«La mobilisation financière en France et à l étranger pendant la Grande guerre : le front financier, un troisième front?» - PDF

1 British War Savings draft for circulation and comment. «La mobilisation financière en France et à l étranger pendant la Grande guerre : le front financier, un troisième front?» Bercy, 25 et 26 septembre

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1 British War Savings draft for circulation and comment. «La mobilisation financière en France et à l étranger pendant la Grande guerre : le front financier, un troisième front?» Bercy, 25 et 26 septembre 2014 The War savings campaign in Great Britain : the birth of a modern saving policy. Michael Moss 1 When war was declared in August 1914 the United Kingdom had not been engaged in a major European conflict for a century with the possible exception of the Crimean war (1853-6). The Treasury, led by the youthful John Bradbury, was confident that the United Kingdom had sufficient resources to prosecute a short campaign which could be financed largely through the sale of bonds to financial institutions, but by the spring of 1915 officials were concerned about the macro-economic effect of what seemed destined to be a longer conflict. At the heart of the Treasury s anxiety was the increase in the money supply caused by the massive injection of cash into the economy to pay for war materiels, which in turn translated into a big rise in domestic incomes as more and more of the population was sucked into the workforce. Inflationary pressure was exacerbated by a reduction of the quantity of goods on the market, low interest rates and the volume of short term borrowing by the government from the Bank of England in effect quantitative easing at a time when peacetime logic would have called for a tightening of monetary policy. The Treasury was uncertain about how best to address the situation, but believed there was little option but to let inflation rip and stifle demand: It means the well-to-do must reconcile themselves to lead the simple life and the workman to going short of food and clothing, this probably means that the dependants of those who are fighting for their country must undergo a certain amount of privation. But if it were properly explained to the working man I am not sure that he would not understand and submit to the necessary sacrifices provided that the propertied classes are tackled at the same time. 2 The only drawback was that the government lacked experience of mass promotion and had no effective propaganda organisation with the exception of the cross party Parliamentary Recruiting Committee (PRC), which had been set up in response to the call to arms by the newly appointed War Secretary Lord Kitchener. 3 The PRC was led by the three party leaders, the Prime Minister, Herbert Asquith, the former Conservative Prime Minister, Arthur Bonar Law and the Labour Member of Parliament Arthur Henderson. It rapidly put in place a regional and local committee structure by drawing on local party organisation. Bradbury considered there were two options higher direct taxation that ran the risk of making the war unpopular or selling long dated bonds to the population at large and institutional investors, which would reduce purchasing power in the short term, but like any saving represented deferred expenditure for the future. Reflecting after the war he thought that income tax should have been broadened and raised much more steeply immediately to choke off 1 Michael Moss is professor of archival science at Northumbria University, holds an honorary chair at the University of Glasgow and is a member of the historical committee of the European Savings Bank Group. He would like to thank of Hannah Riley of the Bodleian Library, Oxford, who has supervised the repair of the collection described in footnote 12, the staff of the Bank of England Archives and the British Postal Museum and Archive, Anthony Brown for drawing his attention to Lord Rhondda's association with the temperance movement, Professor Derek Oddy, and Professor Sir Hew Strachan. His address is 2 The National Archives (TNA) T208/12B, 'The War and Finance', 17 March 1915, JB, p. 3 3 M. l. Sanders and Philip M Taylor, British Propaganda During The First World War, , Macmillan, London, 1982, pp 2 British War Savings draft for circulation and comment. inflation, despite the political risk. 4 At the outbreak of war only 1.13 million people paid income tax of 6 per cent. Another possibility was to follow Germany s example and introduce rationing of essential supplies the so called bread tickets. Whatever policies were adopted the Treasury believed inflation was inevitable, but was determined to use income tax to protect the most vulnerable. Although far from the front the sensitive handling of fiscal policy was essential in sustaining morale at home particularly as the casualty lists lengthened. 