to warrant the optimistic views that the uncertainty of the reparations dilemma was a thing of the past. Ten years had passed since the outbreak of war and it became popular to refer to August, 1924, as the beginning of the "new era." Psychology, which is a significant factor in the financial world, thus worked in a favorable way to strengthen the situation. Trade returns began to improve, exchange rose from the 4.32 of July to 4.52 at the end of August, and the depression of the first half year yielded place to confidence and even to optimism when some economists announced the signs of an approaching trade boom.

During the rest of the year the omens remained favorable. Exchange continued to rise, chiefly because of cheap money in the United States and heavy investments of dollars abroad. In September there was much faint-heartedness about the ability to place so much of the German loan as had been allotted-but the £12.000,000 was subscribed 13 times over in a few hours. This phenomenon was followed in November by the most striking one in recent British foreign loans, when the £7,500,000 Greek 7 per cent loan, at 88, drew public applications amounting to £170,000,000. In October the general election result was interpreted as a strong bull factor. Stock exchange prices remained firm instead of taking their usual seasonal slump. In November, indeed, a strong upward advance began, after the American election seemed to have placed the stamp of approval on the British trend.

The appointment of Mr. Churchill as Chancellor of the Exchequer was highly approved and Mr. Baldwin's new policies seemed to have & quality of permanence. Industrial profits and dividends were distinctly encouraging. Two refunding operations during the year made a reduction in the interest charges on the national debt. Interallied debt negotiations began, affording some hope (in optimistic minds) that a reduction in the standard rate of income tax might be made next April. Bank advances showed a very fair increase over the preceding year and heavy raw material imports indicated that orders for finished goods would lead to better financial returns

in 1925.

Thus it is that a combination of circumstances changed the unenterprising, hand-to-mouth, and generally lacklustre first half of 1924 into a second half that took a far happier view. It even went so far as to impart a cheerful tone to British annual reviews, usually rather disconsolate. There is no big boom, no chance of inflationbut there is confidence in the general situation.

PUBLIC DISCUSSION OF FINANCIAL AFFAIRS

One of the most striking characteristics of British finance is the sharp contrast that exists between the privacy of financial practice as compared with the publicity that marks every development in the theory of finance. The enormous business of commercial and private banks, of bill brokers, discount houses, and exchange brokers, and the Government transactions in collecting receipts and making expenditures under the budget-all of which have for generations combined to make London the world's financial center-operate from day to day and from year to year with the smoothness and efficiency of a well-oiled machine. Indeed, financial houses seem to

shun publicity and to covet privacy and respect for traditions, as zealously as any "ancient and honorable" family might. Advertising and "ballyhoo" and other publicity services being strictly taboo, no effort is made to impress potential clients by imposing premises calling for lavish expenditures in onyx and mahogany or by heavy outlay in "service" features that are supposed to be essential in gaining and holding the clientele of American banks and brokerage The Bank of England, after carrying on for centuries at the old stand, has at last yielded to the necessity of providing more up-to-date facilities, but most of the private bankers and brokers are housed in quarters that, to say the least, defy the American convention. The office in which London's heaviest exchange dealings are transacted, running to millions of pounds, measures about 10 by 15 feet and contains a switchboard, six telephones, as many expert exchange clerks, and a manager. On the same basis, stock brokers are spared the heavy overhead involved in stock boards, tickers, and the elaborate staff to maintain them.

The British financial house thus subordinates outer appearances to inside efficiency. The condition is reflected in the small degree of publicity accompanying financial developments. The opening of a new branch bank calls for only a line or two in the press; joint-stock bank business over a half year is seldom revealed, while the annual balance sheets lump items together that leave many important features of the business to conjecture; stock-exchange sales are not reported, except such "bargains" as a broker desires to record. These facts are nearly all available but they are reserved for those who have a most particular and professional interest in them.

In sharp contrast is the voluminous discussion that accompanies every change in broad financial policy. Delegations are invited to present their views to the authorities that frame the budget, the last quarter of the financial year calling for constant discussion of the various schedules. Committees are appointed to hold hearings, often in public, as to the burden of the debt and the incidence of taxation. Financial and general periodicals open their columns freely to "Veritas" and "Pro Bono Publico" to present their views on every phase of financial policy.

