to be done with it. Probably it was intended by those who favoured the idea that the credit should be manufactured for the Government by the banks, on the security of Treasury bills or some other form of Government debt, and that it should be used by the Government for public relief works on a grandiose scale.

It is not pertinent to the present purpose to repeat the arguments for and against inflation as a remedy for unemployment. It is enough to say that the writer was unable to persuade himself that anything but harm could come of such a measure. It seemed to him that it must raise prices and depress the standard of living. It must cause industrial troubles, resulting from the struggle of the wage-earners to pass on the burden of rising prices to the fixed incomes and the owners of capital. It must impede industry through an unstable exchange, and make a big present to speculators in exchange. By supporting the wage - earners out of indirect taxation it must teach them to believe that the country can consume more than it produces, a mischievous lesson. Worst of all, it must put a heavy burden on the classes with fixed incomes, and in the long run it must sap confidence in the currency as a measure and as a repository of values. For such reasons as these, which have prevailed with the bulk of opinion on the subject, it was concluded that there was no help in deliberate inflation, a conclusion which subsequent experience of inflation in action in other countries has strongly confirmed.

The export credit scheme had been introduced in 1920 by an' Overseas Trade (Credit and Insurance) Act.' The scheme was intended to remedy the difficulty which foreign customers had in buying from us, owing to doubts about their financial stability. Stripped of technicalities, the scheme was that the Government should facilitate the sale of our exports, in approved cases, by putting its credit behind the sale, and so oiling the financial wheels of the transaction. The scheme, modified from time to time in the light of experience, is still in force. Up to the present time the Government has guaranteed under it bills of exchange for between 6 and 6 millions.

That the scheme has been of some utility need not be questioned, but the writer was not in 1921, and is not to this day, able to feel much enthusiasm for it as a measure for the stimulation of trade. The following notes on the subject, which he made in the course of his inquiries in September, 1921, give the reasons for his lack of enthusiasm:

The advantage of schemes for facilitating exports, particularly of manufactured goods, to derelict and unstable countries, is very questionable.

Under an export credit scheme the banks will get the good business and the Government the bad. We shall in effect be making presents of our goods to foreign buyers and paying the exporter with manufactured credit, which

will never be covered by goods imported, and will, therefore, tend to increase prices at home. What the derelict foreign markets need to restore them is cheap raw materials to put their workers into employment and to feed them. We can give them manufactured goods only. When the foreign buyers have consumed them, they will be in no better position to pay us than they were before. It is credit in the United States for raw materials that they need.

Europe's power to produce was injured by the war. If we ignore that, and start in to try and promote directly the exchange of commodities, nothing will come of it, because Europe is not ready for it.

Some of the anticipations of evil here expressed have been falsified by the very cautious manner in which the scheme has been administered. But in truth very little has come of it. It has led a languishing life, and the reason for that is the reason given in the above notes. The scheme is misconceived. You must enable our foreign customers to earn money with which to buy from us before it is any good trying to promote sales to them.

Since export credits promised little good, and deliberate inflation promised much harm, it was necessary to look further for the needed measures. It was suggested by some that the State should put its credit directly at the disposal of manufacturers, to help them to carry their stocks. They were, it was said, congested with stocks that they could not sell. Were they to be released from a part of the capital charges on these, they would be in a position to start their mills again. As to this suggestion the writer made the following contemporary note :

Helping credits for the manufacture of goods for consumption, which is in effect subsidising production, amounts to this, that manufacturers are stimulated to manufacture whether they have buyers or not. It leads to manufacture for stock, which is ruinous policy. It must dislocate prices and postpone revival.

The proposal, indeed, seemed to have nothing to recommend it, except to the manufacturers.

What, then, was to be done? Consideration of undesirable or ineffective schemes served, at least, to define the situation, and to suggest a line of attack.

We were, it seemed, in the position of a great shop that had lost a number of its best customers. The shop was there; the customers were there; but the customers could not buy at the shop, and so the shopmen were idle. The reason why the customers could not buy was twofold: the goods were too dear, and in any case the customers had no money with which to buy them. If we were to get custom back, we must sell cheaper, and our customers must have more cash. To reduce the cost of production, and to restore purchasing power, those were the ends which the State should try to serve, if unemployment was to be relieved by stimulating trade.

The two objects, to reduce cost of production and to increase purchasing power, could be viewed as the two ends of one stick. There was one circumstance, a consequence of the war, that was largely responsible for both of them. It was the arrears, that had accumulated during the war, of capital expenditure on the means of production. For five years the wealth that should have been invested in productive enterprise had been fired off in shells, and eaten up in bread, by unproductive armies. New machinery of production had not been provided; the old, in wasted areas, had been destroyed, and elsewhere its maintenance had been neglected. There were five years' arrears of construction, repairs, and renewals to buildings, machinery, and means of transport to be made good; and in important productive areas of the civilised world, ravaged by war, all these things had to be reconstructed from the beginning. There was, no doubt, at the same time, an actual over-development of the means of production in some spheres. Steelwork, for instance, and shipyards, were overdeveloped; but it was a general truth that the world had fallen behindhand in its equipment of the means of production, and that was an important reason, perhaps the most important reason, why trade was bad. The deficiency in the means of production made it expensive to produce, and hindered consumers from earning money with which to buy.

If that were so, then it would be an effective remedy, perhaps the most effective remedy, for unemployment, to promote the restoration of the old machinery of production and the provision of new. That would increase production and reduce its cost. It would directly increase the demand for labour in and about the new capital works, and indirectly it would increase the general demand for goods and services, and so increase the demand for labour in trades not immediately affected.

