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Economic Consequences of the Peace

<h2>Chapter VII</h2> <h2>Remedies</h2> It is difficult to maintain true perspective in large affairs. I have criticized the work of Paris, and have depicted in somber colors the condition and the prospects of Europe. This is one aspect of the position and, I believe, a true one. But in so complex a phenomenon the prognostics do not all point one way; and we may make the error of expecting consequences to follow too swiftly and too inevitably from what perhaps are not all the relevant causes. The blackness of the prospect itself leads us to doubt its accuracy; our imagination is dulled rather than stimulated by too woeful a narration, and our minds rebound from what is felt "too bad to be true." But before the reader allows himself to be too much swayed by these natural reflections, and before I lead him, as is the intention of this chapter, towards remedies and ameliorations and the discovery of happier tendencies, let him redress the balance of his thought by recalling two contrasts—England and Russia, of which the one may encourage his optimism too much, but the other should remind him that catastrophes can still happen, and that modern society is not immune from the very greatest evils. In the chapters of this book I have not generally had in mind the situation or the problems of England. "Europe" in my narration must generally be interpreted to exclude the British Isles. England is in a state of transition, and her economic problems are serious. We may be on the eve of great changes in her social and industrial structure. Some of us may welcome such prospects and some of us deplore them. But they are of a different kind altogether from those impending on Europe. I do not perceive in England the slightest possibility of catastrophe or any serious likelihood of a general upheaval of society. The war has impoverished us, but not seriously;—I should judge that the real wealth of the country in 1919 is at least equal to what it was in 1900. Our balance of trade is adverse, but not so much so that the readjustment of it need disorder our economic life.[157] The deficit in our Budget is large, but not beyond what firm and prudent statesmanship could bridge. The shortening of the hours of labor may have somewhat diminished our productivity. But it should not be too much to hope that this is a feature of transition, and no one who is acquainted with the British workingman can doubt that, if it suits him, and if he is in sympathy and reasonable contentment with the conditions of his life, he can produce at least as much in a shorter working day as he did in the longer hours which prevailed formerly. The most serious problems for England have been brought to a head by the war, but are in their origins more fundamental. The forces of the nineteenth century have run their course and are exhausted. The economic motives and ideals of that generation no longer satisfy us: we must find a new way and must suffer again the malaise, and finally the pangs, of a new industrial birth. This is one element. The other is that on which I have enlarged in Chapter II.;—the increase in the real cost of food and the diminishing response of nature to any further increase in the population of the world, a tendency which must be especially injurious to the greatest of all industrial countries and the most dependent on imported supplies of food. But these secular problems are such as no age is free from. They are of an altogether different order from those which may afflict the peoples of Central Europe. Those readers who, chiefly mindful of the British conditions with which they are familiar, are apt to indulge their optimism, and still more those whose immediate environment is American, must cast their minds to Russia, Turkey, Hungary, or Austria, where the most dreadful material evils which men can suffer—famine, cold, disease, war, murder, and anarchy—are an actual present experience, if they are to apprehend the character of the misfortunes against the further extension of which it must surely be our duty to seek the remedy, if there is one. What then is to be done? The tentative suggestions of this chapter may appear to the reader inadequate. But the opportunity was missed at Paris during the six months which followed the Armistice, and nothing we can do now can repair the mischief wrought at that time. Great privation and great risks to society have become unavoidable. All that is now open to us is to redirect, so far as lies in our power, the fundamental economic tendencies which underlie the events of the hour, so that they promote the re-establishment of prosperity and order, instead of leading us deeper into misfortune. We must first escape from the atmosphere and the methods of Paris. Those who controlled the Conference may bow before the gusts of popular opinion, but they will never lead us out of our troubles. It is hardly to be supposed that the Council of Four can retrace their steps, even if they wished to do so. The replacement of the existing Governments of Europe is, therefore, an almost indispensable preliminary. I propose then to discuss a program, for those who believe that the Peace of Versailles cannot stand, under the following heads: <ol> <li>The Revision of the Treaty.