§ The CHANCELLOR of the EXCHEQUER (Mr. Lloyd George)I shall do my best to conform to the announcement of the Prime Minister that the statement] shall make about the Financial Conference in Paris will be a brief one, but I am afraid my right hon. Friend assumed that we are all endowed with the extraordinary gift of compression which he himself possesses. The arrangements that were made between the three Ministers for recommendation to their respective Governments commit us to heavy engagements, and it is, therefore, important I 910 should report them in detail to the House of Commons, and assign some reason why we should undertake such liabilities. This is the most expensive War that has ever been waged—in material, in men, and in money. The Conference in Paris was mostly concerned with money. For the year ending 31st December next the aggregate expenditure of the Allies will not be far from £2,000,000,000. The British Empire will be spending considerably more than either of our two great Allies—probably up to £100,000,000 to £150,000,000 more than the highest figure spent by the other two great Allies. We have to create a New Army, we have to maintain a huge Navy, we are paying liberal separation allowances, we have to bring troops from the ends of the earth, we have to wage war not merely in Europe, but in Asia, in North, East, and South Africa.
I must say just a few words as to the relative positions of the three great countries which led us to make the arrangement which we recommend to our respective Governments on financial matters. Britain and France are two of the richest countries in the world; in fact, they are the great bankers of the world. We could pay for our huge expenditure on the War for five years, allowing a substantial sum for depreciation, out of the proceeds of our investments abroad. France could carry on the War for two or three years at least out of the proceeds of her investments abroad, and both countries would still have something to spare to advance to her Allies. This is a most important consideration, for at the present moment the Allies are fighting the whole of the mobilised strength of Germany with, perhaps, less than one-third of their own strength. The problem of the War to the Allies is to bring the remaining two-thirds of their resources and strength into the fighting line at the earliest possible moment, and this is largely, though certainly by no means entirely, a question of finance. Russia is in a different position from either Britain or France. She is a prodigiously rich country in natural resources—about the richest country in the world in natural resources: food, raw material—she produces practically every commodity. She 911 has a great and growing population, a virile and an industrious people; her resources are overflowing, and she has labour to develop them in abundance. By a stroke of the pen Russia has, since the War began, enormously increased her resources by suppressing the sale of all alcoholic liquors. It can hardly be realised that by that means alone she has increased the productivity of her labour by something between 30 and 50 per cent., just as if she had added millions of labourers to the labour reserve of Russia, without even increasing the expense of maintaining them. And whatever the devastation of the country may be, Russia has more than anticipated the wastage by that great act of national heroism and sacrifice. The great difficulty with Russia is that, although she has great national resources, she has not yet been able to command the capital within her own dominions to develop those resources even during times of peace. In times of war she has additional difficulties. She cannot sell her commodities for several reasons; one is that a good deal of what she depends upon for raising capital abroad would be absorbed by the exigencies of the war in her own country. Beyond that, the yield of her minerals will not be quite as great, because the labour has been absorbed in her armies. There is not the same access to her markets. She has difficulty in exporting her goods, and, in addition to that, her purchases abroad are enormously increased in consequence of the War. Russia, therefore, has special difficulties in the matter of financing outside purchases for the War.
Those are some of the difficulties with which we were confronted. France has also special difficulties. I am not sure that we quite realise the strain put upon that gallant country up to the present moment. For the moment she bears far and away the greatest strain of the War in proportion to her resources. She has the largest proportion of her men under arms. The enemy are in occupation of part of her richest territory; they are within fifty-five miles of her capital—exactly as if we had a huge German army at Oxford. It is only 912 a few months since the bankers of Paris could hear the sound of the enemy's guns from their counting-houses, and some of them can hear the same sound now from their country houses. Under these circumstances the money markets of the country are not at their very best. That has been one of the difficulties with which France has been confronted in raising huge sums of money to carry on the War and helping to finance the Allied States. There is a wonderful confidence, notwithstanding these facts, possessing the whole nation. Nothing strikes the visitor to Paris more than that. There is a calm and serene confidence, which is supposed to be incompatible with the temperament of the Celt by those who do not know him. There is a general assurance that the Germans have lost their time, and that now the German Armies have as remote a chance of crushing France as they have of over-running the Planet Mars. That is the feeling which pervades every class of the community, and that is reflected in the money markets there. The difficulties of France in that respect are passing away, and the arrangement that has now been made in France for the purpose of raising sums of money to promote military purposes, I have not the faintest doubt, will be crowned with the completest success. But we have a number of small States, which are compelled to look to the greater countries in Alliance for financial support.
