HC Deb 14 December 1932 vol 273 cc353-486
The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

I beg to move, "That this House do now adjourn."

3.30 p.m.

I rise for the purpose of making the statement about the American Debt which was promised by my right hon. Friend the Lord President of the Council on Monday last. It will be for the convenience of the House that I should make such a statement as a preliminary to the discussion which is to take place, and it had been intended that my right hon. Friend the Prime Minister should wind up the Debate to-night, but I am sorry to inform the House that he is still suffering from a very severe cold, which has been, I am afraid, aggravated by his travels to Geneva and to Paris, and he is confined to the house. In those circumstances, if the House will extend to me its indulgence, I think perhaps it would be best that I should myself wind up and reply to any points which have been raised in the course of the Debate. During the last month, when Notes have been passing between the United States Government and the British Government, the House has been extraordinarily tolerant, and has abstained from asking that there should be any Debate on the subject.

The Government very warmly appreciate that attitude on the part of the House. No doubt hon. Members have realised that discussion cannot be confined to the Members of this House, and that anything that is said here is naturally made known elsewhere, and that a Debate in which it would be necessary not merely to give explanations, but perhaps possibly to state intentions, might have been extremely embarrassing while negotiations were still in progress. Now that the exchange of Notes has been concluded we welcome very warmly the opportunity of making our statement to the House, because we have naturally felt at some disadvantage while communications from us were being published without the comment which, but for the circumstances I have mentioned, would naturally have accompanied them.

I might, perhaps, have begun my story with the conclusion of the Lausanne Conference, which has already been discussed in this House, but I think it would be better that I should go back a little further, because it is only by examining the whole history of this affair that it is possible to realise how strong is the title of this country to claim that the whole subject of debts should be revised; how consistently and persistently successive British Governments have from the beginning urged the cancellation of the whole of Reparations and War Debts; how reluctantly other countries have accepted that view, but how steadily they have been forced by the power of hard facts and by bitter experiences to come closer and closer to the point of view originally enunciated by the British Government. I would like to add this, that when we are told that contracts must be kept sacred, and that we must on no account depart from the obligations which we have undertaken, it must not be forgotten that we have other obligations and responsibilities, obligations not only to our own countrymen but to many millions of human beings throughout the world, whose happiness or misery may depend upon how far the fulfilment of these obligations is insisted upon on the one side and met on the other.

I may remind the House that the whole of our debt to the United States was incurred after that country had entered the War. Our expenditure in the United States after they had joined us amounted to £1,444,000,000, out of which we found from our own resources £258,000,000. We were reimbursed by our Allies, for expenditure on their behalf, £371,000,000, and the remainder of the £1,444,000,000, namely, £815,000,000 was financed by a loan from the United States Government. I would like to emphasise that the whole of that expenditure for the purposes of the War. The whole of it was expended on goods purchased in the United States, some of it on munitions, some on food, some on clothes. Whether it took the form of munitions which were blown to pieces in Flanders, or of food which was consumed by our people and our soldiers, or of uniforms which were worn to rags in the course of the fighting, the whole of that expenditure was just as non-productive as if it had been spent entirely upon tanks or artillery or shells. There was no addition to the wealth of this country, and really there is no distinction between the various war services upon which that money was spent.

When, however, the War was over we were left with this huge debt to the United States, incurred for a purpose in the pursuit of which she as well as we had been engaged; on their part our Allies also had incurred great debts; while upon Germany lay the immense burden of reparations. The question was how these debts were to be dealt with. Very early in the history of the post-war period the British Government came to this conclusion, that payment of these great inter-Governmental obligations inevitably postponed indefinitely the economic recovery of the world. On the 5th August, 1920, the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George), who was then Prime Minister, wrote to President Wilson that the British Government had informed the French Government that it would agree to any equitable arrangement for the reduction or cancellation of inter-Allied indebtedness, but that such an arrangement must be one that applies all round. President Wilson's reply was not encouraging. He said: The United States Government is not prepared to consent to the remission of any part of the debt of Great Britain to the United States, and he asked that a British representative should go to Washington without delay to fund the War Debt. After that, the Coalition Government had, I believe, decided to send a Mission to the United States, in order to carry out the funding of the Debt. In the meantime, the Balfour Note had been published.


I am sorry to interrupt the right hon. Gentleman. I have been looking up all my documents. The sending of the Mission to America was part of the discussion on the Balfour Note, and therefore the Balfour Note was part of the instructions of whoever was to be sent there.


I was not going to say anything different from that. I am only endeavouring to give a brief historical survey. I recall the terms of the Balfour Note, which said that the British Government was in favour of writing off, through one great transaction, the whole body of inter-Allied indebtedness. Failing this, it was said, we do not in any event desire to make a profit, and in no circumstances do we propose to ask more from our debtors than is necessary to pay our creditors"; Then it was added: and while we do not ask for more, all will admit that we can hardly be content with less. I would just like to remind the House of what our position as to debts was at that time, as detailed in the Balfour Note. There was due to us by Germany £1,450,000,000; by France, Italy and other European debtors, £1,300,000,000; by Russia £650,000,000, making a total owed to us of £3,400,000,000.


May I ask the right hon. Gentleman—




I shall be glad if the hon. Member will allow me to finish. Against that, our debt to the United States of America, together with accrued interest at that time, amounted to £850,000,000. The House will see therefore that in the Balfour Note what we offered was, preferably, total cancellation all round, and failing that, an offer on our part to waive our surplus of £2,550,000,000. It is seen how ready were the Government of this country to show their good faith and their sincerity in their affirmations, by sacrifices on the part of the British taxpayer. Before the Mission of the Coalition Government could go to America, that Government fell, and consequently it became the task of my right hon. Friend the Lord President of the Council to carry out the agreement with the United States. My right hon. Friend is sometimes accused of having invented the American Debt. Imaginative journalists, with more than a spice of malice in their hearts, have accused him of having fastened the burden of the American Debt upon the shoulders of this country. Of course, the fact was that the debt existed before my right hon. Friend went to the United States. It existed in the form of notes of hand payable on demand, and what in fact my right hon. Friend was able to do was to obtain a remission of the debt which, on the basis of 5 per cent. interest, amounted to 28 per cent. of the original figure. In our turn, we also carried out funding agreements, and my right hon. Friend the Member for Epping (Mr. Churchill) in 1926 made an agreement with the Italian Government which scaled down their debt, on the same basis, by no less than 86 per cent., and in the same year he made an agreement with the French Government which scaled down theirs, still on the same basis, by 62 per cent.

In the meantime, Reparations also had begun the downward path. In 1924, under the Dawes Agreement, the original fantastic figure, as it sounds to us now, of £6,600,000,000 of Reparations was brought down to a total capital liability of about £2,000,000,000. In the early days of those agreements, and in the early days of the Dawes Plan, the annuities payable by Germany were paid without much difficulty, partly because the early payments were smaller in character than the later ones, but largely also because at that time the United States of America was lending very large sums to Europe. In fact, the real position was that the Reparations were being paid out of the American loans to Germany, and the allied countries out of these Reparations were paying their annuities to the United States.

Unfortunately, that was not a position which could go on indefinitely. In 1929 there began that great fever of stock exchange speculation in the United States, and instead of long-term loans to Europe, only short-term credits were at that time granted, in the hope and expectation that very soon these short-term credits would be replaced by further long-term loans. In October of that year, came the crash on the American stock exchange, and immediately all the short-term credits were withdrawn, so far as that was possible, and the crisis arose which hon. Members have not forgotten. In 1930, it was seen that the annuities fixed under the Dawes Plan for Germany. were still too high, and, with the extraordinary optimism which has characterised the proceedings of the nations all through this history, a final settlement was made with Germany under the Young Plan, by which the 2,000,000,000 to which I have already alluded was scaled still further down to £1,600,000,000.

So we see, as I said before, that step by step the nations were being forced to come nearer and nearer to the goal which we had set before ourselves at the outset. In May, 1931, the confidence in Europe had so far disappeared, and credits were so far frozen, that it was no longer possible to avoid disaster. The Credit Anstalt fell, and very soon it became clear that Germany herself was heading for bankruptcy, and that those loans which had been made by the United States and by other countries to Germany and to some of her neighbours were likely in all probability to become a total loss.

It was in these circumstances that, in June, 1931, President Hoover proposed a moratorium. He proposed, not a moratorium only of War Debts, but, by implication, he recognised the connection between War Debts and Reparations, for his proposal was that all inter-governmental debts should be suspended for the space of one year. Many people thought at the time that one year was not nearly enough, and they have been proved to be right since; but, for the moment, the Hoover Moratorium saved the situation, and once again hope sprang in the breasts of those who had so often hoped in vain before, for it was thought possible that, when the Hoover Moratorium came to an end, circumstances would have so changed that the resumption of those debts could begin again.

In July of that year, as affairs were still serious, there took place the London Conference. Once again, at the London Conference in July, the British Government urged its old policy of cancellation. Unfortunately, neither the American nor the French representatives at that conference were at that time prepared to entertain any proposal of the kind. The London Conference, therefore, failed to achieve any improvement in the situation so far as inter-governmental debts were concerned.

Now we are getting very close to the events which led up to the Lausanne Conference. I would like, first, to recall that, in October of 1931, the French Prime Minister, at that time M. Laval, paid a visit to Washington, where he had conversations with President Hoover, and at the end of those conversations a communiqué was issued at Washington, from which I quote these words: Prior to the expiration of the Hoover year some agreement on inter-governmental obligations may be necessary covering the period of business depression. The initiative in this matter should be taken early by the European Powers principally concerned, within the framework of the agreements existing prior to the 15th July, 1931. I may say that the United States Government indicated also to the British Ambassador that, if the European Powers devised a reasonable reparations settlement, this would be the best method of approach with a view to the revision of the War Debts due to the United States of America. That is an important matter, because it is the justification for the statement in a recent British Note that the initiative taken by the European countries at the Lausanne Conference was taken with the cognisance and approval of the United States Government. In December of last year, the Special Advisory Committee appointed under the Young Plan, on which, of course, an American representative sat, issued a report in which they said: The adjustment of all inter-governmental debts, reparations and other war debts, to the existing troubled situation of the world—and this adjustment should take place without delay if new disasters are to be avoided—is the only lasting step capable of re-establishing confidence, which is the very condition of economic stability and real peace. We appeal to the Governments on whom the responsibility for action rests to permit of no delay in coming to decisions which will bring an amelioration of this great crisis which weighs so heavily on all alike. I think the House will see, then, that there were direct invitations to the European Powers to get together at the earliest possible moment to exercise their initiative to try and settle among themselves reparations, namely, that part of the twin problem which concerned them; and they had at least good reason to suppose that, if they could come to a successful conclusion there, they would have made the best approach possible to a revision of the War Debts due to America. It was hoped to hold the Lausanne Conference in the first month of the present year. Owing, however, to the elections in Germany and France, the Conference had to be postponed, and, in fact, it was not possible to hold it until June. But the time thus spent was not wasted, because during the six months a very remarkable change took place in European public opinion, and particularly in France; and, owing largely to that change in public opinion, it was found possible to achieve at Lausanne a success far more complete than at least was anticipated, I think, by most people before the actual Conference had begun.

The effect of Lausanne was that it put an end to the existing system of Reparations, and the Conference opened in a far more favourable atmosphere to the views which had been so constantly urged by the British Government than had ever existed before. I know that an opinion has been expressed that, if we had only been sufficiently persistent, we might have obtained at Lausanne a total cancellation. That is a matter which is incapable of proof. All that we can say is that we did our best, and, if we did not actually obtain total and complete cancellation, at any rate we got something very near it, since the ultimate maximum liability to which Germany is now exposed in respect of Reparations is only £150,000,000, instead of the £1,600,000,000 at which it was left under the Young Plan.

I may say, in passing, that the renewal of confidence which followed upon the success of the Lausanne Conference had very wide results, and, among other things, it is fair to say that the value of the money which had been lent by the United States to Europe was very materially appreciated, if not saved altogether, by the success of that Conference. But I would also like to say that Lausanne was really only the second stage in the process of putting an end to the whole system of Reparations. The first stage was the Hoover Moratorium, which, whatever its intentions, in fact profoundly modified and changed the whole situation in regard to the system of Reparations and War Debts.

In my opinion, the Hoover Moratorium was wise and praiseworthy. I believe it did, as I said before, save the situation in Europe at the time, but it was no use to think that once that Moratorium had been put into operation it was possible to go back to the system which existed before. It had a very important bearing upon how far agreements made before the Hoover Moratorium still held their old force. It was, of course, only a provisional settlement that was arrived at at Lausanne. Although the American Government had more than once expressed the view that there was no connection between Reparations and War Debts, they could not prevent the actual fact that there must be such a connection in the minds of the debtor countries. It would have been impossible for any of the signatories of the Lausanne Conference to contemplate a future system under which they could have released their debtors to them from all obligations, and at the same time be released from none of their obligations to their creditors, and, of course, that was a maxim which applied just as much to the debts owing to the United Kingdom as to the debts owing to the United States.

At Lausanne, the British Government once again urged the policy of cancellation, and once again stated that, failing total cancellation, they still stood by the policy of the Balfour Note, that is to say, they would ask for no more from their debtors than they were obliged to pay to their creditors. But, at the same time, as I said before, they could hardly be content to ask for less, and if the United States of America had been willing to send a, representative to Lausanne, then, indeed, we might have made a final settlement upon the spot; but since they were rot willing to do that, since we had Lo carry on the discussions on Reparations without them, all we could do was to make conditional settlement, only we anticipated that we should be able to enter upon discussions with the United States Government, not immediately, it is true, owing to the intervention of the Presidential Election, but as soon as that. election was over, and we undertook, accordingly, that we would suspend any request for payment in respect of Inter-Allied Debts until either the Lausanne settlement was ratified, or until it was decided that no ratification was possible, it being understood that ratification by the signatories of the Lausanne Conference would depend upon their obtaining a satisfactory settlement with the United States.

Now I come down to the present negotiations, which, no doubt, are fresh in the minds of all hon. and right hon. Members. The first step was taken by the transmission of the British Note of 10th November in which we asked two things—for an exchange of views between the two Governments upon the whole question of the Debt as it then stood, and, secondly, for a. suspension of the payment which would fall due in the ordinary course on 15th December. I must say that I had been sanguine enough to hope that we should have had a ready response to both those requests. So far as suspension was concerned, that could have been allowed without the slightest prejudice to the ultimate settlement. Indeed, we specifically stated that that was our desire, and that having been the course that we had followed ourselves at Lausanne with our debtors, we did not see any valid reason why similar treatment should not be meted out to us. However, we were disappointed to receive the note of 23rd November in which the United States Secretary of States said: As to the suspension of the instalment due on the 15th December, no authority lies within the Executive to grant such an extension, and no facts have been placed in our possession which could be presented to Congress for favourable consideration. We understood those last words to be, in fact., an invitation to us to supply the facts, and, accordingly, in the longer Note of 1st December, we developed at considerable length the conclusions at which we had arrived that any resumption of the War Debt payments would be bound to accentuate gravely the present crisis. In the meantime, we explained fully the reasons which had actuated us in asking for a suspension. Once again I had hoped that that Note, which was expressed in moderate terms, but which sought to set out as fully as was necessary all those broad considerations which had weighed so much with us—I had hoped that that Note, which seemed so convincing to the people of this country, would also carry weight on the other side. I hoped that we might then have obtained that suspension for which we had asked, for I feared that if the payment on 15th December were insisted upon, one of the results might be default on the part of one or more of the European debtors. I thought, perhaps, that Congress was assuming too readily that they had only to say "Pay," and the payment would be made, and it seemed to me that if default took place on the part of some of the European debtors, it might make it hereafter more difficult to obtain that satisfactory settlement of all the debts to the United States Govern-men which would be necessary if the Lausanne settlement was to be ratified.

Again, we were disappointed. It is true that there was one proposal discussed through diplomatic channels which for a moment led us to hope that we might be able to arrive at some agreed method of postponement. The proposal had reference to the issue of serial bonds for the amount of the instalment which would become payable at different maturities, but, unhappily, when it came to be examined more closely, it turned out that it was necessary that those bonds should be in such a form as to be marketable on the New York Stock Exchange, and it was, in fact, intended that the United States should so market them. It was obvious, of course, that that was not a postponement at all. It was merely another way—not a very agreeable way—of making payment, and, indeed, we were given to understand that cash, and cash only, would content the members of Congress. Therefore, while we appreciated the efforts of the American Government to facilitate the means of payment, we did not feel able to take advantage of them. We were obliged to express to them our conviction that suspension alone would overcome those difficulties, and our regret at their decision that they had not been able to recommend this solution to Congress.