As a consequence there are nearly always two sharply contrasting schools of thought on every financial matter of public interest, "big enders" and "little enders," deflationists and inflationists, debt funders and debt cancelers, advocates of a free gold market and its opponents. These controversies may take expression, as above mentioned, in letters to financial journals or in the protest of a minority at annual company meetings or in parliamentary debate; or, finally, they may break into the news columns, as when the Federation of British Industries publicly appealed to the directors of the Bank of England not to raise the bank rate, or when Mr. Keynes or some other pronounced progressive advocates a managed currency or, perhaps, adherence to the Balfour note in interallied debt prodedure.

LEADING FINANCIAL TOPICS OF DISCUSSION IN 1924

The past year was comparatively rich in financial controversy, the topic constantly shifting as the year wore on. Divided according to scope, these discussions centered partly on international finance,

when the reparations problem, the German loan, interallied debts, and the approach of the pound sterling to par held the stage. InterEmpire consideratons called for some arguments respecting Australian and South African exchange adjustment. Domestic financial factors came to the fore. The fiscal policy of labor in framing its first budget was of vital interest. And later on, the ineffectiveness of the bank rate threatened a sudden change in money market conditions. As the various topics presented themselves in succession over the entire year, it seems better to take them chronologically. At the beginning of 1924 the Labor Party had been in office a very short time, but still long enough to have given assurance that the capital levy would not be a part of the fiscal program. Although certain amount of discussion of the principle had continued since the closing of the election campaign, interest was waning and security prices moved upward in response to the sense of security. There still remained much anxiety as to other financial nostrums and palliatives that the future might hold in store.

The main interest in the rest of the final quarter of the fiscal year until March 31 naturally centered around the budget and the chance of tax reduction. The chancellor cleverly removed himself from the center of interest through the appointment of a commttee, under Lord Colwyn, to study the incidence of taxation and the burden of the debt. Mr. Snowden's budget was presented, in fact it has practically run its course, and Mr. Snowden has completed his term of office while the committee is still hearing the opinions of individuals as to the debt burden.

The budget was put in force without having to bear the full responsibility of indorsement or repudiation of views expressed by individuals and delegations. To be sure, there was much discussion as to the wisdom of the reduction of indirect rather than of direct taxation, but on the whole the public was inclined to be thankful for small favors, so that budget controversy was hardly a major theme in 1924. Immediately after the budget was passed the reports of the two expert committees in Paris on the reparations problem became the chief center of financial interest. The verdict, rather guarded at first, became increasingly favorable. It was so manifestly a topic for expert analysis that the average man did not venture to take a stand in opposition. As a matter of international politics, furthermore, it does not occupy a real place in the present study of purely British financial problems.

The second half of the calendar year was far more provocative of discussion than the first. A positive storm accompanied a suggestion that the bank rate should be raised. This bore directly on business and profits, so that the 1923 controversy on deflation versus inflation was waged anew. The subject was covered in Trade Information Bulletin No. 206, British Financial Conditions, in 1923. In that review the basic policy known as the Cunliffe report is quoted, as well as the novel proposal for a managed currency instead of one based on the free movement of gold. It is only necessary to state here that an increase in the bank rate was not necessary, as cooperation among different banking interests soon brought about credit control in such a way as to make the 4 per cent rate effective, without at the same time introducing too stern a deflationary process. The pound

sterling rose continuously throughout the remainder of the year but it was not accompanied by any great degree of credit stringency.

The London conference on the Dawes report, ending in the London pact in August again brought international and political considerations to the fore, topics that have been too abundantly discussed to call for any restatement here. Domestic British finance was, of course, vitally involved in the settlement in many ways, but one of the most pertinent considerations in public opinion was the chance of flotation of the German loan. When the American example was followed by very heavy oversubscription in London, a tremendous boost to confidence resulted, with effects that continued over the remainder of the year.

During the autumn two main financial matters were the center of interest. In the domestic field the difference of opinion as to the desirability of a loan to Soviet Russia soon merged with other domestic questions when an election campaign, for the third successive year, called for the expression of every variety of opinion. The stock market was optimistic throughout and the spirit of confidence engendered earlier in the year was in no way shaken. When the result of the election was known confidence became firmer than ever, because the size of the majority encouraged the expectation of a tenure of office for several years, as a welcome relief to the annual changes that were felt to be so harmful to business.

