erent success were amazed
at the swiftness with which the nation can act in the hour of need. The
drastic action of the State cannot be better illustrated than by the steps
which were taken to meet the sudden commercial deadlock which the war
precipitated. A discussion of these financial measures will at the same
time enable us to understand how, through credit, war strikes at the
industry and trade of the modern world.

A. STATE ACTION IN INDUSTRY AND COMMERCE

The Austrian ultimatum to Servia was followed by the paralysis of the
world's international system of finance. Before the end of July many
important stock exchanges were closed, and by the 31st the London Stock
Exchange for the first time in its history was also compelled to close. The
remittance market collapsed and with it the fabric of international trade.
Widespread bankruptcy and ruin seemed imminent; so serious did the state of
affairs become that moratoria were declared not only in several European
countries but in parts of America, and in many continental countries specie
payments were suspended. In a word, the possibility of war had thrown the
delicately poised credit system of the commercial world out of gear; the
declaration of war had brought it to a standstill. Into an explanation of
its working it is not possible to enter; it is sufficient for our immediate
purpose to realise that the foreign exchange machinery by which the supply
of commodities from other countries becomes practicable on a large scale
was for a time altogether unworkable. London as the financial centre of the
world has immense sums owing to it and in its turn owes large sums. The
ultimate effect of the collapse of credit, which depends on confidence, was
that London could neither receive nor make payment. The big finance houses,
who had "accepted" bills of exchange and rendered themselves liable to meet
the payments for the things they represented, on the understanding that the
means to pay them were to be promptly despatched, found that these means
were not forthcoming; their own resources were far from sufficient to meet
these payments. Utter ruin stared them in the face. At home also a run on
the banks seemed probable, which would have meant ruin to large numbers of
people. In this grave crisis the State acted with commendable promptness.
The bank holiday was extended; State notes for 10s. and L1 were issued; a
moratorium was declared, legalising the postponement of the due pa