What were we to do in view of that refusal to entertain suspension? There were three courses which were open to us. We could have declined to pay on the ground that payment would have still further aggravated the serious situation in the world. We could have invited the United States Government, or the United States Secretary of the Treasury to exercise his power of waiving the 90 days' notice, and have requested that payment of the principle should be postponed w1hile interest was paid. Or, thirdly, we could pay in full. I need hardly say that the Government very carefully considered all these alternatives before coming to a decision. If we had adopted the first, whatever motive we might have adduced for our action, it would, in fact, have been equivalent to default, and a default by the British Government, on a sum which they could not truthfully say they were unable to pay, would have resounded all round the world. It might have been taken as a justification for other debtors to follow their example, and, further than that, a default at that time and in those circumstances would have administered a shock to the moral sense of our people which might have had a very profound effect upon our whole conception of the meaning of obligations, public or private, with consequences that one could only guess at. We felt that in such circumstances we could not contemplate that alternative. We rejected the second alternative also. We had put forward reasons, based on very wide considerations, for the suspension of the whole payment. Our request had been refused. After that, to have gone again to make a plea in forma pauperis that we should be let off a part of the payment would not have been a dignified proceeding, and, indeed, it might have prejudiced the final settlement at which we hope to arrive later on. Therefore, we decided upon the third alternative, to pay in full.

I have heard or have seen suggestions that we should have done better, when we had decided to pay in full, to pay and say nothing about it. If we had taken that course, consider what would have been the consequences. If we had done that, this payment of approximately $100,000,000 would necessarily have been taken out of the purview of the final revision of the debt. We could not have re-opened it. It would have been a part of past history. It would have gone with the other payments that we made before the Hoover Moratorium. But, further than that, if we had made this payment at the same time relinquishing all idea of discussing that payment as part of a final settlement, what would have been our position with regard to the debts owed to us. It would not have been possible to say anything on that. We should have been obliged at once to inform our Allies that we expected them to make a payment to us in respect of their debt corresponding to the payment that had been made to the United States. The mischief would not have stopped there, because the Allies must necessarily have passed on their request to Germany to begin again the payment of reparations.

Quite apart from what might have been the ultimate results of requests of that kind passing from Government to Government, will the House consider for a moment how that would have affected the good will existing between European nations, how it would have affected their relations, how it would have affected the prospects, for instance, of the Disarmament Conference which, thanks to the efforts principally of the Prime Minister, has now apparently been got going again. We could not leave our payment to be taken as though we were resuming the old system of War Debt payments. We could not leave Congress under any misapprehension as to what our views were about the possibility of continuing such payments in the previous form in the future, and, therefore, we considered it necessary, while informing the United States Government of our determination to pay the instalment, to intimate at the same time our intention, when the discussions on the final settlement began, to put forward our contention that the old regime which was interrupted by the Hoover Moratorium can never be revived. Therefore, the payment which we have made meeting our obligations is not to be taken as implying a revival of the old system, but it must be taken into account when we are considering the new regime which will be expected to result from the discussions with the United States Government. I think our position has been made perfectly clear to the United States Government by the last exchange of notes, as theirs has been made clear to us.

I want to return for a moment to the position which was established at Lausanne between our debtors and our- selves. I am surprised at the amount of misunderstanding which seems to have existed on this subject, and which I cannot imagine could have arisen if the actual terms of the Lausanne Agreement had been carefully studied. Under that agreement no payment was to be exacted from any of our debtors until one of two contingencies arose, either the Lausanne Agreement was ratified after a satisfactory settlement with the United States or it was decided that the Lausanne Agreement could not be ratified by one or other of the signatory Powers in consequence of failure to obtain such a settlement. I would call the attention of the House to this, that under our agreement the complete remission of the Debts owing to us could only be called for on one condition, that is, that our Debt to the United States is completely remitted, including the payment which we are just about to make. That is the only condition on which we are called upon to remit completely the Debts that are owing to us. But on any other terms there is to be a further discussion between our debtors and ourselves. If Lausanne is not ratified, we go back to the legal position that existed before the Hoover Moratorium, though, as I have pointed out, in fact and in reality, we can never resume that position. If we could agree with the United States upon a final settlement under which let us say, for example, some reduced capital sum could be fixed in lieu of the outstanding amount of our Debt, still in that case our debtors must come and discuss with us on what terms and to what extent we shall be prepared to scale clown their Debts to us. Our position in this matter still remains where it was at the time of the Balfour Note. We shall not ask from our debtors more than we are called upon to pay to our creditors, and they can hardly expect us to be content with less.

Perhaps the House might like to be informed as to what is to be the machinery for the payment of the instalment on Thursday. Payment will be made in gold in New York on the 15th of this month. The House may inquire how it is that we have been able to provide for so large an amount of gold to be available in New York at such short notice. For this we have to thank the Federal Reserve Bank of New York, which has been good enough to make an arrangement for the purpose, in co-operation with the Bank of England. Under this arrangement the Federal Reserve Bank will provide in New York the amount of gold required to make the payment. The Bank of England will earmark in London simultaneously for the account of the Federal Reserve Bank an equivalent amount of gold to be taken from the Issue Department. The gold thus earmarked will be later on shipped by the Bank of England in such manner as may be arranged between the Federal Reserve Bank and themselves.

Perhaps there is something further that I ought to add, because it may be that hon. Members may like to have some view as to how this payment is going to affect our financial position, and, in particular, how it may affect the Budget. It would be of no use to pretend that we can view with indifference the loss of this huge quantity of gold, coming perhaps at the most inconvenient season of the year and certainly in circumstances that were quite unexpected. It means a serious weakening of the resources of the Bank, and I think we may expect to see that reflected in some rise in the very low rates which have prevailed for the discounting of bills. I have heard it suggested that the fiduciary issue will be raised. I have no doubt the House is aware that that can only be done by the Treasury on a. representation from the Bank of England. The Bank of England has made no such representation, and I should be surprised if it had, because it is in my opinion very essential at this time that we should not give the impression abroad either that we are careless about our reserves of gold or that we want to mask the real truth or to conceal anything of what is taking place. As to the Budget, the payment will, of course, mean a deficit equivalent to the amount of say the £29,500,000 that is represented in sterling by this payment in gold. I propose to deal with that deficit by having recourse partly to the saving arising from the lower rates of interest on Treasury Bills and partly to the funds provided for sinking funds which are no longer required by Statute on account of the rise in the value of gilt-edged securities. I need hardly say to the House that, while this is a device that can be applied to a single payment, it is not one that can be repeated, and further payments will have to be found out of current revenue. In my opinion, the present condition of taxation in this country is sufficient argument, if argument were required, to prevent us from acquiescing in a treatment of inter-Governmental Debts which would leave us under a liability to pay and without the possibility of receiving.

In conclusion, what about the future I am sure we are all earnestly desirous of making a final and a satisfactory settlement with the United States, feeling that that would have the result of benefiting not only our two countries but the whole world. It is equally important, I think, that we should do all we possibly can to save the settlement that was arrived at at Lausanne. Upon the preservation of that settlement must depend the continuance of harmony among European nations and must depend largely the stability and security of the financial situation of a large part of Europe. We must remember that a selfish game, if it were played by us without regard to the interests of other countries, would be bound, sooner or later, to recoil upon our own heads. Whatever may have been in the past the possibilities of relying upon our own unaided efforts to get us through our difficulties, in these days we cannot shake ourselves free from our international connections. It is only by a policy of frankness, sincerity and loyalty that we can hope to obtain the co-operation of other nations in restoring the vanished prosperity of the world.

4.31 p.m.


The right hon. Gentleman in his admirable speech upon the question of the War Debts to America stated that when the Hoover Moratorium came into existence it was obvious that the old regime which had preceded it could never come back again. I am not certain from his speech as to the attitude which the Government are taking up as regards any further payments to America. I understand from him that the payment which is being made is not regarded as a payment of capital and interest under the old pre-Hoover Moratorium agreement.

Mr. CHAMBERLAIN indicated assent.


I notice that I am right. Therefore, the position which His Majesty's Government are taking up at the moment is that they have already repudiated the American Agreement of 1923, but they have offered to pay, and are paying, a sum towards the capital settlement of the outstanding debt with America. I think that it is right that we should get clear in our minds exactly what is the position which His Majesty's Government have taken up. As far as our party are concerned, we have always believed, and we now believe, in the complete cancellation of War Debts and Reparations. Indeed, as the right hon. Gentleman has said, this country, whatever Government has been in power, has always taken a lead in that direction both in Europe and vis-ávis America. We have constantly urged and supported such a policy, and we have reiterated again and again that the imposition of reparations in the ridiculous astronomical figures that were used at the time of the Versailles Treaty was one of the gravest and stupidest mistakes that civilisation has ever made.


My hon. and learned Friend is not correct. There were no figures, astronomical or otherwise, mentioned in die Versailles Treaty, and he is one out of a great many people who abuse the Versailles Treaty without ever having read a line of it.


Unfortunately, it has been my lot to read it many times for the purpose of legal arguments, and the right hon. Gentleman will excuse me if I impugn his accuracy. I said "at the time of the Versailles Treaty," and not "in the Versailles Treaty." We hope that the American people will come to realise, as the people of this country have realised, that War Debts and these enormous inter-governmental payments which depend upon them and have to be made in respect of capital and interest from year to year must, if civilisation, trade and industry are to continue, be cancelled. But we also agree with the action which has been taken by His Majesty's Government in making this payment, because we believe that at this late time, no arrangement having been made with the United States, it was impossible for us to put forward any substantial and sufficient plea to entitle us not to make the payment. We had the gold; we had the means of transmitting the money without doing any serious damage to our exchange, and it seems to us that, in view of those circumstances, this Government, at any rate, whatever some wicked Socialist Government might have done, could not possibly have put forward any valid excuse.

The attitude which His Majesty's Government are taking up raises a number of very difficult and vital questions as regards other things besides War Debts. The right hon. Gentleman stated in his speech that, of course, other debts were not the same. Default in one kind of debt did not carry with it a right to default in other kinds of debts. I venture to suggest that the main thing which makes the difference as regards default is whether you are the creditor or the debtor, and it so happens that we are in the fortunate position of only being debtors upon this one matter of War Debts. In all other matters concerning international debts, speaking generally, we are creditors. We have to see what the reaction will be upon our debtors in those matters in which we are a creditor nation.

Before dealing with the question of policy, I want to add one matter to those matters which the right hon. Gentleman mentioned in his historical survey and which, I think, perhaps he overlooked. It is the vital effect which the general deflationary policy which has been carried out during the last five or 10 years has had upon the problem of War Debt payments. It is very largely that policy, initiated and carried out by tile great financial authorities of the world, which has brought about the critical state in War Debt payments owing to the enormous fall in the price of commodities, and, consequently, the vast quantity of commodities which are necessary to transfer from one country to another in order to satisfy such a thing as a transfer for a debt payment. There is no doubt that that policy, pursued purposely and intentionally by the financial authorities of the world, and the Bank of England among them, has largely contributed to the very critical difficulties in which we find ourselves at the present time. But at the bottom of the whole difficulty lies the problem of piling up, in snowball fashion, international payments of interest upon capital, and then reinvesting the interest again as capital and so making a vast snowball of payments which have to be transferred from country to country without any equivalent movement of goods against them in the opposite direction, as one would have in the case of purchases in the ordinary course of events.

I want to deal with one or two points as regards the procedure of His Majesty's Government in dealing with this problem. There are two very vital matters, neither of which the right hon. Gentleman mentioned in his speech, which we think are of supreme importance in dealing with this question of the American Debt. The first of them is Disarmament. There is no doubt whatever, whether one reads the statements made in speeches in America or whether one reads the actual notes which have passed on the question of the War Debt settlement in the course of the last few weeks, that America attaches the greatest importance to the matter of Dis- armament. May I remind the House of the passage in Mr. Stimson's Note of the 7th December He says: And you will understand that the problem of foreign debts has, in the American mind, a very definite relationship with the problem of Disarmament, and the continuous burden which competitive armaments imposes upon the entire world. We believe that had this Government been more active in pushing forward a policy of Disarmament at Geneva we might now, vis-á-vis the American public, be in a better position as negotiators as regards the American Debt. We believe that it is absolutely essential, if we are to enter upon negotiations with America upon this matter, that we should show that we are determined to bring about a reduction in the burden of which Mr. Stimson speaks.


Does the hon. and learned Gentleman mean unilateral or bilateral Disarmament?


I am dealing, the hon. Gentleman may note, with the attitude which we have taken up at Geneva, and, in my submission, that attitude has not been nearly as vigorous as it might have been, and it is that lack of vigour which will cause us to suffer when it comes to the negotiations with America. There is another matter to which I also want to refer in that regard, and that is the question of Ireland. As the House knows, America has always been, and still is, very sensitive on the matter of the condition and relationship of Ireland. I am convinced that a speedy settlement of the difficulties with Ireland would go a long way in assisting negotiations on the debt question with America. As long as the ridiculous dispute with Ireland continues, I am sure that we shall be jeopardising our chances of convincing the American people that we are entitled to give up paying our debt to America. They may possibly point to our action vis-á-vis Ireland, and say that, if over a small matter such as £4,000,000 or £5,000,000 it is right and necessary to take the action which we did against Ireland, so much the more necessary is it for America to insist upon the letter of her bond.

There is one other criticism with regard to the form of the notes which the right hon. Gentleman sent to America. One of the notes was an admirable exposition of the history and the arguments as regards war debt cancellation, but, unfortunately, the Conservative or the. National Government, having been furnished with a new rattle—the tariff rattle—were bound, in the middle of that document, to bring it in as a threat against the American Government. I can imagine nothing more unfortunate than to put forward a threat that you were going, if America insisted, to put up tariffs in order to prevent American goods from entering into this country. The right hon. Gentleman has told us something about the payment of this sum of money, and, as I understood, that the £20,000,000 of gold which is going to pass out of the Issue Department of the Bank of England, partially at least if not all of it, is gold which has been purchased since the institution of the Foreign Exchange Fund. The right hon. Gentleman will remember that since the institution of that fund gold has passed into the Issue Department at a fixed price, and the excess price has been debited against the Foreign Exchange Fund. I should like him to explain how that excess sum which is being debited against the Foreign Exchange Fund is going to be dealt with as a matter of accountancy in this transaction. The gold in the Issue Department of the Bank of England is, I presume, money which belongs to the nation. It is money under the control of the Bank of England, but I take it that the actual money belongs to the Exchequer. The withdrawal of the £20,000,000 from the Issue Department will, of course, entail a reduction of £20,000,000 in the note issue; not in the note issue in circulation but in the notes in reserve in the Banking Department of the Bank of England. In order to make good that loss to the Banking Department the Treasury will no doubt issue private Treasury Bills to the extent of £20,000.000 to make good that sum, or they will borrow £20,000,000 from the Bank of England as an overdraft. In addition to the £20,000,000, the further £9,500,000 which the right hon. Gentleman mentioned will, some of it, I presume, go to the bank and some of it to the Foreign Exchange Fund.


The Exchange Equalisation Account is the proper title of it.


I was under the impression that that was the original Fund and that it had been merged in the Foreign Exchange Fund. I am much obliged to the right hon. Gentleman. The whole of that further £9,500,000 is dealt with as being the excess price of gold over the fixed price and, therefore, it goes into the Exchange Equalisation Fund. The net result is that Treasury Bills to the extent of £29,500,000 will he issued at interest in order that we may make use of the £20,000,000 that belong to us in gold in the Issue Department of the Bank of England.


It does not be- long to us. It is the profits of the Issue Department that go to the Treasury.


I was under the impression that the gold in the Issue Department, although controlled by the Bank of England, could not be used by the Bank of England for any purpose except that of the Issue Department. It is the Issue Department's gold and not the Bank of England's gold. However, the Issue Department is a national institution simply under the control by Statute of the Bank of England, and whether technically it can be termed, because it is under the Bank's control, as the Bank's money or as national money, the net result is that in order to get the £20,000,000 to pay America in gold the nation has to issue £29,500,000 of Treasury Bills, and to pay interest on them until such time as they are repaid. Therefore, as I understand the transaction it is not really from the national point of view apart from the exchange point of view any better than if we had paid sterling to America. The impression abroad is that we are only paying £20,000,000, but from the national point of view I understand that we shall be paying £29,500,000, just as if we had not paid in gold at all.

At the time of the last Budget the right hon. Gentleman will recollect that he stated that he would have to submit a proposal to Parliament if he intended, after Lausanne, to pay the American debt. I am not clear whether he is going to submit a definitive proposal to the House or whether he is merely taking this discussion upon the adjournment as being sufficient to authorise him to make this payment which was not authorised in respect of the last Budget. He stated in introducing the last Budget:

" Later in the year, when we know the outcome of the deliberations which will begin nest June at Lausanne, I shall submit to Parliament whatever proposals may be necessary to give effect to the measures we have agreed upon."—[OFFICIAL, REPORT, 19th April, 1932; col. 1419, Vol. 264.]

I understood that that reservation included the payment of the American Debt. Surely, if authority is required for that payment it cannot be obtained from this House merely on a Motion for the Adjournment. I presume, therefore, that either immediately afterwards or upon the payment of the debt the right hon. Gentleman will introduce some form of resolution in order to get authority for the payment of this money. It may appear that this is a small matter, but so far as the financial control of the House of Commons is concerned it is an important matter. Once the right hon. Gentleman had announced upon the Budget that he did not intend to ask for any authority to pay this money, because of the Lausanne proceedings, then, in our submission, it became necessary for him to get some definite authority from the House of Commons before any resumption of payments was made. No doubt he will explain to the House when he winds up the Debate how he proposes to ask for and to get that authority.

