade by the German invasion of their territory.
As against these losses must be set the stimulus
which war itself gives to industry. That is a point
which pacificists of the Norman Angell type com-
pletely overlooked in their pre-war prophecies of
commercial ruin. War creates an immediate demand,
not only for men to serve in the ranks, but also for
all kinds of munitions of war, from rifles to woollen
scarves, from field glasses to corrugated iron sheeting.
There is consequently a direct call upon the labour
market and a direct stimulus to an enormously wide
range of industries. But, it ought to be asked, How
can these war demands be satisfied except at the
expense of other industries ? The same sovereign, it
6 THE ECONOMIC STRENGTH
may be argued, will not pay for both rifles and silk
frocks, and if there is an increased demand for rifles
and uniforms there will be a diminished demand for
frocks and theatre tickets.
In the main that proposition is true ; but there is
a very important counter consideration. Normally in
every country there is a very considerable margin of
unemployed energy. Few people are doing all the
work of which they are capable ; many are doing
none at all. The stimulus of war calls into activity
this dormant energy, and thus to a considerable extent
creates out of human resources previously unutilised
the means of carrying on war. The best illustration
that can be given is one that is centuries old : when
the young men go to battle the old men and women
gather the harvest. A similar process operates even
in highly industrialised countries like England, where
agriculture is relatively unimportant. There is in
England an enormous leisured class of rich or mode-
rately rich people ; there are also many hundreds of
thousands of men engaged in different types of em-
ployment, whose work can be temporarily laid aside
or transferred to other men who will work longer
hours ; and finally, there is a very considerable number
of men who are close to the poverty line because they
cannot in time of peace find regular work. These
considerations explain how it is possible for England
to put an extra million recruits into training and to
expand her production of all munitions of war
without trenching upon- her industrial powers of
But there remains the question of payment. From
OF GREAT BRITAIN 7
what sources are these men and their munitions paid
for 1 To some extent, as already indicated, they are
paid for out of money which would otherwise go to
maintain what may be called the luxury trades. The
money saved on frocks and jewellery helps to feed
the war loan. But England has other resources of a
peculiarly valuable character. In most years there
is a steady outflow of capital from Great Britain
to finance railways and other industrial enterprises
throughout the world. The probability is that this
outflow will for the present almost entirely cease,
and that an appreciable amount of foreign invested
capital may be recalled. So far as this operates,
the capital to finance the war will be available
without checking the supply of capital to domestic
industries. To put the same proposition more
broadly, just as England has a margin of human
material, so she has an immense margin of capital.
The income of her citizens from foreign investments
alone is almost equal to the sum raised by taxation
towards meeting the peace expenditure of her
Government. She is thus in a position to face
without any severe strain the expenditure which war
As regards Government finance m particular, one
or two facts are worth noting. Both France and
Germany have for many years past been rapidly
adding to their national debts even during years of
peace ; on the other hand, Great Britain, except in
time of war, lives within her means and pays off
debt steadily. In the eleven years that have elapsed
since the closing of the accounts for the Boer War,
8 ECONOMIC STRENGTH OF BRITAIN
the gross aggregate liabilities of the British Govern-
ment have been reduced by more than £90,000,000,
or at the rate of about 8j million pounds a year. In
the budget for the current financial year the provision
made for the reduction of indebtedness was at approxi-
mately the same rate. The maintenance of a sinking
fund of this magnitude is a proof that England's
public finance — in spite of the somewhat lavish
expenditure of the past few years on social reforms —
is essentially sound. Of the general strength of her
economic position there can be no question. If
further proof were needed, it is to be found in the
response made to the Government's appeal for a war
loan of the unprecedented amount of £350,000,000.
The closing of the Stock Exchange prevented the
speculative subscriptions which are the usual accom-
paniment of the issue of a big loan ; it also prevented
the raising of money by the sale of other securities.
Yet, in spite of these obstacles to success, the whole
sum asked for, with a satisfactory margin over, was
(Signed) Harold Cox.
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