BANKS AND CREDIT
The dislocation of the financial mechanism by the War—Its consequence in the activities of 'currency cranks'—Necessity of tackling the financial problem—The power of the banks and the City to embarrass a Labour Government—The present banking system considered—The Bank of England as the chief controller of the volume of credit—The joint-stock banks as the chief controllers of its direction—The competing demands for credit—Position and functions of the Bank of England—And of the joint-stock banks—The question whether bankers 'create credit' further considered—How the Bank of England controls the volume of credit— Bank Rate and open market transactions—The rate of interest and the demand for money—Bankers moved less by the profit motive than by their ideas of 'sound finance'—The insistence on the 'liquidity' of banking resources—How the banks restrict credit—The problem of 'frozen credits'—Does banking policy favour speculation at the expense of industrial needs?—The reluctance to grant long-term credits—The London financial houses and their work—Do bank credits involve inflation?—The quantity theory of money—The relation between credit and currency— The expansion of credit and the price level—The gold standard and its effects—Can credits be issued more freely?—Yes, if production can be increased—The State must socialise the Bank of England—And place it under an expert commission—It must also socialise the joint-stock banks —But not the financial houses at present—The economics of States banking considered—Financial policy an essential element in the revival of industry—But finance cannot create—It is a vital, but subsidiary, instrument of economic reorganisation.
No question of Labour policy has been discussed at such length of late years as the attitude of a Labour Government towards the banking system. This is natural; for the dislocation of the world system of finance by the war, and the almost universal plunge into some form of monetary inflation, led inevitably to the placing of an exaggerated emphasis on the economic influence of financial machinery. It was seen that financial dislocation could make trading relations very difficult, play Old Harry with the relationship of debtor and creditor, cause wild fluctuations in the