</li> <li>The settlement of inter-Ally indebtedness.</li> <li>An international loan and the reform of the currency.</li> <li>The relations of Central Europe to Russia.</li> </ol> <h4>1. The Revision of the Treaty</h4> Are any constitutional means open to us for altering the Treaty? President Wilson and General Smuts, who believe that to have secured the Covenant of the League of Nations outweighs much evil in the rest of the Treaty, have indicated that we must look to the League for the gradual evolution of a more tolerable life for Europe. "There are territorial settlements," General Smuts wrote in his statement on signing the Peace Treaty, "which will need revision. There are guarantees laid down which we all hope will soon be found out of harmony with the new peaceful temper and unarmed state of our former enemies. There are punishments foreshadowed over most of which a calmer mood may yet prefer to pass the sponge of oblivion. There are indemnities stipulated which cannot be enacted without grave injury to the industrial revival of Europe, and which it will be in the interests of all to render more tolerable and moderate.... I am confident that the League of Nations will yet prove the path of escape for Europe out of the ruin brought about by this war." Without the League, President Wilson informed the Senate when he presented the Treaty to them early in July, 1919, "...long-continued supervision of the task of reparation which Germany was to undertake to complete within the next generation might entirely break down;[158] the reconsideration and revision of administrative arrangements and restrictions which the Treaty prescribed, but which it recognized might not provide lasting advantage or be entirely fair if too long enforced, would be impracticable." Can we look forward with fair hopes to securing from the operation of the League those benefits which two of its principal begetters thus encourage us to expect from it? The relevant passage is to be found in Article XIX. of the Covenant, which runs as follows: "The Assembly may from time to time advise the reconsideration by Members of the League of treaties which have become inapplicable and the consideration of international conditions whose continuance might endanger the peace of the world." But alas! Article V. provides that "Except where otherwise expressly provided in this Covenant or by the terms of the present Treaty, decisions at any meeting of the Assembly or of the Council shall require the agreement of all the Members of the League represented at the meeting." Does not this provision reduce the League, so far as concerns an early reconsideration of any of the terms of the Peace Treaty, into a body merely for wasting time? If all the parties to the Treaty are unanimously of opinion that it requires alteration in a particular sense, it does not need a League and a Covenant to put the business through. Even when the Assembly of the League is unanimous it can only "advise" reconsideration by the members specially affected. But the League will operate, say its supporters, by its influence on the public opinion of the world, and the view of the majority will carry decisive weight in practice, even though constitutionally it is of no effect. Let us pray that this be so. Yet the League in the hands of the trained European diplomatist may become an unequaled instrument for obstruction and delay. The revision of Treaties is entrusted primarily, not to the Council, which meets frequently, but to the Assembly, which will meet more rarely and must become, as any one with an experience of large Inter-Ally Conferences must know, an unwieldy polyglot debating society in which the greatest resolution and the best management may fail altogether to bring issues to a head against an opposition in favor of the status quo. There are indeed two disastrous blots on the Covenant,—Article V., which prescribes unanimity, and the much-criticized Article X., by which "The Members of the League undertake to respect and preserve as against external aggression the territorial integrity and existing political independence of all Members of the League." These two Articles together go some way to destroy the conception of the League as an instrument of progress, and to equip it from the outset with an almost fatal bias towards the status quo. It is these Articles which have reconciled to the League some of its original opponents, who now hope to make of it another Holy Alliance for the perpetuation of the economic ruin of their enemies and the Balance of Power in their own interests which they believe themselves to have established by the Peace. But while it would be wrong and foolish to conceal from ourselves in the interests of "idealism" the real difficulties of the position in the special matter of revising treaties, that is no reason for any of us to decry the League, which the wisdom of the world may yet transform into a powerful instrument of peace, and which in Articles XI.