As regards the question of policy, we believe that it is essential to get these debts cancelled, somehow or other, but not by a one-sided repudiation, because there at once comes into play the question, which most vitally affects this country, as to what is to be the criterion for one-sided repudiation. Is any debtor to be entitled to send a note, as we sent to America, and say that it is very adverse to world trade and world economics and so on, that we should pay, and that therefore we will not pay? I could well imagine the people in the Argentine writing a most appealing note, pointing out that it is extremely antagonistic to the trade of this country in South America that payments of interest should be continued, and that if only we realised how hard it would hit our traders, we should say at once: "We desire to remit the debt forthwith." Surely, that cannot ever form a satisfactory basis for international arrangements as regards international financial obligations. The real trouble, in our submission, is that there is no recognised international bankruptcy court. Capitalism, in order to work in national cases, internally, has been forced to devise bankruptcy courts and a method of liquidation, so that when a debt burden becomes too great a person or a company is able to throw it off and start again with a clean sheet, until the debt is piled up again to a sufficient size, when it is thrown off again; and so the process continues. Surely, the only possible solution if this method of repudiation which His Majesty's Government have now initiated—




I thought so. Let me get this matter quite clearly. I have no desire, I can assure my right hon. Friend, in any way to misrepresent anything that he has said, and I do want to get accurately what the position is. I understood him to say that this payment which is being made to America is not a payment of capital and interest under the terms of the Agreement of 1923.


It is rather important that it should not go out that the hon. and learned Member understood my statement as meaning that we had declared our intention to repudiate any of our obligations. What I said was that we had stated our intention of putting forward, in the course of the discussions which we are going to have with the American Government, the view which he has quoted. That is a very different thing from repudiation.


I hope the right hon. Gentleman will excuse me. I took a note of what he said on the point. I do not want to bind him in the least to anything that is wrong, but I think he will find that what he said was that this payment must be taken as a payment not on the old pre-Hoover Moratorium basis but a payment which we make towards the capital.


That is the view which we shall put forward.


Do I understand that the payment that is being actually transmitted to America is payment of capital and interest under the Agreement of 1923? That is the point that I want to have cleared up.


It has been accepted by America in that form.


I am not entitled to cross-examine the right hon. Gentleman, but I must pursue the argument as I see it. The form in which America is accepting it, aparently does not bind us as regards the payment. But either we intend, until we get an agreement, to comply with the terms of the Agreement of 1923, or we have departed from that and have tendered the sum of £20,000,000 in gold which is to be taken as a sum towards a final capital settlement of the debt. We must take up one of the two positions. We cannot say that it may be one or it may be the other. [HON. MEMBERS: "Why not?"] Because when one sends a sum of money in payment of a specific debt one must either say: "I am paying under the agreement under which I owe you the money," or, "I am not paying you under the agreement."


You can pay without prejudice.


You can pay without prejudice, but that has not yet been suggested by the Chancellor of the Exchequer. Let me, in dealing with this very difficult question of why we are paying, deal with the matter on the assumption that we do not propose to pay in June. Let me deal with it on the assumption that this is our last payment. There must be, sooner or later, some means arranged by which the justice of people who say they cannot pay their debts, can be judged. It cannot be left solely to the debtor to determine and it cannot be left solely to the creditor. We are not prepared to leave America to decide it as regards our debt, and the Americans would not be prepared simply to allow us to decide the matter. We hope that by the interchange of views a satisfactory decision may be arrived at.

Suppose the American Congress says, before next June, as they very well may: "We will not let you off your payment." What are we to do? Is the country to repudiate its obligation? We have had a long argument from the right hon. Gentleman on the necessity for sticking to the high moral position which this country has always adopted. We have heard on many occasions from the Dominions Secretary that a bargain is a treaty between two sides and cannot with impunity be repudiated by one of the parties, that an agreement by two sides can only be altered by the consent of the two sides, and that bargains kept faithfully are the whole fundamental basis of the structure and comity of nations, and so on. Who is to determine whether we are right or wrong as regards the Agreement with America in 1923, in saying that we will pay no longer Hon. Gentlemen in this House who shouted the loudest about Ireland's repudiation seem to shout the loudest when anybody mentions our repudiation of the American payment. From the point of view of morality, I cannot see that it is any more moral for us to say that we shall not be able to make that payment than for Ireland to say that she will not do it. We may think that the Irish argument is too stupid for words and forms no basis for repudiation, and so may America think that our argument is too stupid for words.

Unless there is to be set up some permanent means of settling this question of what International Debts are to be paid, we see no solution in the future for the whole mass of International Debts, which are at present clogging commerce—not only War Debts, but ordinary commercial debts, debts between municipalities, and debts between various Governments and between various individuals in various countries. After all, if this principle is to be applied, why not apply it to the unemployed man? Why not let him say, when he tenders his rent on the next occasion, "This is a tender of capital towards payment for the house, and I do not suppose I shall be able to pay you any more"? Then, the right hon. Gentleman said, "We must think not only of ourselves, but of those millions dependent upon us." No doubt the unemployed man would say to his landlord: "I am not thinking only of myself; I am thinking of the children of my family who are dependent upon me." There must be some limit to this system, and nationally we have determined the limit by setting up tribunals to decide on the justice of matters of the sort. I beg that His Majesty's Government will start to probe the problem of the definite question of the solution of the repudiation difficulty which is going on all over the world to-day, and which is obviously, when one comes to matters such as War Debts, becoming more and more critical.

There is one other matter to which I wish to refer. That is the essential interdependence of international trade and these War Debt settlements. America has already told us that she is looking to some commercial concession as a quid pro quo for letting us off the War Debts. It only shows how extremely difficult you make the position for yourself if you start trying to settle these things sectionally. Ottawa obviously prejudices us as regards the American Debt settlement if there is to be a commercial quid pro quo. We are now negotiating with Argentina, we understand. Argentina and America are vital competitors, for instance, with the wheat crop. What is to happen when America comes along and says: "The only basis on which we can let you off your Debt is a commercial quid pro quo"? Mr. Stimson, in his Note, said: In such an examination there would necessarily be consideration of other forms of tangible compensation available for the expansion of markets for the products of American agriculture and labour. We have to remember that if we are going to do a deal with America it may be necessary to go back on what has already been done at Ottawa. [HON. MEMBERS: "No!"] Hon. and right hon. Gentlemen shake their heads or say "No," but I say "if we are going to do a deal with America," and that will be at least one-half for America to say and not only for the people in this country. It may be a vastly difficult problem to satisfy America that she should forego the whole of these debts without some form of compensation, and it all arises in our view from trying to look at these problems sectionally, and from not trying, as we urged on the Government over a year ago, to get one complete outlook en the whole problem at one and the same time. Disarmament, tariffs and debts are all parts of the same problem they are all parts of the system which capitalism has built up. It may be wise or unwise, but hon. Gentlemen cannot deny that the system of capitalism has built up the present international debts on a vast structure. It is also generally admitted that those debts and the payments of them are the very things which to a large extent are clogging international trade. The problem with which the world is now faced is to get rid of that structure which has been built up. It may be a desirable structure, but it is a curious thing if it is that the world is devoting all its power to try to get rid of it. We believe that this is only one more example, and that this War Debt problem will make people realise that it is a curious system when, on one day, you have people saying that you must for ever honour the letter of your bond and when, on the next day, you find them explaining with equal conviction that only repudiation or cancellation of those bonds can possibly save the world. We hope that it will make people realise just once again that it is necessary not only to cancel War Debts but to change the system under which they were built up.

5.8 p.m.


I do not propose to follow the speech of the hon. and learned Gentleman who has just addressed us, except in so far as to note with approbation the strong sentiments against repudiation which are entertained by the Socialist party as the result, I presume, of electoral tuition. My right hon. Friend the Chancellor of the Exchequer gave a very broad and impressive survey of the whole past history of this subject, and I must say that I found myself in very close agreement with practically every fact with he adduced, with their sequence and, to a large extent, with the emphasis which he assigned to them. I do not propose to go back into the whole past controversy which has ranged around the original American Debt settlement. I am much more interested in what has occurred in this Parliament and during this Parliament, and I shall draw the attention of the House to aspects of the Government conduct of this matter during the present Parliament. I do not desire to dispute the historical basis; I am much more concerned with the method. One would have imagined, to hear my right hon. Friend's admirable speech, so well posed in its presentment of a great topic, that the Government management of this affair had been impeccable. I certainly do not think that is the case. I think it would tax the resources of my vocabulary to do justice to a series of wrong turns which I venture to think has characterised their conduct in this grave matter.

When we last debated this matter in July we had before us the Lausanne Agreement. That had just been signed. It was hailed as an immense personal triumph for the Prime Minister. May I say how sorry I am that he is not with us to-day, because this is, above all things, a, matter on which the head of the Government would have wished to have laid his views before Parliament, and, above all things, a matter on which Parliament would have desired to hear a statement from him. Lausanne was hailed as a great triumph for the Prime Minister. We were led to believe that the whole curse and burden of War Debts and Reparations had finally been lifted from the world. It was only after some severe interrogation, in which I ventured to take part, that it was found that the cheering was premature. It was only after some considerable pressure that it leaked out that the settlement of Lausanne was no settlement at all; that it was a settlement contingent only upon satisfactory remissions being obtained from the United States. After some protest and some hard work, papers were drawn reluctantly from His Majesty's Government revealing, what everybody was bound to find out and what had already been made public in the foreign Press, that there was behind the much applauded settlement of Lausanne a so-called semi-secret Gentleman's Agreement, which took away with one hand all that had been accomplished with the other.

During this Debate my right hon. Friend the Chancellor of the Exchequer was good enough to censure me in very severe terms. I have great regard for him, and I greatly admire his conduct of his arduous office, but no one shall say what he said on that occasion without my endeavouring, amicably and at the same time pointedly, to show that there were more sides to the controversy than were represented in his censure. My right hon. Friend said: The Member for Epping has done no service to the country in endavouring to undermine any confidence which may have been aroused by this settlement [HON. MEMBERS: "Hear, hear."] Oh, there were many more cheers last time, I can tell you— and in suggesting we have in any way made more difficult or more embarrassing the relations with our own creditors elsewhere."—[OFFICIAL RFPORT, 11th July, 1932; col. 974–5, Vol. 268.] Of course, you may say that we ought never to criticise—a perfectly reasonable view. You may say that this House should abrogate its functions of criticism and censure, and that the only place from which words of warning and words of controversy should come is the diminutive representatives of party on the Front Opposition Bench. I would warn the Haute very earnestly, and, above all, the great Conservative majority which not only fills it but bears the whole brunt of responsibility, that if it were thought that we were careless of our duties and did not examine these matters with great attention: if it were thought that Members were liable to be driven this way and that by the guidance of my hon. Friend on the Front Bench and the other Whips, not only would this Parliament, from which so much was hoped by our working people, pass away in derision, lint The very gravest injury would have been done to the very structure of Parliamentary institutions altogether. Let us see who rendered no service when we debated this matter in July. The Chancellor of the Exchequer led the House to believe he and the other British representatives had carried the United States Government with them in their negotiations at Lausanne. I am gong to lead his words: After all, we have been in touch at Lausanne not only with European representatives, but we have had the opportunity of conversations with the representatives of the United States, and I would ask the House to believe that in this rather delicate situation we have no reason to believe that the course we have taken is one which is going to lead to any of these unfortunate results which the right hon. Member for Epping antieipates."—[OFFICIAL. REPORT, 11th July, 1932; col. 975; Vol. 268.] I am not quarrelling about the actual words, but, if they did not mean that he hoped and believed that they were carrying the representatives of the United States with them, I do not know what they mean. The statement- certainly was accepted by the House in that sense. T have no doubt whatever that when my right hon. Friend makes a statement like that he is sincere, and I have no doubt whatever that he had mounds for what Ito said. But whether he was wise to say it is quite another matter. I was astounded to hear him say it, because, knowing something of the feeling in the United States, having had some opportunity of seeing it, I was sure that nothing would more disturb President Hoover, when the lines of electoral battle were being drawn, than for any statement of that kind to be made. But what, happened? The very next day, or the day after, President Hoover wrote to Senator Borah: I wish to make it absolutely clear that the United States kayo not been consulted regarding any agreement reported by the Press to have been concluded recently at, Lausanne, and that, of course, it is not a party, nor in any way committed to any such agreement. But look what followed, much more remarkable still. On 14th July the following communiqué was issued to the Press from the Treasury, the Chancellor's own Department: Misunderstanding has arisen regarding Mr. Chamberlain's reference, in his speech in the House of Commons on Monday, to conversations with representatives of the United States. He did not suggest, and, of course, had no intention of suggesting, that representatives of tile United States had approved, either tacitly or explicitly, of what was done at Lausanne. We find this Treasury communiqué served up to us as a valid retort in the communication which Mr. Stimson addressed to us the other day in response to the admirable Note setting forth the opinion of this country. Now, if it comes to a question of who did no service to this country at that moment I am prepared to stake my claim before any fair tribunal as against that of my right hon. Friend. It was a very unfortunate indiscretion on his part. I would like to say to the House that, personally, I always think it is rather shabby to criticise a Government after the event unless you have given warning somehow or other beforehand. I am in the recollection of the House, and I say that I did in May last warn the Government of the dangers of reaching a conclusion on the debt question at Lausanne. I am not going to read a quotation from my own speech, but I begged the Government not to bring this matter to a premature conclusion then. There was no need for them to do so. A simple prolongation of the Moratorium would have avoided bringing this matter into the whirlpool of American politics.

Having said that in May, I felt fully entitled in July to criticise them when they had committed this great mistake. But my friends, many of them on this side, were not pleased with me, and I dare say they will not be pleased with me now. But still I shall take my course, as I think fit. I say that there were three reasons why Lausanne was a great mistake. First of all, we released our hold upon our debtors, upon our assets, before we had obtained release from our creditors. In the second place, we offended the United States and plunged this question into their electoral affairs. In the third place, we prejudiced our own British case in the United States by linking it up so much with France. Now we have reaped to some extent what we then sowed. Let me say to the House that I think there is no truth in the claim that Lausanne was necessary to save Europe, that a settlement then was indispensable to save Europe. Still less can it be claimed that it has saved Europe. Anyone can judge that. The position in Europe is worse, from many points of view, than it was in July. The efficacy of the Lausanne settlement was destroyed from the moment when it was realised that it was only contingent upon a settlement with the United States.

The immense relief which Lausanne accorded to Germany, largely on paper, the immense relief from obligations which the settlement accorded to Germany, was immediately made the starting point for fresh demands, and demands of a more disturbing character, disputes about money matters and debts, disputes about how soon that great nation was to be able to re-arm. No sooner was Germany relieved of her solemn obligations to pay Reparations to the countries devastated by the War, or countries like ours whose prosperity had been undermined by the War, than, on the very next day, the Germans, with that naivety and spontaneity which renders them so attractive, immediately exclaimed, in the presence of the whole world, "Good, I am better off now. I shall go out and buy a large cannon." So far as Austria was concerned, the loan which emerged from the settlement at Lausanne was only accepted by them after an immense internal struggle by a single vote, showing how great was the difference of opinion in that country upon the subject.

Generally, I say there has been no substantial advantage of any kind to compensate for having brought Lausanne to this premature conclusion. There was perhaps the hope that the Prime Minister would revive and strengthen his prestige by another triumph on the Continent. The Prime Minister likes very much to pose in self-admiration before the broken looking-glass of Europe. Some success, however dearly bought, it was felt necessary must be extracted from this confusion of European conferences, this labyrinth of European conferences in which he lives, moves and has his being. I will not suggest for a moment that that was the determining argument in the minds of those who signed, but it may well have had some bearing, and, if it had, all I can say is that even that gain has been found fleeting. The results of Lausanne were nugatory and illusory. They prejudiced and compromised our chances of satisfactory settlement with the United States.

But I am not going to over-state my case and argue that if there had been no settlement at Lausanne the, United States would have let every one off their debts. Nor am I going to argue that, now there has been a settlement at Lausanne, the United States will not arrive at a satisfactory solution of these difficulties. All I argue is that the Government took the course which was least calculated to make our difficulties smooth, and that they have greatly aggravated our difficulties. I do not say they have ruined our prospects, but they have sensibly added to the complications which we have in any ease to face. Where are we now? The machine-like workings of the United States Constitution have created what is virtually a hiatus in the relations of that great country, the vast, intricate vital relations of that great country, with the outside world. Until a new Government is in power and responsible, writing Notes to the United States is like writing Notes to the Atlantic Ocean. No one feels this difficulty more than enlightened, leading Americans themselves. It is a survival from an older form of constitutional Government, very arbitrary.

