§ I think the Allied countries ought to determine the part they wish Britain to play in the combination, and the best service she can render. What service can Britain render to this great combination? She can keep command of the seas for the Allies. She has done so, and she will maintain complete control to the end. That is the invaluable service which she is rendering to the Allies. It is essential to the ultimate success of their arms, especially in a prolonged war, because the longer the war the more the command of the sea counts. Supplies come from overseas, there is the freedom to choose the point of attack, and there are various other points which I need not labour. What is the second service which Britain could render? She could, of course, maintain a great Army, putting the whole of her population into it, exactly as the Continental Powers have done. What is the third service? The third service which she can render is the service which she rendered in the Napoleonic war, of bearing the main burden of financing the Allied countries in their necessary purchases for carrying on the War—purchases outside their own country more especially; and also to help the Allies with the manufacture of munitions and equipments of war. Britain can do the first, she can do the third, but she can only do the second within limits, if she is to do the first and the last, and I think that is important.1015
§ We have raised enormous numbers of men in this country, but I say, speaking now purely from the point of view of finance, that the time has come when there should be discrimination, so that recruiting should not interfere with the output of munitions of war, and that it should interfere as little as possible with the output of those commodities which we export abroad, and which enable us to purchase munitions for ourselves and our Allies. Within these limits there is still great room for adding to the number of recruits in this country. I feel it my duty, as Finance Minister, to take that view, and it is the view taken by those who have much greater responsibility for recruiting than I have. But even if we maintain our exports at our present figure, there is still a gigantic problem left. We have to raise in this country £1,100,000,000 for financing the operations of the War here and abroad. We have to find between £300,000,000 and £400,000,000 for purchases abroad. The problems are full of difficulties and perplexities, but they are not insuperable if the nation has the temper and the necessary unity to face them.
§ 5.0 P.M.
§ What are the possible means of bridging this great deficiency? There is first of all the paper bridge—what is known as the dilution of the currency. Diagnose it, disguise it as they will, there are many girders in the German financial bridge which are made of paper, and no amount of paint and varnish will disguise that fact. It is a very easy method, a very tempting method. You appear to get over your difficulties in the simplest way, and it is very difficult for anyone to point out where you are going wrong for the moment, or for some time. But, looking at it most carefully, it is simply an indirect method of levying taxes upon the income of the people. You water the currency and prices go up. A country which has no foreign trade, which is the case in Germany now, can do it. A country which has still a great international trade cannot do it. Gold would vanish, and there would be an advance in prices which would be of a most serious character. Therefore, that is a course which I should say would be a fatal one for a Chancellor of the Exchequer to pursue in order to get over his difficulties in meeting a great deficiency.1016
§ What is the second method? The second method is a method which is already pursued by Germany, and I am not at all sure that she is not pursuing it now in the United States of America, and that is the sale of her existing securities, or the creation of new securities by borrowing abroad, both of them perfectly legitimate but only helpful within limits, and the difficulty is to ascertain those limits. The market is a very limited one, and if more securities were placed on a foreign market, that it could readily digest, the losses would be enormous. What would happen? It would leave us much poorer at the end of the War. It would have the effect of putting up the rate of interest against us and therefore adding to our permanent burdens. It would also in the end put up the prices of food and raw material. Therefore, that is a course which we should only pursue carefully and guardedly, and within limits which we must carefully find out, and which the markets must carefully find out for themselves.
§ What is the third, and, in my judgment, the only straightforward and reliable course which would help us through the War, and what is still as important, see that we are not damaged after the War. There is always a great temptation in times of stress for men to take a course which will enable them to get through that particular stress without, thinking of what the results will be. What is that third course? Depend more largely upon the income of the country.