5 By June Harley Withers, who had just joined the Treasury as Director of Financial Enquiries from the newspaper The Morning Post, was alarmed by the rapid growth of quantitative easing The note circulation had increased by 4 million and the Bank had created over 38 million in emergency credits. Inflationary pressure had been eased by the Bank of England borrowing huge sums that 'it did not want', but this was likely to cease shortly. Of equal concern was a sharp fall in deposits with the savings banks. Withers thought that high wages combined with inflation to encourage spending rather than saving, which could only be reversed by increased taxation, or by an authoritative pronouncement made in such a way that will reach it [the public] and be understood 6. The year before he had published a pamphlet Poverty and Waste in which he advocated the need for saving in peacetime both to reduce inflationary pressure on 'articles of necessity' to the least well off and to release capital for productive investment. 7 This was a new argument in the rhetoric of thrift which usually concentrated on the need to save for the personal vicissitudes of life, rather than any macroeconomic objective. 8 At the same time Bradbury had concluded that it was no longer safe to finance public expenditure out of short-dated bills and it was imperative to issue a new loan, which on Keynes's advice should be 'tax free to everyone. 9 Dudley Ward, Withers assistant who had joined the Treasury from Cambridge, suggested borrowing a leaf from the temperance campaign's book and inviting the public to sign a pledge to devote a percentage of their income each week, an idea that was to be revived later by the food economy campaign. 10 The government responded immediately to the Treasury's concerns. The Parliament War Savings Committee (PWSC) was hurriedly formed by simply replicating the PRC with the same committee structure. As in the PRC, Asquith, Bonar Law and Henderson served as Presidents, but with John Gulland, MP, and Lord Edmund Taylor, MP, as joint chairmen. One of the first actions of the committee was the publication of a booklet Why We Must Save and How 11. It echoed much of Withers' argument of the previous year, but replaced productive investment with investment in the war effort: Saving is a national duty now, because if we spend our money we cannot lend it to the Government which wants it for the costliest war that ever was waged; and because if we 4 TNA NSC 7/2, Finance of the War - Pessimism misplaced, p. 7. Historians have tended to agree with this analysis, Capie, F. and Wood, G. (1994), Money in the Economy, in Floud, R. and McCloskey, D. (eds.),the Economic History of Britain since 1700, volume 3: , Cambridge: Cambridge University Press, pp TNA T208/12B, The War and Finance, 17 March 1915, JB 6 Op cit., The Financial Position in May, 8 June Hartley Withers, Poverty and Waste, Smith Elder & Co., London, 1914, pp. 8, Keynes is often credited with developing the concept of deferred expenditure to counter inflation in the 'Financial Prospects of this Financial Year' 9 September 1915 (TNA Cab 37/34/12), but the idea predates this memorandum. 9 BEA AC30/345 War Loan, JB 7June 1915, T170/71 memo 2a, p TNA T170/71 memorandum May War Savings Committee, London, 1915. 3 British War Savings draft for circulation and comment. spend our money we make people work for us, and if they work for us they cannot work for the war, and for making goods to send to and sell in foreign countries. The role of women as 'chief of the domestic spending department' was emphasised, along with a.call for economy in drinking tea, exhortation against eating between meals and unnecessary travel, and a call to collect wild fruits. Food security and saving was to play as an important role as buying war bonds in the unfolding war savings campaign. Nothing like this had ever been tried before. The Trustee Savings Banks (TSBs), with origins in the early nineteenth century, were fragmented fiercely independent paternalistic organisations and in any event did not provide nationwide coverage. 12 The Post Office Savings Bank (POSB), which had been set up by Gladstone when he was Chancellor of the Exchequer in 1861, provided a mechanism for the secure collection of savings throughout the United Kingdom, but had never campaigned aggressively to promote savings. Both the TSBs and the POSB had the attraction for PWSC in that the majority of deposits were already invested in the national debt. The only commercial undertaking with nationwide coverage, which collected savings from small investors, was the Prudential Assurance Company that provided life cover. 13 Although private individuals did hold investments in the funds (consuls), these were mostly high net worth investors. Government stock had never been sold in small denominations, let alone mass marketed. The war savings campaign was to transform the concept of thrift from a personal virtue into a national duty, supported for the first time by modern mass marketing and advertising. In effect the saving and thrift movements were to be nationalised. A meeting between employers and labour organisations to promote war savings was convened on 25 June1915 by Reginald McKenna, who had succeeded Lloyd George as Chancellor of the Exchequer. 