111..k. FINANCE OF THE WAR.
(IN Monday Mr. Lloyd George made a remarkably l_l interesting statement upon the finance of the war. Ile began with an expression of regret that he could not rival the extraordinary powers of compression possessed by the Prime Minister. Nevertheless, he managed to compress into a comparatively brief period many very important statements, and to explain with a lucidity that did not fall far short of that of the Prime Minister a series of com- plicated problems. Two main points were involved in the statement—first, the necessity under which all the Allies find themselves of borrowing money with which to meet the cost of the war ; and secondly, the commercial difficulty in which Russia exclusively is involved owing to the recur- rence of the old problem of the breakdown of the exchanges which created so much difficulty in the United States at the beginning of the war. The first of these problems requires but little explanation. According to Mr. Lloyd George's estimate, the three Allied Powers together will have expended on war purposes by December 81st next something like £2,000,000,000. British expenditure, he estimates, will exceed that of each of the other two Powers by something between .2100,000,000 and 2150,000,000. We may take it that the extra cost involved to Great Britain is mainly due to the more liberal scale upon which our soldiers are paid and their dependants supported. The French and Russian Armies receive what in the estimate of the British soldier would be no -pay at all, and the French separation allowances are on a very much more modest scale than those which public opinion has rightly compelled the British Government to pay. In addition, Great Britain has to incur very heavy expenditure upon the movement of troops from different parts of the world. As Mr. Churchill, with justifiable pride, pointed out, the British Admiralty have organized the transport of nearly a million men, and the cost of this operation is of necessity considerable.
But however the total cost of the war is distributed between the three great Allies, it has got to be paid, and the greater part of it can only be paid out of borrowed money. Therefore the question of how the money should be raised was one which it was most desirable that the three Powers should consider together. That was the primary justification for the conference of the three Finance Ministers in Paris, for, as Mr. Lloyd George remarked, it is possible by such a conference to settle in a few minutes points that might take months to determine if left to correspondence. It was suggested in many quarters that the three Powers should raise on their joint credit a loan of a thousand millions, but this scheme was rejected, mainly, it appears, on the ground of the difficulty of deciding at what rate of interest the loan should be raised, for it is, of course, notorious that Great Britain can borrow at a somewhat lower rate than France and at a much lower rate than Russia. For some reason, however, the veto of a joint loan was not extended to the advances which the three Powers have found themselves compelled to make to smeller States already involved in the war. These advances are at an opportune moment to be con- solidated into a joint loan, the liability for which will be shared in equal portions by the three Great Powers. Apart from this exception, each of the three Great Powers will borrow upon its own credit according to its needs ; but presumably the Powers will consult together so that they do not simultaneously come upon the money market, and thus raise the cost of credit against one another.
All this is straightforward enough. The question of Russia's difficulty owing to the breakdown of exchange is a little more technical. To understand the problem it is necessary to bear in mind the fact that international commerce consists primarily of an exchange of goods against goods. The goods that Russia sells to the outer world pay for the goods that Russia buys from the outer world. In practice, international accounts for the exchange of goods against goods are mainly settled by pieces of paper which are exchanged against one another in London. The reason why London is chosen for this purpose is because, owing partly to our Free Trade system, and still more to our excellent banking system, London is an open market for gold, which throughout the world is accepted as the final moans of discharging debts. At the present moment Russia is in the position of being unable to main- tain her normal exports, partly because some of the produce that she habitually sends away is now required for the service of her armies, and partly bemuse her menus of exportation have been limited by the closing of the Dardanelles. Yet simultaneously Russia finds herself compelled to buy foreign produce even more extensively than before in order to meet the needs of the war. Con- sequently she is unable at the moment to pay for the produce that she wishes to buy. At the same time, her merchants who have already bought produce from abroad are also unable to find the means of transmitting the money which they are able and willing to pay. Essentially it is the same problem as that presented at the beginning of the war, when the United States owed large sums to London, and was unable to transmit them owing to the temporary interruption of exports of American produce, and the consequent breakdown of the exchanges.
To understand how the difficulty is to be met, it is only necessary to realize that, though international commerce is primarily a matter of the exchange of goods against goods, it is secondarily a matter of the exchange of goods against permanent securities. If, for example, the Argentine railways want a fresh supply of rolling stock from Great Britain, they can obtain it by issuing new capital which will be taken up by British investors, whose money will go to pay for the rolling stock, and who in return will acquire a permanent lien upon the profits of the railway. Exactly the same method is being employed to meet the temporary commercial difficulties of Russia. The Russian Government are now raising money upon the London market by means of Treasury bills. The money thus raised is used to pay for produce that Russia requires to buy, and the investors in Treasury bills acquire a permanent claim upon the Russian Government. Simul- taneously the Russian Government are collecting from merchants in Russia money owed to England, and giving in exchange Russian Treasury bills, which are handed over to the persons in England to whom the Russians owe the money. By this means the Russian Government are able both to assist their own subjects to pay their debts in London and to acquire cash for carrying on the war. As a preliminary to this raising of money by the Russian Government on the London money market, the British Government advanced .832,000,000 to Russia as a credit against which to draw, and in addition the Russian Government transmitted X8,000,000 in gold to add to that credit. By these means the mechanism of exchange has been set to work again, and the Russian Government are able to continue to buy freely all the materials they want for the purpose of carrying on the war.
With regard to the particular question of the movement of gold, Mr. Lloyd George made the satisfactory statement that the reserve of gold in this country is greater than at any previous period of our history. France also has a large reserve of gold, accumulated before the war, and so far untouched. The Russian reserve has only been diminished by the X8,000,000 above referred to which was sent to London. Thus, from the gold point of view, the position of the Allies is extraordinarily strong. It is, however, of the utmost importance to Great Britain that London should maintain its reputation as being an unfailing market for the supply of gold, and therefore the Chancellor of the Exchequer has very wisely arranged with France and Russia that if from any cause our supply of gold should run short French and Russian banks shall come to our assistance. This is rather a banking than a war problem, and it may be remembered that a few years ago, when the United States banks were short of gold, they were liberally assisted by the English and French banks.
More important even than the very interesting details involved in the above summary of Mr. Lloyd George's speech is the particular proposition, which he laid down with repeated emphasis, that all the three Powers have to pool their resources without considering the question of less or more. In his own words:—
"An alliance for war cannot be conducted on limited liability principles. If one country in the alliance has for the moment more trained and armed men ready with guns, rifles, and ammu- nition than another, she must bring them all up against the common enemy without regard to the fact that the others cannot for the moment make a similar contribution; but it is equally true that the same principle applies to the country with the larger navy, or the country with greater resources of capital and credit. They must be made available for the purposes of the alliance."
This is the soundest of doctrines, and it is gratifying to see it laid down in such clear and emphatic language by the Chancellor. As a natural corollary, it follows that it is un- desirable evento take account of the respective sacrifices that the different countries are making. In some ways France, as Mr. Lloyd George rightly said, is bearing the heaviest burden, for every large part of her country is in the enemy's occupation. But Russia also is bearing a heavy burden, and so are we, though of a different character. The real point is that we are all doing our best according to our several means. In particular, Great Britain and Franco are using their superior financial resources to assist the relatively inferior financial resources of Russia. That would in any case have to be done as a primary result of the fact of our alliance. But it is worth while to add that, even from a purely business point of view, it is a wise speculation. For Russia possesses enormous latent resources that only need time and capital for their development. In more ways than one Russia is a new country, and after the war there is every reason to believe that her industrial development will proceed with extraordinary rapidity. She is at the moment mortgaging her future, but it is a future that will far more than bear the mortgage.
Previous page