In this hiatus, this interval, payment has been demanded of us, on 15th December, and, at grips with this grim situation, the right hon. Gentleman and the Government have decided to pay, and to pay in gold on that date. There is not the slightest doubt that the overwhelming majority of this House consider that they have decided rightly. I think also they have decided rightly to pay in gold. I do not intend to be dragged into the currency question to-night. I can only say that nothing is more significant of the way in which world opinion is forming on the subject of gold than that, when we had to make this payment, there was unanimity of feeling in this country that gold was the least valuable thing we had to send, and that there was apparently equal unanimity in the United States that gold was the least desirable thing they could receive. Certainly, that is the crowning insult which gold has received since it has been the great standard of measurement of values between man and man. I think the Government were right, and I still would hope that they will handle this transference of gold in such a way that there will be no deflationary effect upon our trade. But that we shall have an opportunity of considering, no doubt, at a later period.

I only wish that the Government had taken their decision to pay on the 15th, and to pay in gold, a little more promptly and a little more unitedly, with a little more conviction, and, I must say, with a little more dignity. I was very glad indeed to hear the Chancellor of the Exchequer denounce the idea of repudiation or default to-day so strongly in his speech, because it has not been at all pleasant for those of us who are his admirers to read day after day in the columns of the Press uncontradicted assertions that he had been in favour of default on this occasion, and had been overruled by his colleagues in the Cabinet. We are glad to know that there is no truth in that. Anyhow the House I am sure will support the Government in their decision to pay. I agree with a great deal of what has been said on both sides on this subject, that the whole world has an immense, vital, practical, material interest in the solvency and fidelity of Great Britain. We, ourselves, as I mentioned upstairs the other day, have only to think of Mr. de Valera in Ireland, Mr. Lang in Australia and the Shah of Persia, to realise that we have a very considerable interest in it too. Therefore, anything in the nature of default could only be justified by Great Britain when every other alternative had been exhausted and when the whole world w as convinced that every other alternative had been exhausted.

I cannot feel that the situation is hopeless by any means or that we shall be driven into all those difficulties which the hon. and learned Gentleman opposite foresaw. It is our absolute duty to make a further effort, if it is in our power, to avert the catastrophe—for such it would be—to the economic, social, capitalist civilisation of mankind, of an open default by Great Britain of her contractual engagements. We ought to pay a heavy price, we are paying a heavy price, to avert that. But here let me say, in answer to a point raised by the hon. and learned Gentleman, that there are some prices which we could not pay and which we ought not even to consider paying. The hon. Gentleman said that we must disarm in order to please the United States and win their favour. I do not admit for one minute that there is the slightest connection between debts and national defence. The debts of a nation affect its credit. The defence of a nation affects its sovereignty, and sovereignty is in a different sphere altogether from anything connected with finance or credit. In the same way all suggestions of cessions of territory are covered by sovereignty. In China in former days people used to sell their children, but that is a practice which has never taken root in Western Europe. When the question is one of money and we have the money, when it is one of gold and we have the gold, it is well worth our while making this additional payment, injurious though it is to us, to make sure that we can say with the assent of all the nations that we have left nothing undone that it was in our power to do.

I am bound to say that I did not like the last Note but one which my right hon. Friend sent to the United States. Of course, repudiation or default means the refusal of one party to carry out his contractual obligation to another, and certainly my right hon. Friend has made it plain that nothing of that kind is in our minds or intentions at the present time. Still, this Note which was made public on Monday did seem to hold out a threat of a unilateral decision by this country, in certain circumstances which we trust and hope will not arise. I must say that I think there was no necessity to have made any such suggestion in. the Note. When we are paying, as we are, let us have the full credit and distinction which attach to that operation. There is no need to give notice of repudiation. It is not a matter which requires notice. I hope it may never come to this country, and I wish that my right hon. Friend had reserved any suggestions or hints such as were contained in that Note until they could be exchanged in all the secrecy of an international conference.

I am not going to keep the House very long, because I know there are many who wish to speak. I have finished what I have to say about the United States and I turn to France. No one can accuse me of being unfriendly to the French people. I have always been supposed to take very much their view about the European situation, but I think that the policy of His Majesty's Government has been most mistaken in their relations with France. We ought never to have associated ourselves with France in dealing with the United States upon War Debts and we ought never to have tolerated, let alone encouraged, the idea that France might be allowed to pay the United States and not to pay us. Good news has arrived from Paris to-day which enables me very greatly to abridge the remarks which I venture to offer. But I must remind the House of the facts a little more in detail than the right hon. Gentleman dealt with them in his retrospects.

The French and Italian debt settlements, for which I was responsible, were made upon the sole credit of France and Italy. The Cabinet definitely decided that they would accept a substantially smaller sum, on the sole credit of those two countries, without reference to Reparations, than they could otherwise have obtained. One has only to read all the correspondence which was published and the statements which were made to see how completely and absolutely that was accepted by France. It is true that M. Caillaux wrote a letter suggesting, in certain circumstances, if there was a failure of German reparations of 50 per cent. or more, and if exchange difficulties were serious, that there should be reconsideration. In the answer which I sent on behalf of the Government we pointed out that in those circumstances we should also be heavy losers from the cessation of German payments, and that we also should have to consider the payments which were required from us. But nothing in the right to ask for reconsideration implies, in any way, the right of one party to decide the matter in his own sense.

Therefore, I say that our claim against France was absolutely good and valid and that there was no necessity for France, if we had enforced our claim or if we were to enforce our claim, to require payment again to be made from Germany. France was in a position quite easily to pay, for she had nearly £1,000,000,000 of sterling in the form of gold or gold equivalent, and £30,000,000 or £40,000,000 of balances here. It is idle to pretend that the payment of the £6,000,000 which has been due and has been accumulating month by month, ever since June last, could not have been transferred without the slightest disturbance to the exchange. That was the first of the conditions which the Cabinet laid down for the settlement of the French and Italian debts—that it should be on the sole credit of those countries. There was another and a very important one—the doctrine of pari passu. That implied that France and Italy must treat us as well as they treated any other of their creditors. Obviously debtors may not discriminate between creditors. Creditors may discriminate between debtors but the usage of every country is that payments to creditors must be made in equal proportions. I said in the House on the very first occasion that I spoke as Chancellor of the Exchequer on this subject: Any payments made by our debtors in Europe to their creditors in the United States should be accompanied simultaneously pari passu by proportionate payments to Great Britain."—[OFFICIAL REPORT, 10th December, 1924, cols. 264–265, Vol. 179.] A communique was issued on the same point from which I may read one extract: It is a very good communique I may say—I wrote it myself: His Majesty's Government have from the outset made it perfectly clear that any arrangements which they can come to with France must be governed by the principle so often declared that they must receive from France proportionate and pari passu payments to any she may eventually make to the United States in settlement of her war debt. It would be no service to Europe already so grievously stricken, if the sacrifices of one creditor of France merely conduced to the advantage of another. Why did the Government whistle all this down the wind so lightly and so easily? When I read on Friday that the Government were actually urging France to pay the United States, having cheerfully let them off the obligation to pay us, I was profoundly shocked and distressed. It seemed to me that it was hardly possible that such an inversion of good sense could have been put forward. We were actually urging the French to pay the United States at our expense. [HON. MEMBERS: "Oh !"] Of course, if they were to pay £4,500,000 to the United States and we had foregone the £6,000,000 due to us. That is the position which still exists, I believe, in the case of Italy. If Italy pays the United States, she will pay the United States £250,000 and withhold the £2,000,000 which it is in her power and her duty to pay under the very generous settlement, the too generous settlement—[HON. MEMBERS: "Hear, hear !"] Well, no one can call it too generous now. I thought in those days that we were getting all we could, but how lucky we would be if we could get a half or a quarter of what we got in those days, under what we thought to be a generous settlement with those countries.

In the case of Italy, as I say, that situation will still obtain, but France has cut the Gordian knot. There has been, evidently, an explosion of opinion, of passion almost, which has induced them to put aside the enormously favourable opportunities which, with the assistane of the British Government, have been placed at their disposal of making a payment on this occasion and of coming to the International Conference with all the éclat and prestige of a solvent and paying debtor—and the whole of it would have cost them nothing because it would all have been borne on the expenses of Great Britain. The situation, however, has been changed by the French vote, and it has been changed greatly to the British advantage. I congratulate His Majesty's Government on being liberated from their own errors against their own will. We are not now going to be discriminated against. We are still the debtors of the United States but we are not going to be the debt-collectors of the United States or furnish their other debtors with the means of paying. At any rate we are treated pari passu by France with other countries. There is an even greater advantage which, I think, we have derived. We are absolutely free from all contact with France in our negotiations with the United States. Do let us make sure that we begin on that basis from to-day. By that means we shall have a far better chance of reaching a solution, which is so earnestly desired. Our case with the United States is entirely different from that of France. People are sometimes inclined, and it is very natural, to feel harshly about the United States, but let me say that the treatment of France was generous. At this moment I understand that France would be paying, under her debt agreement, no more than the cost of the post-war loans. France made a very good arrangement for herself with the United States, and it is the greatest possible mistake for us to get so close to France that our just claims are, as it were, smirched and confused by that association. But it is not only a question of the actual terms of the debt settlement. There was a very strong feeling of irritation in the United States against France, which we have no need to mix ourselves up in at all. When I was in Washington in January the air was full of rumours of a flight from the dollar, and the French were withdrawing, I believe, 50 millions in gold from the United States. The greatest bitterness prevailed, and was not concealed, and especially was this bitterness felt because it was only a few years since France had received the very liberal terms, as they were thought then, from the United States in the matter of her debt.

Why should we involve ourselves again, now that, we are free, in all this unpleasantness and difficulty? I say that to be forced to link our case with France would be a disaster, but to try to do it—I do not know what to call it—would be the acme of ineptitude, the quintessence of maladresse. It passes all understanding that we should have got ourselves into that position so lightly, and I should like to ask the Government this question: I have only the newspapers to guide me, but I read a report in the "Times" of M. Herriot's speech—a very abridged report—which contained the statement that England could easily have made better terms for herself, but would not, out of loyalty to France, or words to that effect. Is that true? If it is true, is it sane? On what grounds are we not to make the best settlement that we can for ourselves? As I say, I think His Majesty's Government have had a great deliverance by what has taken place in Paris, because, whatever may have been agreed upon, it is perfectly clear that we can now start fair, and it is because we are free and can start fair that I am hopeful.

If the House will read between the lines of Mr. Stimson's reply to the right hon. Gentleman's second Note, they will see that the greater part of that Note is addressed to other Powers, not to us to whom it is sent. A great part of it is quite inapplicable to our case. Those statements were not inserted by accident, but were inserted by friendly hands on the other side of the water which have been aiming at getting into a situation where better treatment can be given to Great Britain. Take the question of tourists. That has nothing to do with us; that is France. Take the reference to the remittances; that is Italy. The whole of that Note, although addressed to us, is conceived, I think, to hold out the prospect that the negotiations which are going to be started have at any rate some hopes attaching to them, and make it absolutely clear that we should be wrong to abandon those hopes at this stage.

There are many passages which are most favourable to an Anglo-American discussion. A distinction is drawn between war and post-war debts; a distinction is drawn between supplies which were consumed in the fighting and loans which were expended for other purposes. By all such tests, we could be judged without the slightest apprehension. I am not saying for a moment that such principles would be acceptable—that is another matter—but I do say that the whole of this Note is instinct with the possibilities of a favourable negotiation, as long as we can go there ourselves, with our gigantic case, and without mixing ourselves up in the troubles or difficulties of other people. Everyone who is in touch with American opinion knows that there is a great and growing desire to treat fairly the best customer of America, the punctilious debtor, the only debtor that has made an immense contribution in the payment of her debt.

The new men who will shortly take power in the United States and exercise influence there are animated, I believe, by warm sentiments towards this country. They reverence the memory of President Wilson. There were many points on which Europeans differed from him, but this I will say, that President Wilson was the best friend of Europe who ever sailed Eastward across the Atlantic. Our payment to-morrow, when others default, and all the more because others have defaulted, will strengthen all this friendly movement. It is much too soon to despair of a just and an honourable settlement, for the making of which the two great world-creditor nations and the two English-speaking peoples have an equal and a paramount interest.

5.53 p.m.


The House has listened to a very lively speech from my right hon. Friend the Member for Epping (Mr. Churchill)full of light and colour, and not devoid entirely of touches of fancy. For my part, I am afraid that all that I can do is to fill in a humdrum and some what drab background to show up the picturesque figures that he has created. With a large part of his speech I necessarily agree, but there are other things with which I disagree. I agree with him that in all this matter of the American Debt we ought to act alone. That has been the demand of America from the beginning. In 1922 they refused to consider any suggestion of our meeting them along with other nations. We have quite a fair ground for separate dealings in the fact that the settlement effected with us is much more exacting than that with any other nations. We are, therefore, now entitled to special consideration, and with the best will in the world towards France, I do not think that she, in all the circumstances, can object if we in this matter, especially now, should act alone.

I agree with my right hon. Friend also that it is incumbent upon us to pay at the present time, and that it is wise to pay in gold, but I hope the House will forgive me if I do not deal with that topic quite so cursorily as he did. He said he would not enter into the question of currency, but I believe that to be a matter of immediate moment, and I was startled to hear the very explicit statement made by the Chancellor of the Exchequer to the effect that he did not in tend to do anything by way of increasing the fiduciary issue. I was a little relieved to hear, in answer to a question, that we dia intend to issue a relative amount of Treasury bills, and that consoles me to some extent, but it does not console me by any means to the full extent. It is quite an anachronism to-day that, while we are off the Gold Standard, we still have a Statute which says that an issue of notes shall be conformable to a certain amount of gold, with certain powers beyond that. There is no meaning now in this country in the dependence of an issue of currency upon the gold in your reserves. The only use of your gold is to pay debts which you have contracted to pay in gold, but so long as that Statute remains on our books, the abstraction of£20,000,000 of gold must have the effect of limiting the currency in issue to the extent of £29,500,000 sterling, as I think the Chancellor of the Exchequer said. It must have the effect of bringing down the amount of your reserves.

I have no doubt the bank will say it has already in reserve something like £48,000,000. But to reduce that reserve means a contraction of credit in this country. That contraction of credit is not entirely made up by the issue of Treasury bills, because upon the amount of reserve in the Bank of England there can be granted a very much larger amount of credit, and what you are really doing is to contract the amount of which the public will be able to take advantage. I have not the slightest doubt that right down from the Bank of England, through all the media of our monetary system, a contraction of credit is going to take place which will be bad for this country, and I beg the Chancellor of the Exchequer to take this again into his serious consideration. It is not enough to say that the Bank of England has not asked for any increase of the fiduciary issue. It is obvious that the Chancellor of the Exchequer can make a suggestion to the Bank of England with propriety, if he wishes to do so. I am sure that what he has stated to-day will not be satisfactory to a very large number—in fact, to the great mass—of the people who are studying with interest, and indeed with anxiety, the monetary system of this country.


Does the right hon. and learned Gentleman advocate inflation?

Sir R. H0RNE

The hon. Gentleman seems to think I shall be frightened by the bugbear of inflation, but I have no terror of that kind at all, and I am most anxious at present that the amount of currency at the disposal of the British public should not be less than it has been. That is the point that I am endeavouring to make. I would remind the Chancellor of the Exchequer that any deflationary process of this kind is entirely contrary to what was decided at the monetary conference in Ottawa. There the conclusion was come to that there should be larger credit and cheap money. We cannot achieve it by this method, and accordingly I ask for a reconsideration of that topic.

I agree also with my right hon. Friend the Member for Epping that it would have been better if payment had been made, in the end, without any qualifications. The difficulties into which you get by attaching, if I may use a colloquial expression, any string to your payment were exhibited to-night by the dilemma in which the Chancellor of the Exchequer was put by the question of the hon. and learned Member opposite. Either you pay according to your bond or you make a repudiation. I think that it would have been much better to say nothing about any qualification, and the juridical or legalistic considerations which the Chancellor of the Exchequer gave in explanation of what was contained in his Note are not at all convincing. It would have been sufficient for the raising of the points afterwards in the negotiations which are to take place, to refer back to the fact that prior to the payment you had taken up the whole question of principle which you intend now to renew, and I think that a great difficulty would have been evaded. But there is very little substance in that point now for the reason that the United States, I think, have treated us in this matter with an amiability which was absent, perhaps, from the rest of their notes. It was the most friendly Note we have yet received, because it said, "While you put this forward in a way which we cannot accept, we take it that it is a question which you are going to raise afterwards." That is a matter which should give us the greatest encouragement in the belief that, whatever proposals we have to make in the subsequent negotiations, we are at least going to have friendly ears to listen to what we have to say.

Now I part company from my right hon. Friend, and I must tramp along the dusty road which I have selected for myself while he goes over the hills and far away. He has attacked the Lausanne Agreement, and he has a perfect right to do so as one who in this matter has been entirely consistent. He attacked it in the beginning, and I disagreed with him then, and I disagree with him now. I should like to utter a few sentences in explanation of the view I hold. It is said that Lausanne achieved nothing. I do not think that there is any person who was acquainted with the Continental situation, and particularly with French sentiment, who at the beginning of this year could have believed that we could at any time induce the French people to give up all Reparations which Germany owed, with the exception of a lump sum of about £150,000,000 to be provided at some future time which a neutral committee would decide. In my view, that was a great achievement, and while my right hon. Friend had certain criticisms to make of the Prime Minister, I, for my part, would like to say—and I have criticised him a good many times before—that I do not know any other man who could have brought about that result at Lausanne except our Prime Minister.