-XVII.[159] has already accomplished a great and beneficent achievement. I agree, therefore, that our first efforts for the Revision of the Treaty must be made through the League rather than in any other way, in the hope that the force of general opinion and, if necessary, the use of financial pressure and financial inducements, may be enough to prevent a recalcitrant minority from exercising their right of veto. We must trust the new Governments, whose existence I premise in the principal Allied countries, to show a profounder wisdom and a greater magnanimity than their predecessors. We have seen in Chapters IV. and V. that there are numerous particulars in which the Treaty is objectionable. I do not intend to enter here into details, or to attempt a revision of the Treaty clause by clause. I limit myself to three great changes which are necessary for the economic life of Europe, relating to Reparation, to Coal and Iron, and to Tariffs. Reparation.—If the sum demanded for Reparation is less than what the Allies are entitled to on a strict interpretation of their engagements, it is unnecessary to particularize the items it represents or to hear arguments about its compilation. I suggest, therefore, the following settlement:— (1) The amount of the payment to be made by Germany in respect of Reparation and the costs of the Armies of Occupation might be fixed at $10,000,000,000. (2) The surrender of merchant ships and submarine cables under the Treaty, of war material under the Armistice, of State property in ceded territory, of claims against such territory in respect of public debt, and of Germany's claims against her former Allies, should be reckoned as worth the lump sum of $2,500,000,000, without any attempt being made to evaluate them item by item. (3) The balance of $7,500,000,000 should not carry interest pending its repayment, and should be paid by Germany in thirty annual instalments of $250,000,000, beginning in 1923. (4) The Reparation Commission should be dissolved, or, if any duties remain for it to perform, it should become an appanage of the League of Nations and should include representatives of Germany and of the neutral States. (5) Germany would be left to meet the annual instalments in such manner as she might see fit, any complaint against her for non-fulfilment of her obligations being lodged with the League of Nations. That is to say, there would be no further expropriation of German private property abroad, except so far as is required to meet private German obligations out of the proceeds of such property already liquidated or in the hands of Public Trustees and Enemy Property Custodians in the Allied countries and in the United States; and, in particular, Article 260 (which provides for the expropriation of German interests in public utility enterprises) would be abrogated. (6) No attempt should be made to extract Reparation payments from Austria. Coal and Iron.—(1) The Allies" options on coal under Annex V. should be abandoned, but Germany's obligation to make good France's loss of coal through the destruction of her mines should remain. That is to say, Germany should undertake "to deliver to France annually for a period not exceeding ten years an amount of coal equal to the difference between the annual production before the war of the coal mines of the Nord and Pas de Calais, destroyed as a result of the war, and the production of the mines of the same area during the years in question; such delivery not to exceed twenty million tons in any one year of the first five years, and eight million tons in any one year of the succeeding five years." This obligation should lapse, nevertheless, in the event of the coal districts of Upper Silesia being taken from Germany in the final settlement consequent on the plebiscite. (2) The arrangement as to the Saar should hold good, except that, on the one hand, Germany should receive no credit for the mines, and, on the other, should receive back both the mines and the territory without payment and unconditionally after ten years. But this should be conditional on France's entering into an agreement for the same period to supply Germany from Lorraine with at least 50 per cent of the iron-ore which was carried from Lorraine into Germany proper before the war, in return for an undertaking from Germany to supply Lorraine with an amount of coal equal to the whole amount formerly sent to Lorraine from Germany proper, after allowing for the output of the Saar. (3) The arrangement as to Upper Silesia should hold good. That is to say, a plebiscite should be held, and in coming to a final decision "regard will be paid (by the principal Allied and Associated Powers) to the wishes of the inhabitants as shown by the vote, and to the geographical and economic conditions of the locality." But the Allies should declare that in their judgment "economic conditions" require the inclusion of the coal districts in Germany unless the wishes of the inhabitants are decidedly to the contrary. (4) The Coal Commission already established by the Allies should become an appanage of the League of Nations, and should be enlarged to include representatives of Germany and the other States of Central and Eastern Europe, of the Northern Neutrals, and of Switzerland. Its authority should be advisory only, but should extend over the distribution of the coal supplies of Germany, Poland, and the constituent parts of the former Austro-Hungarian Empire, and of the exportable surplus of the United Kingdom. All the States represented on the Commission should undertake to furnish it with the fullest information, and to be guided by its advice so far as their sovereignty and their vital interests permit. Tariffs.