FINANCE-PUBLIC & PRIVATE.
By ARTHUR W. KIDDY.
EUROPE'S DEBT TO AMERICA. [To the Editor of the SPECTATOR.] Sra,—On the 27th of this month the Chancellor of the Exchequer and the Governor of the Bank of England will leave for America to discuss with representatives of the Government at Washington the terms for funding our debt to America. That debt amounts, roughly, to £900,000,000, and forms part of Europe's total indebtedness of, approximately, £2,000,000,000. What will be the outcome of the negotiations remains to be seen, but in passing the somewhat extraordinary fact must be noted that the Commissioners appointed to negotiate on behalf of America have been severely restricted in the sense that they are not permitted to conclude a loan running for more than twenty-five years or carrying a lower rate of interest than 4} per cent. In other words, the best terms which the American representatives may at present grant to us comprise an arrangement involving an annual remittance— including sinking fund—for the next twenty-five years of something like £60,000,000 sterling, even on a reason- ably favourable exchange, while a much greater transfer would be involved should the exchange move seriously against us.
During the past few weeks there have appeared in the American Press two important, but very different, articles dealing with Europe's indebtedness to the State's. One of them was written by Mr. Garet Garrett, while the other is from the pen of Professor Seligman of Colombia University. I propose to make some comments upon each of these articles,* because they both set out in very forcible terms the case for and against America's claim for repayment of loans advanced during the War. Having briefly commented upon the articles, I will then endeavour to express the general views of business men here with regard to the matter.
• Mr. Garet Garrett's article appeared in the Saturday Evening Post 01 November 2.ith, and Professor Seligntan's article appeared in the Nino York Times of November btb. The first point made by Mr. Garrett—and it is a very fair one—is that, during the War, neither the equity nor the terms of the American loans were challenged. His next point is that when, after the War was concluded, the question of a mutual cancellation of international indebtedness was mooted in Europe, the proposals were of a character which seriously reflected upon America's acumen, most of the suggestions being in the nature of European creditors forgoing their claims upon im- pecunious debtors, whereas America's largest individual loan had been made not to an impecunious country, but to Great Britain. Moreover, our own credit and standing in the matter seem to have been prejudiced on more than one occasion by some curious overtures from our Government, and, in particular, from the ex-Premier himself. Therefore, Mr. Garrett charges the Allies both with seeking to disclaim the sanctity of just and legitimate contracts and even with casting reflections upon the lender by suggesting extortion on his part.
There is a good deal which might be said for the justice of some of these contentions in Mr. Garet Garrett's article. Unfortunately, however, the latter part of it is characterized by a number of statements and innuendoes which we believe to be wholly incorrect and hardly worthy of a friendly creditor country, while, when the writer of this somewhat unfriendly article endeavours to demonstrate the ability of Europe to meet its obligations to America, his arguments are singularly unconvincing. He maintains, quite correctly, that the loans made by America should be regarded as having been expressed in. the form of goods and services rendered. Having, then, emphasized the fact that those goods and services were rendered within a period of nineteen months, it should, he maintains, be quite possible for the Allies to effect repayment in similar fashion within twenty-five years. The reply, of course, is obvious. Reproduce the conditions of those nineteen months in altered form ; that is to say, let America be at war with a great part of the world for that period, and dependent upon the Allies for goods and services, and the matter might be speedily adjusted, because there would be a repetition of the furious demand for goods and services at any price whatever,' and a debt created by a combination of wholly exceptional conditions would here be cancelled in similar fashion. When, however, it is remembered that the exceptional war-prices, of such benefit to America, have since collapsed ; that the nations who borrowed are so impoverished as to be unable to pay their way in the ordinary sense for some years to come, and when, further, it is remembered that America is raising a great tariff wall to prevent the payment of these debts by goods and services, the fallacious and also, I think, the unreasonable character of Mr. Garrett's argu- ments is clearly apparent. * * * * In striking contrast to Mr. Garet Garrett's declaration of the justice of American claims and Europe's ability to pay is the article by Professor Seligman, in which he challenges both of those assertions. He affirms