REVIEWS LAUGHLIN'S CREDIT OF THE NATIONS: A STUDY OF THE EUROPEAN WAR1 ONE of the difficulties under which the social sciences, as contrasted with the physical sciences, have always labored is the impossibility of initiating and carrying through laboratory experiments for the purpose of testing the accuracy of hypotheses. The experience of the past has been used to prove or disprove tentative theories, but these experiences often contain disturbing factors, and it is seldom possible by this means to isolate and determine the effect of a single factor, as can be done in an experiment in physics or chemistry. In the events of the present war, however, Professor Laughlin finds the needed social laboratory for the testing of theory. Never has credit been subjected to greater shocks or strains than during the present struggle; never has credit been used on so great a scale; and never have such diverse methods been used to safeguard it. Here is a wonderfully fruitful field for observation and induction, of which Professor Laughlin has fully availed himself. The working of credit in the principal belligerent countries is found to illustrate and prove the theory of money and credit previously elucidated by the author in his Principles of Money. The book is divided into six chapters, of which the first describes briefly the great industrial advance achieved by all the European nations, but especially by Germany, during the thirty years prior to the outbreak of the war. Germany's remarkable industrial development provided the economic power and efficiency which made militarism possible. Because Germany was energetic and thrifty she could afford the 1 Credit of the Nations: A Study of the European War. By J. Lawrence Laughlin, New York, 1918. Charles Scribner's Sons. Pp. xiv, 406. Price $3.50. luxury of militarism, as Professor Veblen has put it. Add to this a colossal national ambition and the cause of the war is given. It was this dominating spirit which guided the use of the new wealth into the channels of conquest. In the second chapter, Professor Laughlin recapitulates briefly his theory of credit, and describes its functions in time of war. Credit is based on goods. When the war began there was a sudden stoppage of trade or exchange of goods. Multitudes of persons had demand liabilities falling due, to meet which they depended upon payment by their debtors. "If not able to pay in cash, because they cannot collect, can they offer an acceptable means of payment? Here we find the crux of the whole crisis in credit brought on by the war (p. 65). The methods used in England, France, and Germany to provide these "acceptable means of payment," to transmute uncollectible credits into immediate means of payment, are described in the next three chapters, and constitute the main thesis of the volume. In no country was the crisis more acute than in England. Indeed, Professor Laughlin finds in her financial unpreparedness clear proof that she did not anticipate war. While the Bank of England responded gallantly to the needs of the occasion, the joint stock banks showed the white feather and curtailed their loans instead of expanding them. They had a mass of unliquid bills and tried to protect themselves. Accordingly the government suspended the bank act, proclaimed a moratorium, and authorized the issue of currency notes. Professor Laughlin concludes that neither of the last two measures was necessary and that the last was a mistake. It was not more money that was needed, but a setting in motion again of the machinery of credit. On the other hand, the means taken to maintain the gold standard, to stabilize foreign exchange, and to guarantee the Bank of England against loss from bills discounted by it (involving a possible ultimate loss to the government of $150,000,000) are all approved, as well as the policy of taxation and loans. As to the ability of Great Britain to carry the enormous indebtedness created by the war, the author entertains no doubt. Indeed |