—A Free Trade Union should be established under the auspices of the League of Nations of countries undertaking to impose no protectionist tariffs[160] whatever against the produce of other members of the Union, Germany, Poland, the new States which formerly composed the Austro-Hungarian and Turkish Empires, and the Mandated States should be compelled to adhere to this Union for ten years, after which time adherence would be voluntary. The adherence of other States would be voluntary from the outset. But it is to be hoped that the United Kingdom, at any rate, would become an original member. <hr style="width: 45%;" /> By fixing the Reparation payments well within Germany's capacity to pay, we make possible the renewal of hope and enterprise within her territory, we avoid the perpetual friction and opportunity of improper pressure arising out of Treaty clauses which are impossible of fulfilment, and we render unnecessary the intolerable powers of the Reparation Commission. By a moderation of the clauses relating directly or indirectly to coal, and by the exchange of iron-ore, we permit the continuance of Germany's industrial life, and put limits on the loss of productivity which would be brought about otherwise by the interference of political frontiers with the natural localization of the iron and steel industry. By the proposed Free Trade Union some part of the loss of organization and economic efficiency may be retrieved, which must otherwise result from the innumerable new political frontiers now created between greedy, jealous, immature, and economically incomplete nationalist States. Economic frontiers were tolerable so long as an immense territory was included in a few great Empires; but they will not be tolerable when the Empires of Germany, Austria-Hungary, Russia, and Turkey have been partitioned between some twenty independent authorities. A Free Trade Union, comprising the whole of Central, Eastern, and South-Eastern Europe, Siberia, Turkey, and (I should hope) the United Kingdom, Egypt, and India, might do as much for the peace and prosperity of the world as the League of Nations itself. Belgium, Holland, Scandinavia, and Switzerland might be expected to adhere to it shortly. And it would be greatly to be desired by their friends that France and Italy also should see their way to adhesion. It would be objected, I suppose, by some critics that such an arrangement might go some way in effect towards realizing the former German dream of Mittel-Europa. If other countries were so foolish as to remain outside the Union and to leave to Germany all its advantages, there might be some truth in this. But an economic system, to which every one had the opportunity of belonging and which gave special privilege to none, is surely absolutely free from the objections of a privileged and avowedly imperialistic scheme of exclusion and discrimination. Our attitude to these criticisms must be determined by our whole moral and emotional reaction to the future of international relations and the Peace of the World. If we take the view that for at least a generation to come Germany cannot be trusted with even a modicum of prosperity, that while all our recent Allies are angels of light, all our recent enemies, Germans, Austrians, Hungarians, and the rest, are children of the devil, that year by year Germany must be kept impoverished and her children starved and crippled, and that she must be ringed round by enemies; then we shall reject all the proposals of this chapter, and particularly those which may assist Germany to regain a part of her former material prosperity and find a means of livelihood for the industrial population of her towns. But if this view of nations and of their relation to one another is adopted by the democracies of Western Europe, and is financed by the United States, heaven help us all. If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation. Even though the result disappoint us, must we not base our actions on better expectations, and believe that the prosperity and happiness of one country promotes that of others, that the solidarity of man is not a fiction, and that nations can still afford to treat other nations as fellow-creatures? Such changes as I have proposed above might do something appreciable to enable the industrial populations of Europe to continue to earn a livelihood. But they would not be enough by themselves. In particular, France would be a loser on paper (on paper only, for she will