There is Belgium, which until recently was a very rich country, devastated, desolate, and almost entirely in the hands of the enemy with an Army and a civil government to maintain, but with no revenue. We have to see that she does not suffer until the period of restoration comes to her and compensation. There is Serbia, with the population of Ireland, a people of peasants maintaining an Army of 300,000 and fighting her third great war within two years, and fighting that with great resource and great courage and bravery, but with no reserves of wealth and now no exports with which she can purchase munitions of war outside, and she has hardly any manufacture of her own. That is the position as far as the small States are concerned. There are also other 913 States preparing for war, and it is obviously our interest that they should be well equipped for their task. They can only borrow, in the French and English markets. We had our own special difficulties and I think I ought to mention those. Two-thirds of our food supplies are purchased from abroad. Enormous quantities of raw material for our manufactures and our industries are largely absorbed in war equipment and our ships in war transport. We cannot pay, as usual, in exports and freights and services, and our savings for the moment are not what they would be in the case of peace. We cannot therefore pay for our imports in that way. We can purchase abroad and we have increased our purchases abroad for war purposes, and in addition to that we have to create enormous credits to enable other countries to do the same thing. The balance is therefore heavily against us for the first time. There is no danger; but in a conference of the kind we had in Paris I could not overlook the fact that it was necessary for us to exercise great vigilance in regard to our gold. These were the complex problems we had to discuss and adjust, and we had to determine how we could most effectually mobilise the financial resources of the Allies so as to be of the greatest help to the common cause.
For the moment, undoubtedly, ours is still the best market in the world. An Alliance in a great war, to be effective, means that each country must bring all its resources, whatever they are, into the common stock. An Alliance of war cannot be conducted on limited liability principles. If one country in the Alliance has more trained and armed men ready with guns, rifles and munitions than another allied country can command, 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. It is equally true that the same principle applies to a country with a larger Navy, or the country with greater resources of capital and credit—they must be made available to the utmost for the purposes of the Alliance whether the other countries are in the position to make a smaller contribution or not. 914 That is the principle upon which the conference of Paris determined to recommend to their respective Governments, a mobilisation of our financial resources for the War.
The first practical suggestion we had to consider was a suggestion that has been debated very considerably in, the Press, the suggestion of a joint loan. We discussed that very fully, and we came to the conclusion that it was the very worst way of utilising our resources. It would have frightened every Bourse and attracted none; it would have made the worst of every national credit and the best of none. Would the interest paid have been the interest at which we could raise money, or the rate at which France or Russia could raise money? If we paid the high rate of interest we could never raise any more money at a low rate. If, instead of raising £350,000,000 a few weeks ago for our own purposes we had floated a great joint loan of £1,000,000,000, the House could very well imagine what the result would have been. We decided, after a good deal of discussion and reflection, that each country should raise money for its own needs within its own markets in so far as its conditions allowed, but that if help were needed by any country for outside purchases, then those who could best afford to render assistance for the time being should do so. There was only one exception which we decided to recommend, and that was in the case of borrowing by small States. We decided that each of the three great allied countries should contribute proportionately to every loan made to the smaller States who were either in with us now or prepared to come in later on, that the responsibility should be divided between the three countries, and that at an opportune moment a joint loan should be floated to cover the advances either already made or to be made to those countries outside the three great allied countries. That was the only exception we made in respect of the joint loan.
Up to the present very considerable advances have been made by Russia, France and ourselves to other countries. It is proposed if there is an opportune moment in the market that these should 915 be consolidated at some time or other, and that they should be placed in one loan upon the markets of Russia, France and Great Britain, and that the liability should be divided into three parts.
With regard to Russia we have already advanced her £32,000,000 for purchases here and elsewhere outside the Russian Empire. Russia also shipped £8,000,000 of gold to this country, so that we have established credits in this country for Russia to the extent of £40,000,000 as against the £8,000,000 of gold already shipped to this country. France has also made advances in respect of purchases in that country, and Russia estimates that she will still require to establish considerable credits for purchases made outside her own country between now and the end of the year. I am not sure at the moment that it would be desirable for me to give the exact figures. I think it would be better not to do so because it would give an idea to the enemy of the extent to which purchases have to be made by Russia outside, but for that purpose she must borrow. The amount of her borrowing depends upon what Russia can spare of her produce to sell in outside markets and also on the access to those markets. If Russia is able, within the course of the next few weeks or few months, to export a considerable quantity of her grain—as I hope she will be and as in fact we have made arrangements that she should—then there will not be the same need to borrow for purchases either in this country or outside, because she can do her own financing to that extent. The two Governments decided to raise the first £50,000,000 in equal sums on the French and British markets respectively. That will satisfy Russian requirements for a very considerable time.
As to further advances, the allied countries will consider when the time arrives how the money should be raised according to the position of the money markets at that time. I have said that we gave a guarantee to Russia that she need not hesitate a moment in giving her orders for any purchases which are 916 necessary for the War on account of fear of experiencing any difficulty in the matter of raising money for payments. We confidently anticipate that by the time these first advances will have been exhausted the military position will have distinctly improved both in France and in Russia. I may say that Treasury Bills to the extent of £10,000,000 on the credit of Russia have been issued within the last few days. At 12 o'clock to-day the list closed, and the House will be very glad to hear that the amount was not merely subscribed but over-subscribed by the market, because this country is not quite as accustomed to Russian securities as France, and, therefore, it was an experiment. I think it is a very good omen for our relations, not merely during the War but for our relations with Russia after the War, that the first great loan of that kind on Russian credit in the market has been such a complete success.
