GREAT BRITAIN: Run

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Think of Britain, whose people have long been the world's bankers, as a bank in itself. What happened last week, what has been happening since June, was a run on that bank, which could not be stopped. Britain the Bank, with great resources in goodwill and foreign investments,* did not have the gold to meet the cash demands of her international depositors. While there still was enough gold in the vaults to assure the Government's foreign obligations, the directors, otherwise the National Cabinet of Ramsay MacDonald, refused to pay out gold to private individuals who demanded it. Britain came off the gold standard.

Steps In The Run. Britain's immediate money troubles go back to 1925, when to uphold British prestige Winston Spencer Churchill, moon-faced Conservative Chancellor of the Exchequer, put the pound back on a gold basis. It had fallen as low as $3.15 in December 1921. If Britain's international banking was to resume shop, the pound had to be restored to its old value ($4.8665) to protect British foreign investments. So the pound was forced to par. Interest rates at London were fixed high to attract foreign deposits. A $200,000,000 credit was obtained in New York. It was never used. Britain's sheer determination to restore sterling's prestige was a chief factor in doing so. Par was reached when the Treasury contracted to sell gold to all comers. To prevent hoarding of gold sovereigns, pound notes were not redeemable at their face value in gold, but if a Briton could collect about $8,000 worth of paper money he could get a 400-oz. gold bar. Economists now agree that this move was made before the nation as a whole was ready for it. It was a move to benefit British banking and prestige. But it harmed British industry.

British industry was being heavily taxed to pay interest on the nation's War debt. But the War had cost British industry its primary markets in the Dominions and South America, where the U. S. entered, and India, which Japan began to penetrate. That made the harder taxes harder to pay. The rise in sterling was a handicap to industry in its foreign trade. Little capital was available, little desire evident to rationalize industry. And industry needed rationalizing. No sooner had sterling been restored than troubles began:

Coal. Coal strikes and government subsidies to coal operators during 1925 caused governmental budget deficits in 1926-27.

Dole. The Unemployment Insurance Act, or Dole, was passed in 1920 and later liberalized. By 1928 unemployment had increased so rapidly that the Dole alone was costing the country $100,000,000 a year. The cost last year was nearly five times that much.

Deposits & Loans. To help industry, the Bank of England began fostering low interest rates. This drove money out of England. Foreign deposits began to be reduced. Domestic capital went out in loans to Germany, to South America, to the Dominions. Some $600,000,000 was loaned to Germany. In June, when Germany could not pay, Britain was forced to dig deep into her reserves.