never secure the actual fulfilment of her present claims), and an escape from her embarrassments must be shown her in some other direction. I proceed, therefore, to proposals, first, for the adjustment of the claims of America and the Allies amongst themselves; and second, for the provision of sufficient credit to enable Europe to re-create her stock of circulating capital. <h4>2. The Settlement of Inter-Ally Indebtedness</h4> In proposing a modification of the Reparation terms, I have considered them so far only in relation to Germany. But fairness requires that so great a reduction in the amount should be accompanied by a readjustment of its apportionment between the Allies themselves. The professions which our statesmen made on every platform during the war, as well as other considerations, surely require that the areas damaged by the enemy's invasion should receive a priority of compensation. While this was one of the ultimate objects for which we said we were fighting, we never included the recovery of separation allowances amongst our war aims. I suggest, therefore, that we should by our acts prove ourselves sincere and trustworthy, and that accordingly Great Britain should waive altogether her claims for cash payment in favor of Belgium, Serbia, and France. The whole of the payments made by Germany would then be subject to the prior charge of repairing the material injury done to those countries and provinces which suffered actual invasion by the enemy; and I believe that the sum of $7,500,000,000 thus available would be adequate to cover entirely the actual costs of restoration. Further, it is only by a complete subordination of her own claims for cash compensation that Great Britain can ask with clean hands for a revision of the Treaty and clear her honor from the breach of faith for which she bears the main responsibility, as a result of the policy to which the General Election of 1918 pledged her representatives. With the Reparation problem thus cleared up it would be possible to bring forward with a better grace and more hope of success two other financial proposals, each of which involves an appeal to the generosity of the United States. The first is for the entire cancellation of Inter-Ally indebtedness (that is to say, indebtedness between the Governments of the Allied and Associated countries) incurred for the purposes of the war. This proposal, which has been put forward already in certain quarters, is one which I believe to be absolutely essential to the future prosperity of the world. It would be an act of far-seeing statesmanship for the United Kingdom and the United States, the two Powers chiefly concerned, to adopt it. The sums of money which are involved are shown approximately in the following table:—[161] <div class="ctr"> <table border="0" cellpadding="0" cellspacing="0" summary=""> <tr> <td align="center" class="topbottom">Loans to</td> <td colspan="3" align="center" class="all">By United States</td> <td colspan="3" align="center" class="toprightbottom">By United Kingdom</td> <td colspan="3" align="center" class="toprightbottom">By France</td> <td colspan="2" align="center" class="topbottom">Total</td> </tr> <tr> <td> </td> <td class="left">  </td> <td align="center">Million Dollars</td> <td class="right">  </td> <td>  </td> <td align="center">Million Dollars</td> <td class="right">  </td> <td>  </td> <td align="center">Million Dollars</td> <td class="right">  </td> <td>  </td> <td align="center">Million Dollars</td> </tr> <tr> <td>United Kingdom</td> <td class="left">  </td> <td align="right" valign="bottom">4,210</td> <td class="right">  </td> <td>  </td> <td align="right" valign="bottom">....</td> <td class="right">  </td> <td>  </td> <td align="right" valign="bottom">....</td> <td class="right">  </td> <td>  </td> <td align="right" valign="bottom">4,210</td> </tr> <tr> <td>France</td> <td class="left">  </td> <td align="right">2,750</td> <td class="right">  </td> <td>  </td> <td align="right">2,540</td> <td class="right">  </td> <td>  </td> <td align="right">....</td> <td class="right">  </td> <td>  </td> <td align="right">5,290</td> </tr> <tr> <td>Italy</td> <td class="left">  </td> <td align="right">1,625</td> <td class="right">  </td> <td>  </td> <td align="right">2,335</td> <td class="right">  </td> <td>  </td> <td align="right">175</td> <td class="right">  </td> <td>  </td> <td align="right">4,135</td> </tr> <tr> <td>Russia</td> <td class="left">  </td> <td align="right">190</td> <td class="right">  </td> <td>  </td> <td align="right">2,840</td> <td class="right">[162]</td> <td>  </td> <td align="right">800</td> <td class="right">  </td> <td>  </td> <td align="right">3,830</td> </tr> <tr> <td>Belgium</td> <td class="left">  </td> <td align="right">400</td> <td class="right">  </td> <td>  </td> <td align="right">490</td> <td class="right">[163]</td> <td>  </td> <td align="right">450</td> <td class="right">  </td> <td>  </td> <td align="right">1,340</td> </tr> <tr> <td>Serbia and Jugo-Slavia</td> <td class="left">  </td> <td align="right" valign="bottom">100</td> <td class="right">  </td> <td>  </td> <td