that while America's legal right is undoubted, she has no moral claim whatever, but that, on the contrary, as a direct consequence of the War, or rather of America's neutrality during the first three years of the conflict, she gained colossal advantages which had the effect of turning her position within a brief period from that of a debtor country to that of a great creditor nation. On this a of the question Professor Seligman concludes as follows :— ." From the point of view of the equities of the case, therefore, can the debt of the Allies be called a just debt Y We have every legal right to demand it, but from the higher point of view have we a moral right ? We emerged from the stupendous struggle with clean bands indeed, but with full hands. We are the one nation in the world which has profited by the War. Is it not almost like adding insult to injury to ask those who suffered the most and who bore the brunt of a common enterprise to suffer still more in order to enrich us further ? "
Equally, Professor Seligman emphasizes both the in- ability of the debtors to make payments for a long time to come and also the harmful effects which he considers would be produced even upon the creditor countries if their claims were enforce He lays stress upon the fact that in Europe at present " there is no surplus of social income and is not apt to be for a long time." He recognizes, of course, the supreme necessity for the Governments of the belligerent countries stopping all waste and setting their budgetary and currency affairs in order, and he considers that for a time, at all events, the debts ought to be kept on the books of the creditor countries in order that a timely reminder might be given, if necessary, to the debtor Governments. * * * * I have commented briefly upon these two articles— both of them, be it remembered, reflecting the views of American citizens—because they have attracted con- siderable attention on both sides of the Atlantic, while at a moment when we are about to deal with our own debt to America they may serve as an opportunity for stating the views of business men in this country with regard to the matter. While entirely appreciative of Professor Seligman's most able and sympathetic treat- ment of the problem of European indebtedness, the City is entirely at one with America in placing a prompt and adequate recognition of the sanctity of contract before every other consideration. Indeed, a moment's thought will show that those who hold any loose views on that point are on dangerous ground. If external debts are to be repudiated or tampered with, why not an internal debt ? The argument that nations which contributed to 'the War so much in the way of human sacrifice may surely be exempt from such sordid claims as those involved in financial contracts has a very wide application and might be used in reference to the obligations of the taxpayer to meet contracts on internal as well as external loans. From the very outset, therefore, the question of our Debt to the States is one which the City has regarded as admitting of no argument whatever. At whatever cost, our contract with America must be promptly fulfilled, with the best will in the world and with nothing but gratitude for the accommodation extended and a ready recognition that in addition to the loan America, however late in the day, rendered to Europe incalculable services. All moral aspects of the question, such as those set forth so finely by Professor Seligman, are matters entirely for the creditor country and for the creditor country alone. * * * Having said this I am bound, however, to add that there are two respects in which the attitude of America occasions some regret to the City. Admitting the equity of the debts and the importance of prompt recognition of them by the debtors, it is essential for what may be termed the financial well-being, of the comity of nations as a whole that the settlement should be on lines calculated to occasion the least disturbance to international finance. From our prolonged Ewerience as the world's bankers we know that if we lent a group of nations £2,000,000,000, even for productive purposes, to demand repayment of principal with annual interest within twenty-five years would be to create the maximum amount of disturbance if not actually to render the task an impossible one. If, however, we had lent the money, not for productive, but for war purposes, we should know that only by funding the debts over a very lengthy period could we hope to avert complete disorganization of the exchanges and continued inter- ruption to international trading. Therefore, the City regrets that our representatives should be invited to discuss the question of funding the British debt under such circumscribed conditions, because they scarcely seem to be worthy of the occasion or of the great and friendly creditor-country whose financial resources, and therefore whose financial responsibilities, have been so enormously increased as a consequence of the War.—I am, Sir, yours faithfully, Aarnua W. KIDDY. The City, December 20th.
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