Let me ask the House to look at another aspect of this matter. What would have happened if no agreement had been come to at Lausanne? Let us recall what the situation was at that time. Europe was reeling to disaster, and there were constant predictions in the journals dealing with economic matters that there was going to be a general destruction of credit and a reversion to disorder. Nobody could foresee what the result was going to be. If Lausanne did nothing else, it drew Europe back from the edge of that precipice and provided, temporarily at least, a form of stability which avoided a chaos that might easily have led us into catastrophe.

There is still another aspect from which this matter ought to be considered. Everyone, I take it, is unanimously of the view that the world cannot be restored to prosperity except by a reconsideration of the whole of this international indebtedness and a revision, if not a cancellation, of the obligations which nations hold to each other, not in respect of commercial transactions, but in respect of other operations which yield no return to anyone. What would have happened if Europe at Lausanne had declared that it could come to no conclusion among its own nations? We were literally advised by President Hoover to settle our own affairs and then America would be willing to listen with a much more patient ear to any proposals we had to make. If we had failed, what would our position have been to-day? We have sent forward a Note to the United States of America. I do not know how much hope we build upon its arguments being ultimately effective, but one thing is certain, that if Lausanne had failed we could never have presented that Note with any chance of success. It is said that Lausanne is ineffective because the whole agreement is contingent upon America giving consent. I do not blame any member of the Government for going forward in the belief that that consent could have been got. After all, President Hoover, in initiating the Moratorium—which I think undoubtedly has saved a crash in the world's economic affairs—commended it to his own people on the very ground that we are now putting before him, that to make the payment of these international debts was detrimental to the trade and interest of the world. We had every reason to hope that if Europe settled its own affairs at Lausanne, we should be met amiably on the proposition we have put forward to America.

It happens that this Note has had to go forward at a very unfortunate time. It is a mischance, the results of which no one can foresee, that a very bitter election should have been in progress in America during the last few months. We must recall, in considering all these matters, the situation of America—the distress which is caused by a vast amount of unemployment with which they have no machinery to deal, confusion in that great territory, and an enormous deficit in the Budget which they do not yet see how to meet. There are all these preoccupations and distractions affecting their minds, and it is not remarkable that we do not get a ready response, which is the only thing that will satisfy my right hon. Friend, that Lausanne was a success. We have to be patient in these circumstances, and, like my right hon. Friend, I do not at all despair that in a future by no means remote, when we get to grips with America ourselves, we shall be able to reach a reasonable agreement. When that has been accomplished, my belief is that the result of the Conference at Lausanne will be regarded by historians as the first great step in the movement that ultimately led to world recovery.

I would like to direct my attention for a moment to the immediate issue of whether or not our Government are at this moment following the most prudent course. Before I come to that, there is a matter which I want to make a background to what I have to say, because, until we clear it up, I think the public will have a very erroneous impression of what we are doing. It has been persistently and assiduously disseminated among our people at the present time that the settlement of 1923 was a vast error and a great wrong to the British people. Moreover, the whole burden of that attack is being directed against one man in the person of the Lord President of the Council. I think it is time that somebody said what they know about it. It is, obviously, not seemly or dignified for the right hon. Gentleman to get into controversy with those who are urging on this malignant propaganda against him. I feel that in this matter I at least have a duty. I was the right hon. Gentleman's immediate predecessor at the Exchequer and probably, with the exception of my right hon. Friend the Member for Carnarvon Boroughs (Mr. Lloyd George) nobody knows more about the intimate details of this matter than I do. The right hon. Gentleman has told us to-day in an interjection that he has been refreshing his memory from the records of the times. So have I.

It would be better that the House should learn a plain tale of what actually occurred. I was at the Exchequer from the spring of 1921 to the autumn of 1922, and during that time this matter of the American Debt was raised, although there had been some preliminary movements during the time of the right hon. Member for West Birmingham (Sir A. Chamberlain). So far as I was concerned, there came an intimation in February of the Debt Funding Commission in America set up by Congress. After that, in the Budget which I.presented, I provided for the payment of the full amount of interest on the debt. There had been an intermission of payment of interest for three years, and owing to the activity of the American Government upon this matter, we decided in the Coalition Government, of which the right hon. Member for Carnarvon Boroughs was the head, to begin to make our payments, and in that year I provided the first half-year's payment of £25,000,000. That went through the Budget. There was no dispute about the propriety of paying it except for a query suggested by one hon. Member. The whole House was unanimous in the action that was being taken. That £25,000,000 was paid in October, 1922. Discussion went on during the year, and it was ultimately decided that I should go to Washington with full discretion to deal with this matter—


The right hon. Gentleman has made a statement in a letter to the "Times" that he was sent to America with full discretion. It is absolutely untrue. I have got in my posession here, and I think that I ought to have the right to quote it, the actual direction given to him by the Cabinet. They are on the records, and it is as open to the right hon. Gentleman as it is to me to examine them. I say that the right hon. Gentleman was to go to America to settle in accordance with the Balfour Note.


I do not object to that at all.


But that is not full discretion.


My right hon. Friend interrupted me before I had finished. I went with full discretion to deal with this matter on the lines of the discussion in the Cabinet.


That is right.


My right hon. Friend interrupted me too soon. I know very well what I am dealing with.

I do not disagree that the Balfour Note was the foundation of this matter. It was a Note published to all the world, and it set forth a general principle which, if it had been followed, would have saved the world a, great deal of trouble. It wished by one great transaction to cancel all the War indebtedness; and, short of that, intimated that we would only exact from our debtors that which we had to pay to our creditors. I feel that my right hon. Friend thinks —at least I judge so from the sort of attitude he takes up—that this provision in some way or another limited the negotiator in negotiating without the presence of others, or at least with regard to some settlement which might" first be made with other nations; but if he reads the Balfour Note again I think he will find in the preliminary sentences of it that the principle at which we had arrived was quite clearly laid down as far as the Cabinet was concerned. These demands, it is said—that is, the American demands— are within the undoubted right of the American Government. They were clearly contemplated in the original contract, and Great Britain neither complains of the procedure nor denies the obligation. Let me refer to the following sentence. This country has been asked to meet its obligations as a debtor, and it proposes unconditionally to do so. Unconditionally to do so—apart from what any other nation might do, we were going to meet our obligations. We had suggested in the course of the year that there should be a general treatment of this debt question, and that was rejected by the American Government in the same spirit in which it rejects it now. The American Government said, "We are going to deal with each of our debtors separately." In addition, we got information, through the usual channels on which Governments rely, to the effect that America regarded Great Britain as its only solvent debtor and that we could not expect anything like as lenient treatment as would be accorded to other countries. That was the attitude of the Coalition Government in this matter. No suggestion was ever made thereafter that it was wrong to settle this question at that time.

There was not a single suggestion, so far as we were concerned, at that stage, the final stage, that there should be any collection of the other nations before a settlement should be arrived at. That this was the view of my right hon. Friend, who was then Prime Minister, became obvious, because after the settlement was made he, in February, 1923, gave a statement to the "New York American" in which he expressed his opinion. It is quite true that he has said later that he had not details before him at the time, but I think the House will agree with me that details did not matter in the enunciation of the principles which he laid down. The principles which he laid down to the "New York American "were these: This settlement had been made and Our credit as a nation therefore demands that we should pay. Whether we can collect enough money from our own debtors to meet this charge becomes increasingly doubtful, as it is becoming more increasingly needful. Britain is alone in thinking that she is under any moral obligation to pay external liabilities incurred for the effective prosecution of the War. The attitude of the late Government and the present Government is identical in this respect….We have certainly overwhelming reasons for the policy which the British Government are now pursuing. That was his first reaction to the settlement which had been made by the Lord President of the Council. No better statement of principle was ever made than my right hon. Friend made at that time as to the procedure which ought to be adopted. We readily accepted an invitation from our creditor to discuss repayment of the debt we owe. Our debtors displayed an invincible reluctance to enter into a similar discussion with us. That ought not to influence our action. He went on to say that the Government —the Bonar Law Government— is therefore right in arranging with the American Treasury without loss of time "— some people have said that my right hon. Friend the Lord President of the Council was precipitate; my right hon. Friend the Member for Carnarvon Boroughs says "without loss of time"— for the liquidation of the Debt incurred by this country. There you have the attitude of the Coalition Government expressed as being in consonance with that of Mr. Bonar Law's Government, which succeeded it. If it was wrong or foolish either to make a settlement, or to make it without regard to the other nations, that error and folly are not the error and folly of my right hon. Friend the Lord President of the Council. They are laid at the door of the Coalition Government and of Mr. Bonar Law's Government which followed.

The only other question is whether the bargain was too harsh for us, whether we could not have got a better. It is suggested that my right hon. Friend the Lord President of the Council was an incompetent negotiator. I wish the House to keep in mind a few facts about this matter before coming to any conclusion. As the Chancellor of the Exchequer said to-day, our obligations were expressed to the United States in formal Notes whereby we were obliged to pay on demand. These Notes could be operated against us at any time. We were also bound, upon demand from the United States, to turn them into funded debts based upon gold. There was never ally question about that. We had to pay in dollars. When the Debt Funding Commission sat in New York they arrived at certain conclusions which were published. I ought to say that when it was decided to set up the Debt Funding Commission obligations were imposed upon them by Congress and the principal of them was the fact that they were not to settle on any rate of interest less than 4¼ per cent., and that payment was to be made within 25 years, an operation which would have involved us in paying £65,000,000 a year to America. After all, my right hon. Friend got an arrangement by which, in the first 10 years, we got off with 3 per cent., and thereafter, I think, 3½ per cent., which were certainly better terms than the Debt Funding Commission were enjoined to take. One must always remember, also, that the matter had to be put before Congress, and Congress had to give its assent.

What was the state of feeling in America at that time? There is one thing against which I wish to warn the House. There are very many Americans, very good friends of ours, who intensely dislike the fact that so great an exaction was taken from us, and they are very prone and ready to believe what some of the newspapers say, to wit, that it was not their hardness but it was our softness which resulted in this rather unconscionable bargain. But, in fact, that was not so at all. I went to America within, I think, three weeks of the time at which my right hon. Friend started. Contrary to the statement made in an evening paper last night, which suggested that it was I who had put my right hon. Friend in the mire, and that was the reason why I was to champion him to-night—it is the first time in this long controversy that that has been suggested, and it shows that invention has not yet disappeared—I did not see anybody in any way associated with these negotiations until all the negotiations were over. It is also said that I kept sending cables from America urging and pleading that this settlement should go through. I sent one cable, in conjunction with two other people, about which I shall tell the House in a moment.

In the meantime, let me say this. I was in contact with many of our very best friends in America, and their statement to me was that we had better accept this settlement lest worse befall us. It was quite obvious from the American Press that opinion was by no means favourable to any further leniency, and Lord Burnham, who happened to be in New York at the same time, and was entertained by the Press, reported to me that he found a universal feeling in the Press that we could not get any better terms arid had better accept these. Our Ambassador at the time, Sir Auckland Geddes, conveyed exactly the same information. The result was that he, Lord Burnham and I, becoming somewhat apprehensive as to the course of the irritable feeling that was rising through this hitch in the negotiations, accounted for by the attitude of the British Cabinet, took upon ourselves to send a cable to the Prime Minister telling him that, in our view, no better terms could then be obtained. We did that as an act of patriotic duty. After all, let the House consider the situation at the time. My right hon. Friend the Lord President of the Council had been the means of pulling down the Coalition Government, in which I believed, and I was in active opposition. I stood as a Coalition Conservative in Glasgow, where, in the next constituency, Mr. Bonar Law, a very old friend of mine, was standing as a Conservative sans phrase.

I was in no way in a position in which it was either my duty or my interest to support my right hon. Friend, but I felt that we had a duty to our country to let the feeling that we had found in America be known. What other interest was there? We may all have been fools. Lord Burnham may have been entirely deceived by all the pressmen he had met. He has written a record in the "Times" as to what he found, and it is there for anybody to read. Our Ambassador may have been entirely misinformed through all the various channels. But, if we were fooled to that extent—well, I submit that at this time of day, after that long period, to conduct this propaganda against my right hon. Friend is not only unjustified, but is entirely unworthy of our ordinary British methods. Let me add one thing more. My right hon. Friend the Member for Carnarvon Boroughs had an opportunity of raising this question in Parliament. In view of all this fuss which has been made just now it may surprise the House to know that on the Budget that followed upon this settlement only one speech was made which raised the question at all, and that was a speech which supported the settlement. The right hon. Gentleman spoke on the Report stage, and never even mentioned it. Yet we are told to-day that this is a settlement which has brought Britain to ruin, and that everybody ought to have recognised it at the time. Well, I hope we have heard the end of this kind of attack. It is not an agreeable task to have to expose a matter like this, but, after all, there is a public duty to be performed.

Upon the actual procedure which has been taken now, there are those who say, "Why do you not default?" My right hon. Friend the Member for Epping has answered that, but neither he nor the Chancellor of the Exchequer has adverted to a consideration which seems to me to be very important. We are a creditor nation, the greatest creditor nation in the world still. The world owes us something like £4,000,000,000, but that is not so much at present-day values; it is still certainly well over £2,000,000,000. We have a vast interest in preserving the sanctity of contracts. You may say that the War debts are very exceptional debts, but people do not discriminate between one type of debt and another. The spectacle of Great Britain defaulting upon its obligations would, indeed, be one of which advantage would be taken by people all over the world. It is my view that it would undermine the whole structure of credit upon which the world's trade at the present time is carried on. You may say, "Are you going to pay for ever?" That question is not one which is capable of answer, except in circumstances in which it is appropriately raised. What we are doing at the present time is that, at a time when it is not impossible for us to pay, we are buying an opportunity of negotiation through which we hope to bring about agreement upon a revision which all the world wants, and to avoid the disaster of default, which would only ruin the world. That is our object at the present time. The question is really irrelevant, until we see how those negotiations are to proceed. I do not at all dispair of our being able to arrive at conclusions, when we really get to grips, face to face with the people who are to have the responsibility, not only of administering their own country but of looking to the interests of the world as a whole.

I do not believe that the American statesmen are going to be either so callous or so frivolous that hey will not pay attention to these great issues. I think that it would be impossible for them to act in such a way for this reason. As far as I have been able to observe the writings in the American Press to-day by economists, experts or bankers, there is not one which has not given adherance to the view either that these debts should be cancelled in the interest of America herself or that they should be greatly scaled down. I find to-day in the "New York Herald" this statement from a leading article, which seems to me to express what we may hope for. If the House will pardon me, I will read it. The long debate with Great Britain over to-morrow's payment has ended in a fashion which we are confident, in the long run, will count heavily for mutual understanding and friendship between the two great English-speaking nations. For this reason we welcome Britain's action, which will result in a strong sentiment for leniency and generosity towards a debtor so careful of its honour. If that sentiment prevails to any extent in America, as I believe it does, we have every ground for encouragement in going forward with those negotiations. We may say that Great Britain once more has been the country which has to bear the immediate sacrifices, but the answer, the sordid answer, is that if we do not bear those sacrifices we shall have to bear much worse ones. There is an even more inspiring idea to guide us. Once again in history this old, cherished country, rich in traditions of duty and responsibility, is called upon by its counsel and its example to save the world.

6.33 p.m.


The right hon. Gentleman the Member for Hillhead (Sir B. Home) ended his speech with a very exalted peroration about our saving the world, but that we must save ourselves first. He quoted a passage from an American source, that if we only pay this sum of money quietly, in accordance with the terms of the contract, we shall be regarded so favourably by the United States of America that in future greater blessings will be conferred upon us than upon any other land in Europe. He could easily have quoted things of that sort from newspapers 10 years ago. There was not an American newspaper that did not say exactly the same thing—"Britain has paid us honourably, has shown such a fine example; we must endeavour to treat her fairly, honourably, leniently, indulgently." Since then we have paid £326,000,000, and to-morrow I understand that we are going to add another £30,000,000. £357,000,000, on just a clipping of a newspaper from America! What change is there? We have been told that if we only do this we shall get some favour. We did it 10 years ago. We have had none. We have had to pay £357.000,000, and we have had the highest tariff in the world put against our goods.

Let us face realities. I am glad that the right hon. Gentleman the Member for Hillhead has called attention in the House of Commons to the transaction in which he and I took a prominent part. It was intimated in the Press that he was going to do so. I, therefore, took the precaution of going through the full note of the whole of the discussions of the Cabinet at that time. If the right hon. Gentleman will bear in mind what happened, he will remember that it was decided by the Cabinet that, inasmuch as the discussions were of such vast moment, it was desirable that a full note should be taken of every speech made. I am not entitled to publish this paper without the consent of the. Prime Minister, who will obtain consent from His Majesty, but I Lay now that as far as I am concerned, and not merely as the Prime Minister at that date, I offer no objection, but that I think it would serve a public purpose to publish the arguments that were presented by the right hon. Gentleman the Member for Hillhead, by Lord Balfour and by Sir Laming Worthington-Evans, and the summary of the discussions by myself. I think it would be fair that the public should see, and then they could judge between the right hon. Gentleman the Member for Hillhead and myself as to what happened. This I am entitled to say now, because it has been revealed by the right hon. Gentleman himself, and I am not sure that it has not been by his colleague, that there were only two dissentients. One of them was the right hon. Gentleman the Member for Hillhead. He says now that if the Balfour Note and its policy had been adopted it would have saved the world. He voted against it.