We have to consider the position of this country with regard to the possibility of our gold flitting in the event of very great credits being established in this country. The position of the three great allied countries as to gold is exceptionally strong. Russia and France have accumulated great reserves, which have been barely touched so far during the War. I do not think the French reserve has been touched at all, or has been used in the slightest degree, and I think as far as the Russian reserve is concerned it has only been reduced by the transfer of £8,000,000 of gold from Russia to this country. Our accumulation of gold is larger than it has ever been in the history of this country. It has increased enormously since the commencement of the War. It is not nearly as large as that of Russia, France or Germany, but it must be borne in mind that there is this distinction in our favour: Up to the present we have had no considerable paper currency, and this is the great free market for the gold of the world. The quantity imported every year of—what shall I call it?—raw gold comes to something like £50,000,000. The collapse of the rebellion in South Africa assures us of large and steady supplies from that country, and therefore there 917 is no real need for any apprehension. Still it would not have been prudent for us to have overlooked certain possibilities. I have already pointed out some of them—the diminution of exports, the increase of our imports, the absorption of our transports for war purposes, large credits established for our own and other countries, and a diminution in our savings for investments abroad. There is just the possibility that this might have the effect of inducing the export of gold to other countries. We have to husband our gold and take care lest it should take wings and swarm to any other hive. We therefore made arrangements at this Conference whereby, if our stock of gold were to diminish beyond a certain point—that is a fairly high point—the banks of France and Russia should come to our assistance.
We have also made arrangements whereby France should have access to our markets for Treasury Bills issued in francs. We have also initiated arrangements which we hope will help to restore the Exchanges in respect of Bills held in this country against Russian merchants, who, owing to the present difficulties of Exchange, cannot discharge their liabilities in this country. They are quite ready and eager to pay, they have the money to pay, but owing to difficulties of Exchange they cannot pay Bills owing to this country. We therefore propose to accept Russian Treasury Bills against these Bills of Exchange due from Russian merchants, Russia collecting the debts in roubles in her own country and giving us the Treasury Bills in exchange. We hope that will assist very materially in the working of the Exchanges. It will be very useful and helpful to business between the two countries, and incidentally it will be very helpful to Russia herself in raising money in her own country for the purpose of financing the War. We also received an undertaking from the Russian Government in return for these advances which we were prepared to make, that Russia would facilitate the export of Russian produce of every kind that may be required by the allied countries. This, I believe, will be one of the most fruitful parts of the arrangements entered into.
918 An arrangement has also been made about the purchases by the allied countries in neutral countries. There was a good deal of confusion. We were all buying in practically the same countries. We were buying against each other. We were putting up prices. It ended not merely in confusion, but I am afraid in a good deal of extravagance, because we were increasing prices against each other. It was very necessary that there should be some working arrangement that would eliminate this element of competition and enable us to co-ordinate as it were these orders. There will be less delay, there will be much more efficiency, and we shall avoid a good deal of the extravagance which was inevitable owing to the competition between the three countries. I have done my best to summarise, very briefly, the arrangements which have been entered into, and I would only like to say this, in conclusion. After six months of negotiation by cable and three days of conferring face to face we realised that better results were achieved by means of a few hours of businesslike discussion by men anxious to come to a workable arrangement than by reams of correspondence. Misconceptions and misunderstandings were cleared away in a second which otherwise might take weeks to ferment into mischief, and it was our conclusion that these conferences might with profit to the cause of the Allies be extended to other spheres of co-operation.
§ 4.0 P.M.
§ Mr. CHAMBERLAINThere is no Motion before the House, and I can see I shall be entirely out of order in attempting to follow the Chancellor of the Exchequer in the statement which he has made. It is, however, a statement which I think the House ought to have an opportunity of discussing. It reveals to the country and to the House that our Government have undertaken very extensive obligations, and I would like to ask the Chancellor of the Exchequer when and what is the opportunity which we shall have for a discussion of these matters. I do not like even to put that question for an opportunity of discussion without saying, by permission 919 of the House, on the broad principle laid down by the Chancellor of the Exchequer—that in this matter the Allies must mobilise their financial resources as much as their directly military resources, and that the financial resources of all must be at the service of all as much as the military resources—that I am in entire agreement with him on the whole, and I would like to add that the measures which he has sketched seem to me well suited for the purpose for which they are framed. I myself regret that a joint loan has been sanctioned, even on the diminished, restricted scale of which the Chancellor of the Exchequer spoke, for I think even on that scale it is open to the objection which he made to a loan of that character on a larger scale. I do not want to criticise, I rather wanted to preserve the unanimity of the House in this as in other matters. I will only add I venture to hope that the Chancellor of the Exchequer feels, in regard to the gold reserves of this country and of the Allies, that the path of safety is to be found in the boldest use of those resources which these three great nations have.
§ The PRIME MINISTER (Mr. Asquith)Certainly, if it is desired by the House that there should be an opportunity to discuss the Chancellor of the Exchequer's statement, time will be given to consider it, probably next week.