But how could the State promote the improvement of the machinery of production? It could not undertake the work itself, except in the very limited area of national undertakings, such as the Post Office and the arsenals. Its efforts must therefore be directed towards stimulating others to undertake the work. Obviously it could not do so by means of subsidies. Subsidies meant more taxation, and the excessive burden of taxation to which the taxpayer was already subjected was admittedly one of the principal existing reasons for high cost of production, low purchasing power, and unemployment. Had the State, then, no means of helping others to undertake the work? Certainly it had. It had a great asset, invaluable for the purpose, of which no particular use was being made, and that was its credit. Its credit had cost arduous effort and much sacrifice to gain. We were fully entitled to reap some benefit from the effort and the sacrifice

by making a prudent and moderate exploitation of our credit for the benefit of the unemployed.

Capital was what was required by private enterprise for the improvement of the means of production; and capital was what the British Government could help it to obtain. Many who were willing and anxious to undertake fresh capital works were prevented from doing so by the high cost of loans. By the use of its credit the Government could reduce the cost of loans to them, and so help them over the obstacle which stood between them and the useful work which they wanted to put in hand. The mere fact that the State was willing to do so might be expected to have a beneficial effect. Lack of confidence was one of the greatest troubles of the time. It could not but serve to promote the restoration of confidence were the State to exhibit itself as prepared to make use of every means at its disposal, and especially of its priceless and treasured asset of credit, to help the work which would be of most benefit to trade and employment. In short, the end to be attained was clear, and the means to attain it were ready at hand.

These were the ideas that were later to be embodied in the 'Trade Facilities' Act. The following notes made by the writer during his inquiries in September 1921 may serve to show how they took shape at the time:

There is a direction in which it may be possible for the Government to stimulate production and employment safely and surely. It is the stimulation, by credit facilities, of fresh capital works of a productive nature to be undertaken by the Government itself or by other Governments, by public bodies or by private enterprise, and whether at home, in the Overseas Dominions, or in foreign countries. The superior advantages of this method leap to the eye. The works themselves, if they are at home, provide direct employment. Whether they are at home or abroad, their requirements bring orders to home industries, and orders from buyers who can pay. The Government has in the works themselves valuable security for the credit which it advances, not perhaps absolutely up to the economic standard of the market, but nevertheless substantial. The general industrial situation benefits by the improvement in transport, or whatever it may be, that is effected by the capital outlay. In this improvement there is a promise of decrcase in cost of production to set against any tendency towards immediate increase in prices that might result from an increase in the supply of credit. There are many schemes for capital works already cut and dried. A committee of business men to examine and pass them could clear the way for orders to be placed in a few weeks. The liability of the Government in this direction can be strictly limited.

All clear thought and all sound information that I get confirm the opinion that if we try to help trade and employment through credits for the manufacture or the marketing of goods for consumption we shall effect little or nothing, and whatever little we effect would do the greatest amount of harm for the least amount of good. On the other hand, if we apply stimulants through help for capital works at home and abroad, we can effect a

good deal, and with the least amount of harm attendant upon the good done. If we begin at the beginning and apply our efforts to repairing injured productive power (transport, power, and other capital reconstruction), we shall find that the thing goes, for that is what the world needs. The practical way to bring orders for our goods, and help for our unemployed, is to loosen the congestion of credit for sound schemes of construction and reconstruction at home, in the Dominions, and abroad.

These notes may still serve, perhaps, as an explanation of the central idea of the 'Trade Facilities' scheme. At the time at which he was making them the writer was having the benefit of conversations on the subject of the remedies for unemployment with many leaders in the industrial and financial worlds, who were good enough to put their knowledge and experience at his disposal in the matter. He remembers as of special interest in the history of the 'Trade Facilities 'idea a conversation with Mr. W. L. Hichens, of whose opinions he made the following note at the time:

The best purpose to which to direct Government help would be the financing of works of public utility, such as a super-power station. The best way to use Government credit would be to help to finance fresh productive enterprises, and particularly public or semi-public works of utility, in stable countries, colonial or foreign, which have a reasonable chance of repaying us. We might assist Colonial Governments that cannot at the moment get credit here with loans for purchases from our manufacturers. We might undertake to consider any proposition as to a borrower's capital requirements of this nature that is brought to us by a bank, with a view to sharing in the finance. Loans of this nature are typically for long terms, of which the banks have to fight shy in the present state of credit. Care would be necessary to prevent borrowers coming to the Government for help who are able to get credit without help; and help of this sort must be guarded against becoming a subsidy on prices.

Here were the practical aspects of the matter in a nutshell. With the encouragement of such experienced authority in the business world, it was possible to believe that the idea was not out of relation with the facts of business life, and that it could usefully be applied in practice.

The scheme was submitted to a number of authorities on the subject for consideration in broad outline, and, at the request of the Prime Minister, at the beginning of October some of these, namely, Sir James Hope Simpson, Sir Allan Smith, Messrs. W. L. Hichens, W. T. Layton, and Dudley Ward, accompanied the writer to discuss the matter with the Prime Minister at Gairloch. In long discussions with the Prime Minister at that charming but distant spot, the matter was threshed out, the grain of it separated from the chaff, and draft proposals were drawn up.

The Prime Minister put the whole weight of his authority behind the project. Shortly afterwards it was adopted by the Cabinet, and in the course of the autumn session it was passed into law.