That is not so.


I was the other.


It is perfectly obvious that the reasons must be given.


That is right.


I am perfectly willing. I have a clear conscience in this matter and I am perfectly willing to give a full explanation. I regarded myself as pretermitted from any right to disclose what happened in a Cabinet. My right hon. Friend must not say that I voted against the Balfour Note without giving any public explanation at all, because the reasons I think were entirely good, and in the end were justified.


I am not talking about the reasons; I am talking of the facts. [Interruption.] Hon. Members should listen to the statement. They listened when the statement was made against me on the other side, and, in all fairness, they have to listen to what I have to say.


My right hon. Friend alluded to the fact that there were two Members in the Cabinet who dissented from the policy of sending the Balfour Note. I was the other. I think that I am right in saying—and I shall not be saying anything that it is not proper for me to say—that what my right hon. Friend the Member for Hillhead and I dissented from was not the policy of the Balfour Note, but the policy of writing that Balfour Note and addressing it to the European Powers, when it was really directed against the policy of the United States.


Hon. Gentlemen now cheer without having the slightest knowledge of the facts. That is not the temper—[Interruption.] This makes it more incumbent than ever that the whole thing should be published. They challenged the whole policy of the Balfour Note. The right hon. Gentleman the Member for Hill-head denied it; the right hon. Gentleman the Member for West Birmingham (Sir A. Chamberlain) has not done so yet. I have got a copy here. I will ask whether either of them objects to it being published.


So far as I am concerned, I have no objection at all.


I will ask the right hon. Gentleman the Member for Bewdley (Mr. Baldwin) who represents the Prime Minister—[HON. MEMBERS: "No!"] Hon. Members are quite willing to cheer a statement without knowing what is in it, but when I say "Why not publish the document that gives the actual words?" they at once say "No." I ask the right hon. Gentleman the Member for Bewdley whether he objects?

The LORD PRESIDENT of the COUNCIL (Mr. Baldwin)

Not in the least. I think it would be a most admirable thing to do. I should be very glad if it could be possible to publish at the same time the whole of the discussions on the American Debt.


If they are included, I think it will make a much more perfect document. I agree. I am entitled to say, now that the right hon. Gentleman has referred to it, that there were only two dissentients. The right hon. Gentleman was not a dissentient. He agreed with the Balfour Note, and so did every other member of the Cabinet, including Sir Laming Worthington-Evans, who, in my judgment, was one of the greatest financial authorities of his time.


If I may interrupt the right hon. Gentleman just once more—I will not do so again—he must not say that we disagreed with or dissented from the Balfour Note. We dissented from the sending of the Balfour Note out to the world, on the ground that, instead of placating America, it would only irritate America.


I understand now from the right hon. Gentleman that he has no objection to the documents being published—


None at all.


Therefore, I have nothing more to say provided that the documents are published. Then the public can judge for itself, not merely in this House, but outside as well. I come now to the question of what the Balfour Note meant. The right hon. Gentleman has just quoted one sentence saying: "It is a debt; it is an obligation; we acknowledge that the United States of America is well within its rights if it means to demand it." That is not the whole of the Balfour Note. Take this quotation, which follows almost the very words which the right hon. Gentleman read out to the House: They cannot treat the repayment of the Anglo-American loan as if it were an isolated incident in which only the United States of America and Great Britain had any concern. It is but one of a connected series of transactions in which this country appears sometimes as debtor, sometimes as creditor, and, if our undoubted obligations as a debtor are to be enforced; our not less undoubted rights as a creditor cannot be left wholly in abeyance. Surely, that is rather a relevant quotation. It went on to point out exactly what the right hon. Gentleman has pointed out—that all this indebtedness, reparations and debts, was weighing upon the world, with all its unhappy effects upon credit and exchange, upon national production and upon international trade; and it said: The peoples of all countries long for a speedy return to the normal. If that advice had been taken at that time, what a difference it would have made in the 10 years which have since elapsed. In the end we offered to forgo the whole of our debts, including reparations, against Germany, provided that the same thing was done all round.


The effective part is contained in the sentence on the seventh page, which the right hon. Gentleman has not read. It says that, although we should have preferred that solution, which we repeated in the Note, as that solution could not then be adopted, owing to the attitude of the United States, we ourselves would demand no more from our debtors or from reparations than we were required to pay to our creditors. That is the effective passage.


That was stated quite fairly by the Chancellor of the Exchequer. He said that, if we had to pay, we should demand no more from our debtors than we ourselves paid to the United States of America. That is quite right, and that is the only part which is really being carried out at the present moment. There was the proposal that we should wipe out all inter- national debts, that we should wipe out all reparations, that there should be a general settlement; and we, as a great creditor nation, were prepared at that time to make the sacrifice. But what followed? The Cabinet then, as the right hon. Gentleman himself admitted after I had interrupted him—I am sorry that I interrupted before he was going to state the full facts, because he did not state the full facts in the "Times," which I have here—


I had not then seen the documents.


The Cabinet gave certain instructions to the right hon. Gentleman, and, now that he has raised the matter, I think I am entitled to quote them. They were: That the Chancellor of the Exchequer should be the Chief British Delegate at the forthcoming Washington Conference on Inter-Allied indebtedness, and that he should have full discretion to deal with the question on the general lines indicated in the Cabinet discussions on the subject. That is not what was said before; I have already said that. The right hon. Gentleman had no instructions to go there to settle; he had only instructions to go there to settle on the lines of the Cabinet discussions. If he had failed on those lines, he was bound to communicate with the Cabinet and obtain further instructions. It does not say that he was entitled to go there and, if he failed to obtain the terms of the Balfour Note, then he was entitled to make any further proposal.


The right hon. Gentleman has quoted, whether rightly or wrongly, the terms of the Cabinet decision. What does he mean to imply? Does he mean to imply that the Cabinet only authorised the then Chancellor of the Exchequer to make a settlement which would have involved a wiping of the whole slate? That is not so. It authorised the Chancellor of the Exchequer, as that policy was ruled out by the United States, to make the best settlement that he could of the British debt.


The right hon. Gentleman is making a statement now really without authority. If he will look at the documents, he will find that there is no word of that kind. He was entitled to make a settlement on those lines. If he did not secure a settlement on those lines, he was bound to refer back to this country. [HON. MEMBERS: "On what lines?"] On the lines of the Balfour Note.



As long as the interruptions come only from the right hon. Gentleman the Member for Hill-head and the right hon. Gentleman the Member for West Birmingham, I am willing to give way, but I do not think I am called upon to do so to other interruptions. Otherwise, I cannot possibly give the narrative. That was the position when we went out of office. We were then paying the interest on the whole, with exactly the same hope that we are expressing now—that, if we just paid America, if we did not ruffle her too much, but paid the interest, America Would treat us very well. She did not.

Now I come to the visit of the Lord President of the Council. I was not a member of that Government, and therefore am not in a position to say what happened. Whether he went there with instructions to make the best bargain he could without any reference to the Balfour Note, or not, I am not in a position to say. All that I know is that that settlement profoundly disturbed Mr. Bonar Law. He protested against it; he was very upset about it; but it was carried through the Cabinet. I am told that this is the very best settlement that could have been made. The right. hon. Gentleman, when he was in America, saw Sir Auckland Geddes and the then Secretary of State—I forget who he was at the moment.

The article which has been quoted was written to the "Daily Telegraph," and it is from the "Daily Telegraph" that I have it here. May I just say that the first article was written when I was in mid-ocean, and the Bay of Biscay, under certain conditions, is hardly the best place in which to study financial questions? At any rate, I wrote the article upon just the kind of snippety news that you get on board ship. I began my article by saying so. I said that I had not details of the settlement; I said that I was glad that it had been possible to settle with America; I said the things which the right hon. Gentleman has quoted. When I arrived in England, and had the full terms of the settlement, I wrote another article for the "Daily Telegraph" the following week, in which I expressed most distinctly the views which I am expressing now. I have here both the first article and the second. I began the second by saying: A cold shiver ran down the back of England when it was announced officially that the British Government had definitely agreed to pay over £30,000,000 a year for 60 years in respect of debts incurred by us on behalf of our Allies without seeking a contribution from our debtors to protect the taxpayers of this country. Why did not the right hon. Gentleman say what he could have seen if he had looked at the article—that I said that I had not seen the full details of the settlement


As the right hon. Gentleman challenges me, I will quote what he said. He said: The details which I have received are not sufficient to enable me to form an opinion regarding the character of the terms, but fractional percentages, however important, on so large a debt, to an overburdened people, are not comparable in value to the good understanding between these two great communities, on whose cooperation peace, freedom and international justice depend.


That is so; but, if the right hon. Gentleman thought that he ought to quote my articles, he ought to have quoted the article which I wrote after I got the full information, and in which I said that it shocked the public that there should have been a settlement without any contribution from other countries. He has never done so; he has suppressed that article, though he knew that it had been written. The right hon. Gentleman now says it was so favourable a, settlement that I advised the people at home to accept it; that I sent a cable within two hours to advise them to accept it lest they should have worse. It is something which is represented by 30 millions of gold which is going to-morrow. [HON. MEMBERS: "Under 20 millions."] Thirty millions sterling. I wonder how many of those who are here either heard, or paid any heed to what the Chancellor of the Exchequer said in reply to the hon. and gallant Member for Chippenham (Captain Cazalet) this week. It is said that if we had not settled at this price worse might have befallen us. The Italians did not, and what is the result? I will quote now what the right hon. Gentleman said: If the British War Debt to the United States Government had from the outset been settled on the same basis as the French War Debt to the United States Government, the amount which His Majesty's Government has already in fact paid would exceed the amount due on such a basis by 795,700,000 dollars and no further payment would be due until 1940. Similarly, if the British War Debt had been settled on the basis of the Italian settlement, no further payment would be due until 1955."—[OFFICIAL REPORT, 12th December, 1932; cols. 43–44, Vol. 273.] You can read the rest. What does that amount to? We settled in a hurry. I do not want to say hard things of the right hon. Gentleman, although I think he is more responsible than the Lord President of the Council. If we had not settled, should we have been worse? France did not settle. [HON. MEMBERS: "The franc went down to 2d.!"] What has that to do with the settlement? That was her internal debt. Does anyone suggest that if we had had the French terms our sovereign would have gone?


Does the right hon. Gentleman suggest that there was any possibility of any negotiator, even himself, getting the French, or Italian, terms for this country from the United States?


I say that if we had held out, and insisted upon the United States of America coming to what the Balfour Note called a "general settlement," America would have been forced to give us better terms. The Chancellor of the Exchequer was good enough to call attention to the correspondence between myself and President Wilson. That was not the first letter which passed between us. President Wilson, when someone in the Senate, or the House of Representatives, asked why we did not pay, wrote me a note asking: "When are you going to pay?" I took my time to reply. It was a very important matter. Then the kind of letter mentioned by the right hon. Gentleman was written, in which I pointed out the danger to the whole world of keeping these debts alive, and I would hear nothing for a long time.

The right hon. Gentleman thinks he knows a great deal about America. I also do, and I am proud of it. But. I know perfectly well that if we had gone on like that the Americans were in no hurry to press us for settlement, and they were astonished when we settled. They did not go on bullying the French for payment, nor the Italians, but once we settled then it was inevitable that the others should do so as well.

We ought to have taken our stand that there must be a general all-round settlement of debts, or that, otherwise, we could not come in. That refers to reparations as well. That is not repudiation. It was simply a debtor saying: "Before I pay this money, I must have a parley with you, and I must have a parley all round. I owe you £800,000,000, but the others owe me £3,000,000,000, and I am entitled to have a discussion on the subject with all of them before any payment is made. What is there in that when an honourable debtor, who is in the habit of paying his debt, says that this is on a totally different footing, and we must have an all-round discussion of it.

The French Chamber have taken the matter out of the hands of their Government. It is a very remarkable fact that this is the only Parliament where we are not allowed to take the view of Members upon this settlement. The American Congress can discuss it and decide it. The French Chamber have discussed it, and decided it. In Italy Signor Mussolini convened the Grand Council of the Fascists, and they dis- cussed it for two days before there was a decision. Belgium also referred the matter to its Parliament. The one Parliament in Europe which has no opportunity of recording its view on this settlement is the Mother of Parliaments. We have now an opportunity to discuss it. One can see the kind of discussion allowed here. One can have the opportunity of discussion—the poor old Mother of Parliaments can gibber in her corner. [HON. MEMBERS: "Who is gibbering?"] You can be rude. I have taken part in all these transactions, and I think I am entitled to make my contribution to the discussion. While £20,000,000 of her gold are taken away, we are not allowed to express our opinion.

The French Chamber has decided by an overwhelming majority. The right hon. Gentleman said he had always a great admiration for the French. I am afraid that some of my friends, because I have taken different views about Silesia, Poland and other subjects, think I have not. I knew the French people when they were on their trial—their courage, their steadfastness, their resource, and their superb calm. I have the profoundest reverence for the French, but there is one thing they have got in advance of us—they have a quicker perception of realities. Their statesmen come together and discuss things in conference. What happened in the French Chamber? It was not a vote asked for in a hurry. The two ablest committees of the French Chamber—the Budget Committee and the Committee for Foreign Affairs, the ablest and most experienced in the French Parliament—met. They both decided unanimously not to repudiate, not to default, hut to say to America: "You must parley before we pay." They were absolutely right.

I am against repudiation. All the things said by the right hon. Gentleman about that I am for. The Balfour Note says so. But it is not repudiation when there is a great cataclysm in the world, where everybody is suffering, to say: "We cannot collect our debts without inflicting wrong and harm upon our neighbours. Our book debts are far higher than our debts, but we cannot collect them. We would not do it; it would bring disaster on the world if we did. We ask you to come and talk about it and say whether we could not have another moratorium, a reduction, or wipe the whole thing out." We are entitled to that. I agree it is different if a debtor communicates with his creditor, and says to him: "I received your bill, and I will come over and explain everything," especially if that has been done over and over again and no payment made. But since when has Britain been known to be a defaulting debtor? She has the right to say: "I have always paid my debts, and, if I ask you to parley, it is not because I want to default; it is because I think the situation is so serious that for you, as well as for ourselves, you must come and have a talk about it." Britain was entitled to that. She has paid £326,000,000 in respect of this debt. Paid it out of her need. Paid it out of the heaviest taxation in the world, paid it out of her distress. Hon. Members have read the Bishop of Durham's speech on the conditions in his diocese. Britain has been paying her £326,000,000 out of the bread of her children, paying it steadily year by year, when others were only paying about a fifth. Was not Britain, after doing this, entitled to say to America: "When you gave us a moratorium, things were bad. You did it to save the world, of which we are a very important part. We ask you to put it off. We could not ask you when there was a General Election on, and it is only just over. We ask you to put this off until there is someone with whom we can talk to face to face and someone who can give an answer." What has that to do with repudiation? What has that to do with default? [An HON. MEMBER: "They would not do it!"] If they did not do it, I should say, as the French Chamber has said: "No parley, no pay. If you are not prepared to talk to your debtors in an emergency of this kind, we will wait until you do." [An HON. MEMBER: "Repudiation"] I Not at all. It is no more repudiation than the right hon. Gentleman's note. I am not criticising it. I do not take the point of view that has been taken by others, that he ought not to have warned them that we cannot accept those terms. But that is not repudiation. It is an acceptance of the realities of the situation and the responsibility that we owe, not merely to the 44,000,000 of people in this country but to the whole world. I wish he had taken that line. I do not agree with the right hon. Gentleman when he suggested that the Chancellor of the Exchequer was taking a wrong line in the Cabinet. I frankly state here, with all the misgivings that I had at the time, that I think he was right.


The right hon. Gentleman is not satisfied with telling us what happened in his Cabinet. He is now telling us what happened in ours. I wish at once to inform him that his information is entirely inaccurate.


I was only alluding to what has been said by my right hon. Friend, and all I can say is that I am extraordinarily sorry to hear that his information was inaccurate.


My right hon. Friend got it from the Press.


I said so, and I commented that such a statement should have been allowed to appear day after day and not be contradicted.


All I know is that, when my right hon. Friend made the statement, there was no contradiction and, when I saw that there was no contradiction either in the Press or when my right hon. Friend stated it, I thought I was fairly safe in repeating it.

That is my view of this position. I regret that the right hon. Gentleman did not insist upon a parley with the United States of America before paying, and, if they had said they would not, I would have waited until the new President came in and I would have insisted upon a discussion of the whole situation. Why should America stand out? Upon what grounds is she to stand out? It is now to cost us about £30,000,000. The right hon. Gentleman has talked about earmarking. I wish he had earmarked it "subject to discussion"—done what is known as "paid into court." That is the suggestion that the Government made with regard to Ireland, that the money should be paid into court and that there should be a discussion on the subject. If the right hon. Gentleman had earmarked it in such a way that it would be available for whatever settlement there is, I think he would have achieved a very great success.