International financial consideration again came to the fore in the concluding months of the year when the prospect of funding the foreign debt of France was discussed. The British position was thoroughly discussed, Mr. Keynes striking a keynote in his proposal to substitute, in place of the Balfour note, to which Mr. Churchill has referred as "a dominating guide of principle," a revision along his own lines. But this is again a topic outside the scope of the present report.

At the very end of 1924 the continued rise of the pound sterling toward parity with the dollar and the visit of directors of the Bank of England to America reopened the old discussion as to the desirability of a free gold market and of the measures to be taken to maintain the free market once it was established.

BACK TO THE GOLD STANDARD

The year 1924 almost saw the completion of the long and laborious march of the pound sterling from its point of low depression back to parity with the dollar. The greater part of this progress was effected through rigid economy, deflation, price adjustments, and restricted issue of paper money. For a long time it was apparent that much of the upward swing could be brought about by internal readjustments of the above sorts. In the course of time, however, it was felt, mainly by a group of bankers and certain influential industrialists, that there must be a point in the upward climb which would represent the maximum which could be accomplished by internal readjustments, and that this theoretical point was indeed the limit, "the sticking point," beyond which deflation could not go without serious consequences to enterprise. This attitude was contrary to the recommendations of the Cunliffe Committee which contemplated a heroic onward march which should not stop short of actual parity, at $4.86. Against this

limit figure the opposition seemed to feel that $4.70 was the maximum possible and that, perhaps, $4.50 represented a more rational level, not too far above Continental currencies to allow depreciated exchanges to kill British competition in third markets, nor too far below the dollar to enable continued purchases of raw cotton and periodic payments on the funded debt.

The arguments between the inflationists and deflationists went on throughout 1923 and early 1924 (as reported in the Financial Review for 1923) until a fairly representative consensus of opinion was reached that parity would finally be reached by a double processfirst, by rigid internal readjustment which would take the pound, say, to $4.65 or $4.70, after which certain inflationary tendencies in the United States would depress the dollar, so that parity would be reached by reason of trends in opposite directions in the two countries.

This prediction was verified in the latter half of 1924. One last successful stand against a rise in the bank rate was made in July and from that date the pound made a continuous rise (or the dollar declined) until par was in clear sight at the end of December. How much the process was aided by banking arrangements with respect to sterling and dollar bills of exchange has been a subject of some speculation. This was subordinated, at the end of the year, to other specu lations as to the wisest procedure to be followed once parity had been achieved. The effect of a removal of the restriction upon the free movement of gold was not clear. Some financial interests foresaw a continued rise, beyond par, and tried to determine the net effect upon trade. There was much confusion of opinion as to the effect upon the British gold reserve. The purchasing power parity theory and the balance of trade theory of exchange movements were once more analyzed and debated. The discussion need not be summarized at this place as it was after all largely theoretical and academic. It should be sufficient to quote extracts from the annual reviews by the chairmen of leading banks. In these addresses the chairmen laid particular emphasis upon the advantages of the gold standard, to counteract the rather broad inclination to believe that it represented restriction, artificiality, and a continuation of national self-sacrifice in place of the more elastic and more comfortable credit conditions existing under a "managed currency." Of great interest and importance is the comment of Reginald McKenna, chairman of the Midland Bank (Ltd.), inasmuch as Mr. McKenna was at one time popularly regarded as somewhat unorthodox in his attitude toward the gold standard.

At the ordinary general meeting of the Midland Bank, on January 27, 1925, Mr. McKenna said:

During the 10 years that the currency note has been in existence our currency has varied widely in value in relation to its nominal gold equivalent, or, in other words, in relation to the dollar. The sterling exchange has ranged from 3.19 to a point within 2 per cent of parity. In February, 1923, it reached 4.72 and in January, 1924, it fell again to 4.21. The pound sterling is now finding its way back to parity and will probably soon stand at its full gold value, not because it will have climbed uphill to meet the dollar, but because the dollar, under the pressure of the surplus supply of gold, will have come down to the level of the pound. In forecasting the immediate future relation of the two currencies many factors have to be taken into account, but ultimately the dominant consideration is the relative movement of prices in the two countries. The index figure of wholesale prices marks changes in the purchasing power of a currency, and the fluctuations of the index figure measure the degree of a currency's sta