align="right" valign="bottom">100</td> <td class="right" valign="bottom">[163]</td> <td>  </td> <td align="right" valign="bottom">100</td> <td class="right">  </td> <td>  </td> <td align="right" valign="bottom">300</td> </tr> <tr> <td>Other Allies</td> <td class="left">  </td> <td align="right">175</td> <td class="right">  </td> <td>  </td> <td align="right">395</td> <td class="right">  </td> <td>  </td> <td align="right">250</td> <td class="right">  </td> <td>  </td> <td align="right">820</td> </tr> <tr> <td>Total</td> <td class="left"> </td> <td align="right" class="top">9,450</td> <td class="right">[164]</td> <td> </td> <td align="right" class="top">8,700</td> <td class="right">  </td> <td>  </td> <td align="right" class="top">1,775</td> <td class="right">  </td> <td>  </td> <td align="right" class="top">19,925</td> </tr> <tr> <td class="bottom"> </td> <td colspan="3" class="leftrightbottom"> </td> <td colspan="3" class="rightbottom"> </td> <td colspan="3" class="rightbottom"> </td> <td colspan="2" class="bottom"> </td> </tr> </table></div> Thus the total volume of Inter-Ally indebtedness, assuming that loans from one Ally are not set off against loans to another, is nearly $20,000,000,000. The United States is a lender only. The United Kingdom has lent about twice as much as she has borrowed. France has borrowed about three times as much as she has lent. The other Allies have been borrowers only. If all the above Inter-Ally indebtedness were mutually forgiven, the net result on paper (i.e. assuming all the loans to be good) would be a surrender by the United States of about $10,000,000,000 and by the United Kingdom of about $4,500,000,000. France would gain about $3,500,000,000 and Italy about $4,000,000,000. But these figures overstate the loss to the United Kingdom and understate the gain to France; for a large part of the loans made by both these countries has been to Russia and cannot, by any stretch of imagination, be considered good. If the loans which the United Kingdom has made to her Allies are reckoned to be worth 50 per cent of their full value (an arbitrary but convenient assumption which the Chancellor of the Exchequer has adopted on more than one occasion as being as good as any other for the purposes of an approximate national balance sheet), the operation would involve her neither in loss nor in gain. But in whatever way the net result is calculated on paper, the relief in anxiety which such a liquidation of the position would carry with it would be very great. It is from the United States, therefore, that the proposal asks generosity. Speaking with a very intimate knowledge of the relations throughout the war between the British, the American, and the other Allied Treasuries, I believe this to be an act of generosity for which Europe can fairly ask, provided Europe is making an honorable attempt in other directions, not to continue war, economic or otherwise, but to achieve the economic reconstitution of the whole Continent, The financial sacrifices of the United States have been, in proportion to her wealth, immensely less than those of the European States. This could hardly have been otherwise. It was a European quarrel, in which the United States Government could not have justified itself before its citizens in expending the whole national strength, as did the Europeans. After the United States came into the war her financial assistance was lavish and unstinted, and without this assistance the Allies could never have won the war,[165] quite apart from the decisive influence of the arrival of the American troops. Europe, too, should never forget the extraordinary assistance afforded her during the first six months of 1919 through the agency of Mr. Hoover and the American Commission of Relief. Never was a nobler work of disinterested goodwill carried through with more tenacity and sincerity and skill, and with less thanks either asked or given. The ungrateful Governments of Europe owe much more to the statesmanship and insight of Mr. Hoover and his band of American workers than they have yet appreciated or will ever acknowledge. The American Relief Commission, and they only, saw the European position during those months in its true perspective and felt towards it as men should. It was their efforts, their energy, and the American resources placed by the President at their disposal, often acting in the teeth of European obstruction, which not only saved an immense amount of human suffering, but averted a widespread breakdown of the European system.