14 McKennna hired Sir Hedley Le Bas of the Caxton Advertising Agency, who had worked for the PRC. He advised: 'We must give the investor something for nothing to make him hand his money to the country. In other words why not make patriotism profitable?' 15 At the outbreak of war there was very little propaganda capacity across government with the exception of the Foreign Office. 16 Plain simple publicity leaflets were rushed out advertising a new war loan in 1 denominations yielding 4½ per cent and free of income tax, which was one per cent higher than the first war loan issued a year earlier. Given the very few people who paid income tax the tax free element would only appeal to richer investors. War savings deposits, as they were called, could be purchased through the POSBs and other outlets for as little as 15 shillings and nine pence and were redeemable at par in five years if held to maturity. 17 No restriction was placed on the income of those wishing to buy certificates, but no one was allowed to buy more than 500 worth. 18 Holders of earlier war loan yielding 2/12 and 31/2 percent could convert them into the new stock. 19 Promotional literature was to be distributed through employers organisations, trade unions and the PRC's regional and local committees. From the outset the emphasis of the campaign looked back to the old twin virtues of thrifty living and saving, not now for a rainy day but to support the war effort. There were 12 Moss, M., and Russell,I., TSB An Invaluable Treasure, Weidenfeld and Nicolson, Dennett, L, A Sense of Security: 150 Years of Prudential, Granta Editions. Cambridge, Bodleian Library, Oxford, Papers and posters relating to war saving, , shelf mark ,War Saving letter circular letter from Asquith, Bonar Law and Henderson, 6 July This contains the most definitive, but by no means complete, collection of war savings literature. In October 1917 Dr W P Ellis approached the Oxford War Savings Committee for copies of all promotional literature. The request was passed to the Controller, (Sir) Theodore Chambers, who immediately sent 'specimen copies of all our war savings propaganda' and pledged to send any future publications, Controller to Ellis, 18 October One of the reasons behind this exchange was the use of libraries from the outset to promote the campaign, W PA Derrick to Libraries, 15 July Cited in Strachan, H (2007), Financing the First World War, Oxford. P Sanders and Taylor (1982) 17 Op cit., leaflet no BPMA POST 75/103 War Savings Certificates, summary of instructions. 19 BEA AC30/345, from of request for conversion, 1915. 4 British War Savings draft for circulation and comment. new ideas of deferred spending, reflecting the government's commitment to introduce social welfare provision in the 1911 budget that reduced the imperative to save:... we could do with some more furniture but surely it is not right to spend the money now. We shall have all that when the War is over, I hope, and shall enjoy it the more for feeling we have done our bit. 20 The campaign was careful to emphasise equity, everyone according to their means was to contribute: The rich man must give up his motor-car and his cigars; but the poor man, too, must be sparing in his tea, coffee, sugar and tobacco. Of late years luxury and self-indulgence have permeated every class of the nation. 21 Asquith, Bonar Law and Henderson clearly spelled out the policy in an open letter to employers to promote the scheme:... It is equally important that there should be no feeling that pressure of any sort was being used to make the working classes contribute to the Loan, or to contribute through any particular agency. 22 This statement echoed long standing concerns about the lack of marginal income to save amongst the less well off and left wing concerns about 'enforced saving', both of which were constantly referred to throughout the conflict. The Leicester stockbroker (Sir) Arthur Wheeler, who became the doyen of the market for war bonds, penned an open letter encouraging 'every loyal British subject... [to] invest to his utmost in this most attractive loan' 23. Despite this patriotic rhetoric and the attractive return, the campaign was not a success. When bonds began to trade at a discount to the offer price, the POSB withdrew them. It was launched at the wrong time of year, as the Liberal G. Wallace Carter explained in a detailed and critical memorandum to McKenna. 24 With experience of managing pre-war Liberal campaigns in the 1906 General election and to sell the Liberal government s policies of national insurance, free trade and land reform, Carter was critical of the lack of preparation of those sent out to speak and their often complete want of understanding of basic economics. Many MPs failed to grasp the essential message that everyone needed to make sacrifices to sustain the war effort - a 'Parliamentary representative tried to argue that in buying petrol, wines, spirits, and cigars, he was doing more good to the country by paying duty on these things than he would by going without'. Carter, like Withers, was adamant that everyone had to cut spending to the 'lowest possible point, and that this drab kind of heroism is now the only kind of heroism which the country lacks'. 