I took part in these transactions 12 years ago and wrote in 1920 to President Wilson to beg him to agree to cancel all these debts and reparations. I fought against any figure for reparations. I knew that 1919 was not the time to fix reparations, and the British delegation insisted on securing a truce of two years before the figure was fixed. The figure of £6,600,000 was never fixed as a payment. It was a valuation of the damage done, and I do not think it was an excessive valuation at that time. Lord Bradbury represented us. He is a very sane, shrewd man, and in his view the amount of the damage fixed was fair. The amount that we asked for was something like £2,500,000,000. She has paid £2,000,000,000. In my judgment, it is unfair to ask her to pay a penny more than she has paid. Stripped of her colonies, having to buy all the raw materials that she used to get from her colonies, she is not in a position to pay, and in my judgment, she will not pay, because she cannot.

If the United States had been represented on the Commission, she would have had a casting vote. We were fighting for lenient terms. We were fighting in a minority, often in a minority of one. If the United States had been there, it would have made all the difference in the world, and I say that the United States, by repudiating the signature of her President, is partly responsible. If she had stood by that signature at that time, the whole story would have been a different one. In the League of Nations, and not merely in the League of Nations but in the Reparations Commission, and in all the transactions that there were in the whole of that time, Britain was practically fighting alone for fair terms. I wrote that letter in 1920 to President Wilson before the damages were fixed. They were bound to be heavy, because the devastation was terrible. Towns and villages were completely obliterated. I begged him to come in and settle up the whole business and wipe out this burden which, I felt certain, would tangle the feet of civilisation.

The right hon. Gentleman is the first man who has been generous enough to acknowledge the part that I played. He has told the whole story of the fight that I put up in 1920. I am glad to see one of my colleagues here. The dissentients have left. The fight that we put up during those years is a fight that I am glad to be here to continue in order to remove the stranglehold of these debts. Whatever the right hon. Gentleman is going to pay now I say, quite frankly, I wish he had put it into pound and left it to judgment. But that is done. I hope he will disregard pedantries and all these pleas which are coming from the City of London, which has too often been the curse of our trade during the last few years in all the advice that it has given. Let him take a bold line and say: "This thing has got to stop. We are the greatest creditors in the world in proportion to our population. We pay the heaviest taxation in the world per head of the population. We have made the greatest sacrifices in money and preserved our honour and saved the liberties of the world, and we must be heard."

7.29 p.m.


The right hon. Gentleman who has just sat down objected, as I under stood, to the fact that the House is not going to have an opportunity of voting upon the issue as to whether or not this instalment of the debt to the United States shall be paid. While I could understand his feeling about that, it became more difficult to follow his objections to the course the Government have followed in this De bate, when at a later stage he said: "I strongly object to any question of repudiation or default," or words to that effect and a little later still referred to the possibility of not paying at all by suggesting that the course we should have followed should have been "no parley, no pay!" I find it a little difficult to follow the right hon. Gentleman in the various expressions which he used indicating, as it seemed to me, totally different points of view. I assure him, however, that he is mistaken in believing that the House is not more than anxious to hear any contribution which he may choose to make to it. I may be allowed to suggest, however, that in the last three hours, in fact nearly four hours, we have had a series of speeches which, no doubt, were extremely interesting from the historical point of view but strangely divorced from the subject which is really before the House. It may be considered a presumption for me in anyway to criticise speeches made by the eminent Members of the House who have followed the Chancellor of the Exchequor, and I do not wish to belittle the interest there may be in the history of the negotiations which took place some 10 years ago; but I venture to suggest that these things are more suitable for the pages of one of the monthly journals than for discussion in the House of Commons at a time of grave moment such as to-day.

The subjects which really interest us are, I think, first, Did the Government do right in agreeing to this payment? and, secondly, What is to be the effect of making this payment upon the future trade, industry and general prosperity in this country? In spite of these discursive addresses on the historical aspects of the past, I do not think that any speaker has really objected to, or seriously criticised, the decision to which the Government have come. The right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) indicates dissent but he stated that he was not in favour of default, and, as I have said, rather contradicted it afterwards, so it appeared to me, by saying, that in his opinion the proper course was to have taken up the attitude of "No parley, no pay." There is really no halfway house in this matter. If you say to your debtor, "We are only going to pay if you will come and talk to us on terms which we shall lay down, and will discuss the whole 'matter," and he says, "I will talk to you at any time you like after you have paid but not before," you then are in the position that you either default or pay. The simple proposition put forward by the American people at the present time is, "Whatever may happen in the future, you either pay or you default." I do not think that I am wrong in stating that, in spite of our many friends in America who are more than anxious to come to a settlement with us and to treat us reasonably and even generously, there may be quite a few people there who would not be altogether sorry to see us default.

If that is the case, I suggest that the real question before the House is: What is to be the position in the future? Has any speaker who has taken part in this Debate so far objected to the course the Government have taken? I do not think that they have. I do not think that there is any other course which the Government could take. But that does not mean that the House has not a right to be consulted as to what is to be the effect of taking that course on our future position with America and also the effect upon our trade and industry in this country. There is also the question of the very much larger amount which we have already paid to America as a result of a settlement much worse in its terms for us than that which was made in the case of France and Italy with the United States. That point has already been brought out. But I will emphasise it by saying that, if we had paid our debt so far on the basis of the settlement made between the United States and France, we should have paid £47,000,000 sterling up to the middle of 1931 instead of which we actually paid £270,000,000. It is as well perhaps that those figures should be given once again so that they may he placed on record.

Apart from that point, there is another very serious aspect of the question which to-day at any rate has not been commented upon at all. It is this. Our debt payments year by year previous to our leaving the Gold Standard were approximately £33,000,000 sterling. Take for example, any year in the last 10–1923 for example. In that year we had to pay £33,000,000, but our exports of goods to America in that year were £70,000,000 so that the cost of paying the instalment on our debt in that year was about half the value of our exports. In 1932, on the other hand, our exports to America were £17,000,000, and, as a result of going off the Gold Standard, the amount payable is now roughly £52,000,000 sterling, so that our payment to America means a sum now three times the value of our annual export instead of only 50 per cent. of the value as was the case 10 years ago. That is the most serious aspect of the whole situation, and one which, I suggest, has not been sufficiently remarked upon. The situation, after the present instalment is paid, will be that we cannot any longer, whether we wish to or not, continue to pay those sums to America except to the small extent possible by the transference of our small suck of gold. In the end, we cannot possibly pay those sums to America and therefore we would do well to face the fact now.

The only point in the speech of my right hon. Friend the Member for Hill-head (Sir B. Home) with which I could not associate myself was when he said he did not think it necessary to consider now what was to happen in the future. That is a far more important point for the House to turn its attention to, I suggest, than the discussion of what happened 10 years ago. It is of very little interest to me to-night, I say frankly, whether the right hon. Gentleman the Member for Carnarvon Boroughs or the right hon. Gentleman the Member for Hillhead is correct in their recollections of the past, except that I rejoiced at the repudiation of the unfair attacks upon my right hon. Friend the Lord President of the Council. The thing which interests me to-day is what is going to happen in the future. The whole House, as far as I understand its attitude, has agreed that the course taken now is the only possible course in the meantime. What is to happen in the future? The first point I make in that connection is to emphasise the immense importance of these debt payments in relation to our export trade to the United States. It seems clear that any payments made in the future cannot be made in goods at all, because you are not allowed by the States to sell goods to them. The only payment possible would be by some form of specie and this would rapidly become impossible to maintain. I do not know if it serves any useful purpose really to refer to the attitude of America or to complain of the stand which she has taken.

The only thing which perhaps I object to on the part of American publicists is their continued reference to the fact that their object in the War was to make the world safe for democracy. Of course, that is untrue. What actually happened was that America went into the War to protect American trade and the future of her interests and existence in precisely the same way as the rest of the Allies went into the War. The sooner those rather high fainting statements come to an end the better. Also it must be remembered that the debts contracted by the Allies were made after America entered the War. If anybody wishes to understand the real attitude of American politicians and statesmen at the time that country entered the War, they have only to read the speeches which were delivered in Congress within five days of America joining in on a motion for the authorisation to the United States Treasury to grant the first of these credits to the Allies. It will then be realised that America was convinced in her own mind that it was both right and proper that she should give these credits and advance these sums because of her practical inability to join efficiently in the War for a long period then to come, as she had no preparations made. If some American speakers and writers would look up those speeches in 1917 they would be less inclined than they are to-day to suggest that they really have grounds for pressing for the repayment of these debts.

I want to get to the question of the future. Let us face the fact clearly that, in spite of the most eloquent speech of the Chancellor of the Exchequer to-day and of our entire agreement with the action which he is taking at the present time, there is no solid ground for believing that the United States will cancel these debts, except the fact that we have a number of very good friends there who realise the unfairness of the present position. The rest is based on mere hopes that that attitude of mind and understanding will spread throughout the American Continent. I am afraid that to base our hopes entirely on the spread of that kind of vision throughout the United States is to lean upon a very weak reed indeed. We must face the fact that, although we hope to get a reconsideration of the debt and, at the least, some scaling down of the settlement and also some special consideration in view of the immense sums which we have paid as compared with the payments obtained from other countries, the complete elimination of the claim upon us is not very likely to be brought about.

That leads me to the question: Does this country want all War Debts to be cancelled? I think that very often our own position is forgotten. Let us assume for the moment that the whole of the War Debts are to be cancelled. What would be our position We should still have a Budget of roughly £700,000,000 a year to be raised from taxation upon industry. That would put our industry in a position in which it would find itself extraordinarily handicapped in competing with the other countries of Europe, most of whose debts would have been paid off and with that the taxation upon their industry reduced to little or nothing. It is very essential that we should face the whole situation. The complete cancella- tion of debts is not necessarily, at once at any rate, to our advantage. Even if you had universal free trade, which is almost unthinkable in the near future at any rate, you would have very serious competition brought against our industrialists from the countries of Europe whose taxation would have been practically wiped off the slate. We should also—and it is a very important point—immediately lose, if there was a complete cancellation in the future—any credit for the £200,000,000 we have already paid in excess. The House will remember that the arrangement under the Balfour Note and the settlements which were subsequently arrived at resulted in a scheme for a long series of payments which at the end of some 50 years would make up to us for the £200,000,000 excess payments we have already made over and above the sums which we have received from our debtors. I suggest to the House that if these War Debts were cancelled all round at once we might lose the advantage of our undoubted right to repayment of the £200,000,000 we have already paid in advance of the moneys due to us.

There is one further point in connection with this part of the subject which I should like to raise, and that is as to the financial situation in this country in the immediate future when this instalment has been paid. There was one part of the Chancellor of the Exchequer's speech which filled me with dismay. He referred, as I understood it, I think quite clearly, to the probability, if not the certainty, that there would be a rise in the Bank rate—I presume to-morrow and that there would be—I do not wish to misquote his words—a restriction of credit for industry. To put it in such a way is to suggest that the loss of this £20,000,000 in gold means less money available and that consequently there must be a rise in the Bank rate. The House of Commons may not be entitled to, and may not desire or require any vote on the question of whether this instalment should be paid to America, but it is very definitely entitled to a, vote on any question of restricting credit, because there is nothing we have suffered from so continuously in the last few years as the deflationist policy of the Bank of England, a policy which, if it is to be allowed to continue—and I understood from the speech of the Chancellor of the Exchequer that it is likely to do so—is a matter of vital importance to every employer and to every workman, and one on which the House of Commons has every right to be consulted, and every right to give its opinion.

The loss of this £20,000,000 of gold need not cause any restriction of credit. It almost gives one the impression, when one hears it put forward as a reason for a, possible rise in the Bank rate and a restriction of credit, that those arguments are based on the idea that we are still on the Gold Standard. The fact that we shall have lost this gold need have no effect whatever upon the supply of industrial credit. If the Chancellor of the Exchequer thought that the evils could not be averted without raising the Bank rate or increasing the fiduciary issue, I would very much rather that he increased the fiduciary issue at once and told the Bank of England so. At any rate, the question of the amount of gold we hold has no real bearing on the subject. It is difficult in fact to under stand why the Bank of England has been buying gold for some time past. This, surely, is the time when they should be selling gold. I have always been taught to sell when prices are high. This is the moment when we should sell as much gold as we can to America and France. I suggest that if we refuse to buy gold, America and France must do so; otherwise, they cannot keep up the value of their immense hoards. Consequently, we need not be in the least afraid of the price declining simply because we refuse to buy. But the situation that the country is in fills me with absolute dismay if I am right in attributing to the Chancellor of the Exchequer the view that, as a result of this payment, there is to be a rise in the Bank rate and a restriction of credit.

The last point that I want to make is that, when this particular payment is out of the way and when the immediate question has been dealt with, the Government should seriously turn their attention to a future monetary policy for this country and the Empire as a whole. The pathetic dependence the Government appear to have upon a future World Economic Conference strikes me as leading us nowhere. It is an extraordinarily dangerous situation. It is hard to believe that the World Economic Conference will achieve any- thing at all unless the British Empire has first set an example by settling an Empire monetary policy for itself. There is little difficulty in our deciding upon a policy which will be suitable for the Empire by arriving at a common basis of exchange within all parts of it. There is no necessity for a common unit of currency. All that is wanted is a common basis of exchange, which can be achieved in my view by setting up a central Empire bank, which would be a pool for the different central banks of the Empire to draw upon. Credits would be lodged in that central pool from the various parts of the Empire and this Empire Bank would operate in precisely the same way that the Bank of England acts as a central bank for the joint stock institutions of Great Britain.

The thing could be done; it requires no international agreement. I am satisfied that a great many parts of the Empire are willing to enter into some such arrangement without delay. The difficulties which appear to exist in the case of South Africa and Canada are by no means insuperable; it is only a question of adjustment when the time comes. Therefore, I suggest to the Government that if they will move in this matter they will do more for Empire trade and prosperity than by waiting for anything that can come out of the World Economic Conference, the date of which has not even yet been fixed. A suggestion has been made that such a proposal in connection with the Empire would alienate the sympathies of other parts of the world who might otherwise come into some form of union with us. It must be remembered that the Sterling Union already embraces a very large part of the world, and there is very little doubt that the fixing of a common basis of exchange would be equally welcomed by all the countries that are at present in the sterling group and equally workable with them.

I have put these reflections before the House and drawn attention to the difficulties of the future because it seems to me that so far the Debate, however interesting it may have been, has had very little to do with what really is before us. If we are agreed, as I understand we are, that the Government have done the only thing it could do in making this payment to America, and if we are equally agreed, as I think on reflection we shall be, that we have no absolute guarantee that the United States will be prepared to cancel war debts, although we may hope for some mitigation of our burden, I suggest that it is time we faced our own future position and devoted ourselves to considering what this country and this Empire can do. My answer to the question as to what we can do is that we can put our own house in order. There are no means by which we can continue indefinitely paying these instalments of war debts on the present scale and there is therefore no object whatever in our refusing to face that fact and making it perfectly plain to the United States of America. They know it, at any rate those who are experts on the subject, as well as we do. They know that these payments cannot go on.

We are agreed that it is worth paying and not repudiating to-day on the chance that we can make a settlement within the next six months on terms which we will be, able to bear, but it is no use blinking the fact that America may not be willing to make such a settlement. If she insists upon payment on the present basis six months hence, what are we to do? What we can do in the meantime is to put our own financial house in order in this country, and in the Empire. We can do it in this country by ensuring that we do not by this payment to America restrict the credit which industry so urgently requires, and that we do not allow this mere transference of gold, which has no real bearing on the currency situation, to cause a rise in the Bank rate. So far as the Empire is concerned, we should at once set about fixing a common basis or medium of exchange for Empire products in all parts of the Empire, so that if the World Conference does not meet at the time hoped for, or if we find that we have to close our trade with America to some extent, because we have no other means of trying to pay our debt, we can put our house in order at home and make the Empire within itself and those countries which desire to work with us one great trading unit.

7.57 p.m.


In rising to address the House for the first time it may not be inappropriate to say that am very glad that it has been my good fortune to take part in a Debate on the American debt ques- tion. It has been my privilege to have spent many years in the United States before the debt settlement was made in 1923—I was present in New York when the settlement was made. Subsequently, I have visited the United States two or three times a year. Therefore, I claim to have a slight knowledge of the conditions appertaining to that great country. I listened to the speeches of the right hon. and learned Member for Hillhead (Sir R. Horne) and the right hon. Member for Epping (Mr. Churchill), and I agree with a great many of their remarks. It has been my privilege to discuss this subject of the debt settlement in America with leading bankers, financiers, lawyers and politicians of the United States, as it affects not only America but the entire continent of Europe and the countries that are now suffering with America—practically the civilised world.