[166] But in speaking thus as we do of American financial assistance, we tacitly assume, and America, I believe, assumed it too when she gave the money, that it was not in the nature of an investment. If Europe is going to repay the $10,000,000,000 worth of financial assistance which she has had from the United States with compound interest at 5 per cent, the matter takes on quite a different complexion. If America's advances are to be regarded in this light, her relative financial sacrifice has been very slight indeed. Controversies as to relative sacrifice are very barren and very foolish also; for there is no reason in the world why relative sacrifice should necessarily be equal,—so many other very relevant considerations being quite different in the two cases. The two or three facts following are put forward, therefore, not to suggest that they provide any compelling argument for Americans, but only to show that from his own selfish point of view an Englishman is not seeking to avoid due sacrifice on his country's part in making the present suggestion. (1) The sums which the British Treasury borrowed from the American Treasury, after the latter came into the war, were approximately offset by the sums which England lent to her other Allies during the same period (i.e. excluding sums lent before the United States came into the war); so that almost the whole of England's indebtedness to the United States was incurred, not on her own account, but to enable her to assist the rest of her Allies, who were for various reasons not in a position to draw their assistance from the United States direct.[167] (2) The United Kingdom has disposed of about $5,000,000,000 worth of her foreign securities, and in addition has incurred foreign debt to the amount of about $6,000,000,000. The United States, so far from selling, has bought back upwards of $5,000,000,000, and has incurred practically no foreign debt. (3) The population of the United Kingdom is about one-half that of the United States, the income about one-third, and the accumulated wealth between one-half and one-third. The financial capacity of the United Kingdom may therefore be put at about two-fifths that of the United States. This figure enables us to make the following comparison:—Excluding loans to Allies in each case (as is right on the assumption that these loans are to be repaid), the war expenditure of the United Kingdom has been about three times that of the United Sates, or in proportion to capacity between seven and eight times. Having cleared this issue out of the way as briefly as possible, I turn to the broader issues of the future relations between the parties to the late war, by which the present proposal must primarily be judged. Failing such a settlement as is now proposed, the war will have ended with a network of heavy tribute payable from one Ally to another. The total amount of this tribute is even likely to exceed the amount obtainable from the enemy; and the war will have ended with the intolerable result of the Allies paying indemnities to one another instead of receiving them from the enemy. For this reason the question of Inter-Allied indebtedness is closely bound up with the intense popular feeling amongst the European Allies on the question of indemnities,—a feeling which is based, not on any reasonable calculation of what Germany can, in fact, pay, but on a well-founded appreciation of the unbearable financial situation in which these countries will find themselves unless she pays. Take Italy as an extreme example. If Italy can reasonably be expected to pay $4,000,000,000, surely Germany can and ought to pay an immeasurably higher figure. Or if it is decided (as it must be) that Austria can pay next to nothing, is it not an intolerable conclusion that Italy should be loaded with a crushing tribute, while Austria escapes? Or, to put it slightly differently, how can Italy be expected to submit to payment of this great sum and see Czecho-Slovakia pay little or nothing? At the other end of the scale there is the United Kingdom. Here the financial position is different, since to ask us to pay $4,000,000,000 is a very different proposition from asking Italy to pay it. But the sentiment is much the same. If we have to be satisfied without full compensation from Germany, how bitter will be the protests against paying it to the United States. We, it will be said, have to be content with a claim against the bankrupt estates of Germany, France, Italy, and Russia, whereas the United States has secured a first mortgage upon us. The case of France is at least as overwhelming. She can barely secure from Germany the full measure of the destruction of her countryside. Yet victorious France must pay her friends and Allies more than four times the indemnity which in the defeat of 1870 she paid Germany. The hand of Bismarck was light compared with that of an Ally or of an Associate. A settlement of Inter-Ally indebtedness is, therefore, an indispensable preliminary to the peoples of the Allied countries facing, with other than a maddened and exasperated heart, the inevitable truth about the prospects of an indemnity from the enemy. It might be an exaggeration to say that it is impossible for the European Allies to pay the capital and interest due from them on these debts, but to make them do so would certainly be to impose a crushing burden. They may be expected, therefore, to make constant attempts to evade or escape payment, and these attempts will be a constant source of international friction and ill-will for many years to come. A debtor nation does not love its creditor, and it is fruitless to expect feelings of goodwill from France, Italy, and Russia towards this country or towards America, if