25 This was the message that he was convinced must be at the heart of any future campaign. He also recommended that the campaign had to be much better organised,with local committees staffed by those with some knowledge of economics and effective publicity and promotional literature. 20 Bodleian Library, War Saving, 1 for 15/6 How We use Our Savings, by a Working Man s Wife. 21 War and National Finance p Bodleian Library, War Saving, 5 July Bodleian Library, War Saving, letter from Arthur Wheeler July TNA NSC7/1,Memorandum regarding War Savings from G Wallace Carter. 25 Ibid, p. 3. 5 British War Savings draft for circulation and comment. By October 1915 the Treasury was alarmed by financial situation. The estimated deficit for the current financial year was 600 million and there was a looming balance of payments crisis as exports slumped. For consumers the greatest concern was inflation, which was running at a frightening 2 per cent a month, with a 35 per cent rise in food prices since the outbreak of war. Some comfort could be taken from the fact that inflation was much worse in Austria and Germany, but there was an urgent need for action to reduce consumption and the money supply through increased taxation and saving. 26 Rather than launch into another campaign, McKenna appointed a committee on 'war loans for the small investor', chaired by the Liberal MP Edwin S Montagu, the financial secretary of the Treasury, and including the Governor of the Bank of England and John Bradbury. 27 The committee's remit began with -' a) The reduction in consumption which would tend to check the rise in prices' and b) 'The raising of a certain amount of money for the prosecution of the war'. The needs of the small investor were described as: a) A simple method of investing savings, b) A guarantee that the capital value of the investment will not depreciate, c) The ability to withdraw savings at short notice, d) The knowledge that a high rate of interest is paid on the money of the small investor as on that of the large. 28 Dr Marion Phillips, the sister of four prominent businessmen who gave evidence, considered that 'the amount of money which could be saved by the working classes was very inconsiderable from the national point of view, but very desirable in the interests of individual savers. The savings would be inconsiderable, not only regarded as a means of prosecuting the war, but also regarded as a method of checking consumption'. 29 She added that many families were using their increased disposable income to reduce debt, rather then for consumption. More encouraging was the evidence from Sir Thomas Jaffrey, the actuary of the Aberdeen Savings Bank, who was delighted to announce that during the year the bank had taken the largest volume of deposits in its hundred year history. 30 The report went over much of the same ground as before and was careful to address the question, which had haunted the savings movement in the nineteenth century, of whether, even in a period of full employment, the poorest families had sufficient marginal income to save. A key recommendation was the replacement of the PWSC by national committees for England and Wales, Scotland and Ireland to co-ordinate local voluntary county organisations, handle propaganda and design suitable products for the small investor. A key recommendation was the formation of voluntary savings associations in as many places as possible and in every part of the country. 31 Even before the Montagu committee finally reported as a result of interim recommendations the limit on the amount that could be invested in savings banks had been removed. As well as selling bonds in small denominations, POSBs were to be used as vehicles for small investors to accumulate regular savings to buy either 1 war savings bonds, rebranded as certificates, or Post Office Exchequer Bonds in multiples of 5 up to 26 TNA NSC7/1, National Finance, October TNA NSC 7/1, Report of the Committee on War Loans for the Small Investor', cmd. 8179, Ibid. 29 TNA T 170/97 minute of 4 January Ibid., brief of Sir Thomas Jaffrey, 10 January A copy of the report can be found in TNA NSC 7/1, cmd. 8179, 1916. 6 British War Savings draft for circulation and comment. 100, yielding 5 an 6 per cent respectively. 32 Rather than using deposit accounts savings could be accumulated by buying what were called war savings coupons or stamps, in denominations of two shillings and sixpence and five shillings. 33 No less than 15 million coupons were printed in December This had the added advantage for the state of a relatively low rate of interest 2½per cent as opposed to 4½per cent payable on certificates. 34 The TSBs, particularly those in Scotland where the movement was strong, were infuriated that they had been overlooked in these arrangements. 35 Following these recommendations the National Or
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