17 November 1914 – War Credits

Above: a Canadian Victory Bonds poster from 1917.

The outbreak of the Great War has brought a sudden end to an era characterized by free trade and capital projects financed by banks operating in London. With declarations of war, the European banking houses have stopped issuing the sterling notes that supported Western capitalism, hoarding gold instead and precipitating a global credit freeze. Bank customers lined up to turn their deposits into gold, and within the week every part of the economy was in turmoil. As remembered by Margot Asquith in her autobiography, her husband — Prime Minister Herbert Henry Asquith — had to tamp down fears of civil disorder.

“He had been consulting the Governor and Deputy Governor of the Bank of England, other men of light and leading in the city, also cotton men, and steel and coal men in the north of England, in Glasgow, etc, and they were all aghast at the bare idea of our plunging into a European conflict; how it would break down the whole system of credit with London as its centre, how it would cut up commerce and manufacture — they told him how it would hit labour and wages and prices, and when winter came, would inevitably produce violence and tumult.”

Asquith’s comment on this “remarkable piece of intelligence” was somewhat less respectful. He too had had his interviews with business men from the city, and ” they are,” he said, “the greatest ninnies I ever had to tackle. I found them all in a state of funk like old women chattering over tea-cups in a cathedral town.” He never underrated the effects which a great and prolonged war would have ultimately upon finance and industry, but he had carefully thought out the measures which would need to be taken to avoid chaos and confusion during the period of war, and predicted with confidence that they would prove to be comparatively simple. That there would be violence and tumult he never believed, provided always that the country was convinced of the righteousness and necessity of the war. First and foremost in his mind during these days was the urgent need, if war had to be, of establishing this conviction in the public mind.

Indeed, the Asquith government soon embarked on a series of speeches meant to restore confidence in Britain’s position as the financial capital of the world — and to shore up public support for the most expensive war the United Kingdom has ever fought. Britain overcame Napoleon a century ago through her commercial empire; she can defeat ‘the Hun’ the same way.

A cartoon published in yesterday's edition of the Western Mail shows Lloyd George delivering wartime financing to the front

A cartoon published in yesterday’s edition of the Western Mail shows Lloyd George delivering wartime financing to the front

As Chancellor of the Exchequer, Lloyd George is the point man for this effort, and his speeches have referred to Britain’s global financial supremacy as “silver bullets” that will bring “victory to the Long Purse.” Ironically, the public purse has also been bailing out the banks to the tune of forty percent of total public expenditures, an unprecedented pledge of direct financial assistance.

London’s American cousins are taking their own measures to shore up public confidence, and wartime shipping insurance rates have plummeted in the week since the British Navy finally declared the Indian Ocean free of German cruisers. Protectionist tariffs on goods such as sugar and coffee are supposed to keep the domestic markets liquid and prevent cash from flowing overseas, and the government has abandoned the gold standard. Yesterday, parliament passed its first authorization for a war credit; today banks all over London are putting the new bond issue into effect. These measures restore enough public confidence in the long-term solvency of the United Kingdom by the end of the year that the London stock exchange is reopened for business in January.

The note

An actual banker’s memorandum implementing the war credit passed yesterday

Wartime credit instruments are a universal phenomenon this month as it becomes clear that the war will not be short after all. Austria-Hungary also issues its first war bonds by the end of November, followed closely by Germany, which has tried and failed to obtain foreign financing in New York. Before the end of 1914, and throughout the war, Russia, Canada, and France will all borrow heavily from their societies to support the massive expenditures on arms, ammunition, equipment, and troops that are necessary to fight the biggest, most expensive conflict in history. The debts incurred by the Great War are still being paid off a century later.

German children promoting war bonds in 1917

German children promoting war bonds during a 1917 Kriegsanleihe drive

This blog has chronicled the daily events of the Great War for almost four months in an effort to expose the origins of the modern world in the blood and fire of the 20th Century’s first global conflagration. To that end, I have preferred no theater of war over any other, nor tried to write a combat diary that ignores the sweeping events of state which drove operational decision-making. Taken day by day, World War I is much more than a bloody stalemate created by hidebound general staffs; it is a story of constant innovation, rapid technological and social development, and the origins of the world as we know it.

The Great War Blog has been the most exciting and fulfilling online project I have ever undertaken, but the new year will demand greater exposure and expenditure, for 1915 was the year that your modern world emerged. The war in the Asian-Pacific theater has ended, but the war for Africa is not done, and the flames of conflict are still spreading across the Middle East. The old colonial system of the 19th Century is breaking down, and today’s map of independent nations is being drawn.





To tell this story right — and more importantly, to get this story out — will require some capital expenditures. My library will have to grow, I will need to buy research subscriptions, and I will have to buy social media promotion so that I can concentrate on writing this blog instead of tweeting and sharing it on Facebook. Rest assured that every dollar donated to this effort shall be well-spent on making this blog even better than before.