their future development is stifled for many years to come by the annual tribute which they must pay us. There will be a great incentive to them to seek their friends in other directions, and any future rupture of peaceable relations will always carry with it the enormous advantage of escaping the payment of external debts, if, on the other hand, these great debts are forgiven, a stimulus will be given to the solidarity and true friendliness of the nations lately associated. The existence of the great war debts is a menace to financial stability everywhere. There is no European country in which repudiation may not soon become an important political issue. In the case of internal debt, however, there are interested parties on both sides, and the question is one of the internal distribution of wealth. With external debts this is not so, and the creditor nations may soon find their interest inconveniently bound up with the maintenance of a particular type of government or economic organization in the debtor countries. Entangling alliances or entangling leagues are nothing to the entanglements of cash owing. The final consideration influencing the reader's attitude to this proposal must, however, depend on his view as to the future place in the world's progress of the vast paper entanglements which are our legacy from war finance both at home and abroad. The war has ended with every one owing every one else immense sums of money. Germany owes a large sum to the Allies, the Allies owe a large sum to Great Britain, and Great Britain owes a large sum to the United States. The holders of war loan in every country are owed a large sum by the State, and the State in its turn is owed a large sum by these and other taxpayers. The whole position is in the highest degree artificial, misleading, and vexatious. We shall never be able to move again, unless we can free our limbs from these paper shackles. A general bonfire is so great a necessity that unless we can make of it an orderly and good-tempered affair in which no serious injustice is done to any one, it will, when it comes at last, grow into a conflagration that may destroy much else as well. As regards internal debt, I am one of those who believe that a capital levy for the extinction of debt is an absolute prerequisite of sound finance in everyone of the European belligerent countries. But the continuance on a huge scale of indebtedness between Governments has special dangers of its own. Before the middle of the nineteenth century no nation owed payments to a foreign nation on any considerable scale, except such tributes as were exacted under the compulsion of actual occupation in force and, at one time, by absentee princes under the sanctions of feudalism. It is true that the need for European capitalism to find an outlet in the New World has led during the past fifty years, though even now on a relatively modest scale, to such countries as Argentine owing an annual sum to such countries as England. But the system is fragile; and it has only survived because its burden on the paying countries has not so far been oppressive, because this burden is represented by real assets and is bound up with the property system generally, and because the sums already lent are not unduly large in relation to those which it is still hoped to borrow. Bankers are used to this system, and believe it to be a necessary part of the permanent order of society. They are disposed to believe, therefore, by analogy with it, that a comparable system between Governments, on a far vaster and definitely oppressive scale, represented by no real assets, and less closely associated with the property system, is natural and reasonable and in conformity with human nature. I doubt this view of the world. Even capitalism at home, which engages many local sympathies, which plays a real part in the daily process of production, and upon the security of which the present organization of society largely depends, is not very safe. But however this may be, will the discontented peoples of Europe be willing for a generation to come so to order their lives that an appreciable part of their daily produce may be available to meet a foreign payment, the reason of which, whether as between Europe and America, or as between Germany and the rest of Europe, does not spring compellingly from their sense of justice or duty? On the one hand, Europe must depend in the long run on her own daily labor and not on the largesse of America; but, on the other hand, she will not pinch herself in order that the fruit of her daily labor may go elsewhere. In short, I do not believe that any of these tributes will continue to be paid, at the best, for more than a very few years. They do not square with human nature or agree with the spirit of the age. If there is any force in this mode of thought, expediency and generosity agree together, and the policy which will best promote immediate friendship between nations will not conflict with the permanent interests of the benefactor.[168] <div style="break-after:column;"></div>

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