It would be invidious for me at this time to discuss the original terms of the settlement. As we have heard from the Ministers concerned and other eminent speakers to-day, the settlement made by the Lord President of the Council and the Governor of the Bank of England in America in 1923 was at that time the best obtainable. Of that I am convinced, and we were all convinced, those of us who knew anything about the subject. I am glad that the right hon. and learned Member for Hillhead has said publicly in this House: "Let us stop this awful criticism of an eminent statesman who has spent his life in the service of his country, and always has given us of his best." I am not going to suggest that we should not pay the instalment due tomorrow. Of course, we should pay. Britain always pays. She always has paid and always will pay. So long as we remain a great race we are we shall continue to pay our debts, irrespective of other people. If they do not pay, we shall at least have established ourselves in their eyes as a race who always honour its obligations. While I have no objection to the payment to be made tomorrow, I do protest most strongly against that payment being made unconditionally.

It has been made plain that this is no ordinary payment. It is a special payment made to buy time in the interest of humanity, and it has been made abundantly clear that it will not be repeated. No one will quarrel with America because at the moment she cannot see eye to eye with us and accept our suggestions without further negotiations. That is quite natural. In my view it would help the whole House if we could only realise the difficulties which face America now. The Legislature is attempting to operate in a vacuum. They have a President in office without power and a President in power without office. That is the position in America as the result of a turnover in votes which, with my experience of America, six months ago I should have betted anybody was impossible. But such is the fortune of the political game. They have their troubles, and probably they are jockeying for position. Politicians do that in America, but they have no monopoly of it. We on this side of the Atlantic are occasionally faced with positions of that kind. Therefore we must make our position plain, and it should be made clear that not another shilling will be paid unless and until the World Economic Conference has met and hammered out a solution of the whole problem of intergovernmental debts due to the War.

Even the American Government now admits, as was made plain in the last Note, that there is a definite, specific connection between War Debts, Reparations and the present economic crisis. The first matter to be considered in regard to this one-sided penal system of payments—always he it noted at the sole expense of our country—is, what is the use of continuing to make these payments? What do they accomplish towards. rescuing the world in its agony? Nothing at all. One excuse after another is found for postponing the proposed Conference; first it is Christmas, then it is Easter, next time it will be something else, and if we go on long enough it will be never. Meanwhile the economic condition both of creditor and debtor countries becomes worse and worse. Another condition which ought to be very carefully considered before the payment is made is that of the money due to us by France, and not only by France, but by Belgium and Italy and the other debtor countries. Why should France and Italy pay America and not pay us? What case has been made out for this amazing preferential treatment of America, the greatest gold-hoarding country in the world? It is said that it is in order to preserve the Lausanne Agreement. Why should the responsibility for the breakdown of the Lausanne Agreement be lifted from American shoulders'? Why should it be preserved solely at the expense of this country?

The responsibility of America in this matter should be driven home. President Hoover by his Moratorium was primarily responsible for the idea of Lausanne. It was on his suggestion and initiative that a halt was called in the payment of both Reparations and War Debts. The consequence has been that the whole of the machinery for collecting inter-governmental debts has been thrown out of gear. If the machine cannot be restarted at a moment's notice, or a month's notice or longer, then he and his advisers must of necessity accept the responsibility. Certainly this country is not responsible, and it is sheer madness to accept that responsibility, involving as it does an unknown liability of to my mind frightful and terrifying possibilities. The Lausanne Agreement, as I understand it, was absolutely and explicitly dependent upon America malting concessions. But this suggestion that we should pay America and not be paid ourselves has nothing whatever to do with Lausanne. It is something quite new. France at the moment holds £672,000,000 of gold in her vaults, while we hold £140,000,000, of which we are earmarking nearly £20,000,000 for payment to the United States. Is it seriously suggested that, France should pay nothing to us out of those tremendous resources of gold, and that we only should have to make payment?

It. is about time that Great Britain asserted herself. Ever since the Armistice this country has been called upon to make concession after concession, and the people are really getting a little tired of it. The limit of sacrifice has been reached. In my judgment, the handling of this debt question has been from first to last the most pitiable display in the whole history of British national finance. I hate to say that, but I believe it. Every Government since the Armistice has been equally blameworthy; I am not blaming anybody specifically. If we have to pay America it seems to me that we are doing it in the least harmful way. It seems to me that a great deal too much time is occupied by some of our responsible Ministers in considering the troubles of others and not nearly enough time is given to the consideration of our own. As I say, we are paying in the least harmful way, but it does seem material to consider that this continual diversion of the world's stream of gold into the financial Dead Sea of the Federal Reserve Bank of the United States means that gold is rapidly ceasing to fulfil its function. This is throwing the currency of the world into a state of chaos, and it means that at no very distant date, if civilisation is to survive, another medium of exchange must of necessity be got into use. We have been long enough wandering round the Gold Standard.

I am a new Member, and I do not attempt to criticise the Government. I put a question to the Chancellor of the Exchequer asking whether his attention had been directed to the fact that during the recent fall in the pound world commodity prices had marched with that fall, showing that the prices of commodities were following the pound sterling rather than gold. The Chancellor of the Exchequer replied that he was not aware of any statistics which led him to believe that this was the case except in a few specific instances. Then next day when the British Note to America was published I found this sentence: Sterling has remained more stable in terms of goods than the gold currencies. Perhaps the right hon. Gentleman the Chancellor of the Exchequer can reconcile those two statements, for both of which he is responsible, but frankly I cannot understand them. In so far, however, as it is true; the theory indicates the possibilities of establishing an Empire currency based upon some other medium than gold. I venture to express the belief that it might not be without effect upon the American mind if we were to make it plain to them that they are driving us in that direction. It might then he made clear to this new Midas with his millions that it is that which is paralyzing the American nation. Unhappily this new Midas spreads his curse all over the world, and we are all suffering as a result. I suggest that it really is time that our dear old land should not be longer left, holding the baby. Is it not time that, after the years of suffering this country has gone through since the Armistice, the British lion should at last have a chance of getting on his feet?

8.15 p.m.


I do not hesitate in being the first to congratulate the hon. Member who has just spoken on his maiden speech, which has pleased the House because it was evidently based on careful thought. The speech would have pleased the House even more if there had been more of a House to be pleased, but that could hardly be expected at eight o'clock in the evening. I hope the House will not take it as showing any lack of respect or want of appreciation of the importance of this Debate that it is I who rise to speak on behalf of the party to which I belong. It is due to circumstances beyond our control that seine of our leaders cannot be here to-day, and as I happen to have held office, although only the minor offices of Financial Secretary to the Treasury and Under-Secretary for Foreign Affairs, I have been asked to put forward our views as best I can.

First of all I would make a comment or two on the Debate. The Debate has been, perhaps, too much taken up with personal controversies, rather than with consideration of the extraordinarily important matters with which we are dealing. I rather agreed with the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) that it was a pity the House could not be given an opportunity for expressing its view. I think there would have been a very large majority in favour of our making the payment that we are to make to-morrow, and I think that would have stood out in contrast, before the eyes of the whole world, with another majority in another Chamber equally decisive against making payment. I think that the world would have been interested to see that we were in favour of paying £20,000,000 in gold, in contrast with the doubt and hesitation, not to use any stronger language, about paying a much smaller sum in another Chamber.

It did not seem to me that the points made by the right hon. Member for Carnarvon Boroughs showed quite as much disagreement with the policy of the Government as he suggested. I think the right hon. Gentleman rather takes a pride sometimes in not agreeing with anyone, but he really came very near agreement with the course that the Government have taken. For instance he said that he would not have paid, but he would have earmarked, with a view to final settlement. That is not very far from what the Government have done, namely, made a payment as a contribution towards final settlement. Similarly the right hon. Gentleman said that he would have taken up the attitude, "No parley, no pay," as the French have done. After all, our Government did parley so far as they could, whether wisely or unwisely I do not want to argue. On the whole the long presentation of the case of the Government was extremely powerful and able. They did parley in that Note and other Notes, as best they could. They have not succeeded in securing postponement, and therefore we make the best of it and we pay. I think the Government were quite right, and that it was impossible for us to default on our payment to-morrow, as things worked out after the discussions.

We can of course here, without very much ingenuity and to our own satisfaction possibly, draw a distinction between this agreement of ours to pay this debt, and other agreements, but essentially this agreement must be regarded and is regarded, if not by ourselves, by other people, as being on exactly the same basis as other agreements by which we are bound, and by which we wish other countries also to be bound. There is another aspect of that matter. When our word is given we do our best to carry it out, and are looked up to still, I believe, as we have been for generations, by foreign nations on account of that. That is enough to have made it right for the Government to pay. But that is not all. This of course is an inter-governmental debt, but the agreement to pay it is an international agreement, like other international agreements, and that goes very deep.

We hope that there will be, gradually broadening out internationally, agreements covering a large range of questions now in dispute, that there will be agreements issuing from the present discussions with regard to armaments, and that they will take the form of agreements, for instance, not to drop bombs on defenceless towns, not to use civilian aircraft for military purposes, not to use poison gases and so on. We believe, and hold, that agreements of that kind might be entered upon, and if they are entered upon surely this country would honour them and would want to make it quite certain to all the other nations of the world that we intended to honour them. If in this matter of the Debt we were to default that would make people doubtful whether we intended to keep our word in other matters, and therefore those great improvements in international agreements which we hope for as issuing out of the Disarmament Conference, would be jeopardised. If we are to back up that opinion of ourselves we must honour this agreement.

We believe, too, in the League of Nations movement, and we look forward to the success of the World Economic Conference. We want the League of Nations movement in general, and the World Economic Conference in particular, to result in great new international agreements which we shall undoubtedly keep, and if we look forward to that we cannot have it one way one time and another way another time. We must do our best, at any rate, to pay, because we have said that we would pay, and we must look as pleasant about it as we can. It seems to me that if we came to any other conclusion, if the Government had proposed to-do something that the world in general would have regarded as default tomorrow, all those things that we hoped for in international agreements, broadening out from precedent to precedent, would have been jeopardised and handicapped. The only way out in the course that the world is now taking, staggering down into ruin and destruction, would have been very gravely imperilled.

If those great men of the past whom we still revere in our memories, Gladstone and Peel, had been standing at the Table there, would they have declared a default? They would not, and we, of course, must follow in their tradition. That is one point, but that is not all. The Government in our view were right in not defaulting. They were also right in stating firmly and definitely that this question must be settled, and settled soon, and settled once and for all. It has been on that line that they have received what is rather a check in their conversations with the Government of the United States and it may be worth while to examine the cause of the misunderstanding which has arisen. It seems to me that there are two lines of country and that our Government are on one, and the United States Government are on the other. Until both get on to the same line of country and use the same arguments and try to follow the same reasoning, we shall not get to the end to which we all look forward.

There is first the budgetary or financial question: How much ought we to pay or how much can we pay? That is one side. There is secondly the exchange or economic question. It is natural perhaps that we should have emphasised that question—not "How much ought we to pay or how much can we pay" but "If we pay, will it not harm you more than us or quite as much?" It is natural that the Government in their Note should have stressed that question to the exclusion of the other. It is not because our case is not strong on the budgetary side. I think it is extraordinarily strong but we are, in a sense, more in the centre of the world than the United States and we realise perhaps more than they do what has been happening in the last few months. I own that I was astounded to discover that whereas a few months ago I was using quite correctly a figure of 20,000,000 or 22,000,000 as the total figure of men unemployed in the civilised countries, that figure now, six months later, is undoubtedly 30,000,000 or very likely 32,000,000 or 33,000,000—a n increase of 50 per cent. I was appalled when I did a simple sum in arithmetic and realised that a figure of 30,000,000 meant that if all those unemployed men stood side by side, each man touching the next man's shoulder and allowing four feet to each man, the line would go round the whole earth at the Equator without any gaps in that terrible chain of humanity.

It is because we realise this staggering down into ruin so vividly here that we have presented to the United States that side of the question to which I have referred. We have said to them: "The more we pay and the longer we pay the worse these things will become and the longer they will last." We have indicated to them politely, and we might have put it even more clearly, that they can hardly sell their wheat or their cotton now, but if we go on with these payments they will not be able to sell those commodities at all. That is the general line which has been taken, emphasising the exchange or economic point. They have replied on the budgetary or arithmetical point and thus we are at cross-purposes. We have used one set of arguments to which they have replied by saying that we can afford to pay and therefore they expect us to pay. We, therefore, have to get on to the same line of country as that on which they are working. We can do so by going partly on to their ground and getting them to come partly on to our ground.

It is, consequently, a very good thing to have something in the nature of breathing space for further consideration of this question. When I say a "breathing space" I mean very definitely that the Government must use the time that will elapse between now and the period when the United States are ready to go into conference, just as actively as they have been using the last few days in which the two Governments have been drafting notes to each other. If they wait and if they go into conference without a plan, they will come out of that conference without a remedy. We have to make good use of the time. Why is it that when we use the economic argument the United States replies with budgetary arguments? It is partly because the American people do not yet fully understand the world position, which is their own position. They do not see that we are all linked together. When you talk to the American people you find that they are a greathearted and generous people. They are better than some of their politicians, and perhaps that remark applies to all peoples. We must try to use our breathing space to speak to them, to speak to the people and not merely to exchange Downing Street Notes with their Government. We must use sympathetic and friendly language but language which they can understand.

A year or two ago a debating team went from this country to tour the universities of the middle west and far west of America. They debated different subjects which had been arranged before- hand and our team took, sometimes one side, and sometimes the other. It was always well known that the audiences, which voted, would support the local team. That was part of the game which was quite understood and it made the trip none the less pleasant. But there was one subject which was sometimes discussed, and discussed by our team seriously, and not in the traditional Oxford Union manner—it was that body which the team represented. The subject was this. "If America wants Europe to pay Europe's debts the Americans must bring down their tariffs and accept payment in goods." The interesting thing was that whenever that subject was debated our team won. The audiences to whom they spoke abandoned the habit of automatically voting for their own team and saw the justice of the case and admitted our claim. We must take measures to get through to the great heart of the American people during this time of respite before we get into close conference with the American Government.

We shall not be alone in putting our case. I observe that some of their great public men have been saying to the people of the United States a rather interesting thing. They have been using the argument which the Chancellor of the Exchequer used in the earlier part of his speech, that the United States were in the war for three-eighths of the period of the war but were only able to put their troops into the fighting line for one-eighth of the period. Therefore, for a, quarter of the war although they had declared war, although they were partners with us in the war, their battles were being fought by the other Allies sustained by the money of the United States. But that money was not regarded by the United States as their contribution towards the war until they could put in not only money but men. That money was only regarded by them as a loan and it is that money which we are now trying to repay.

I notice that one American said he had been taking up the charge which, he said, had been made against the United States that it was behaving in this matter like Shylock, and he repudiated that charge, but in rather a curious way. Ho said: "No, we are not like Shylock. Shylock demanded his debt from this enemies. We demand it from our friends." Those points, of course, are better made by our friends over there than by ourselves, but we can at any rate help our friends there to make our case, because they know it and appreciate it, many of them, and can put it and are willing to put it; but we also must make our case, in plain language, that as long as these bonds of debts and tariffs and exchange restrictions encumber us, there will be no world recovery and, therefore, no possible recovery for the United States. Therefore, they ought to consider some means of getting out of the bonds that are fettering us all.

I appeal to the Government not to be discouraged by the temporary check that there was when they found that their careful arguments seemed not to have made any very great impression. I appeal to them, further, not to complain of the action of the United States Government, because it was natural and inevitable under their very difficult circumstances. I appeal also to our Government. not to wait until the World Economic Conference or some other conference is assembled, but to prepare, if possible in concert with our many friends across the Atlantic, a plan for a final settlement which we can honourably offer and which they can honourably accept, and to place that plan, in words easily to be understood, before the people of the United States and the people of the world. I think it will then be found that we are, among the nations, the most generous of all the creditors and the most honourable of all the debtors, and I believe that the more we make our case plain, the more that fact will emerge.

If we can put the matter in that way and really get into sympathetic touch with the people of the United States, the world will at long last get into clearer water over these things. I believe that their great nation and ours have a great destiny in world affairs, but only if we have a good understanding with them and they with us can that destiny really be accomplished. We must become free of these fetters which are dragging us both down. The debts which we owe them harm us and them; the tariffs which they put on against us harm them and us; and our exchange restrictions and theirs harm both of us. There must he a settlement, and it must be a settlement, between the peoples. It can be done, but it must be done in the right way, and we can start on that way now. If we handle aright this question, on which the future, not only of our country, but of the world, depends, will not the people of the United States join with us in giving a new sense to the lines of the poet Wordsworth, which are our common heritage? Will not they say that they will cast aside our fetters and that We must be free or die, who speak the tongue That Shakespeare spake; the faith and morals hold Which Milton held. In everything we are sprung Of Earth's first blood, have titles manifold.

8.40 p.m.


The right hon. Member for North Cornwall (Sir F. Acland), who has just resumed his seat, began his speech by apologising that he had to speak on behalf of his party. I feel sure the apology is not necessary, and that his party will appreciate, as the House appreciated, that in speaking for his party his party has not suffered. Not only has he gone into the large questions of disarmament, the League of Nations, unemployment, and Free Trade, but he managed also to mention the word "Gladstone," and I think that should give his followers a great deal of satisfaction to-morrow. Naturally, the right hon. Gentleman will not expect me to follow him in those broad questions which he raised. I propose rather to stick to a small part of the precise question raised by this Debate. We have had speeches from four Cabinet and ex-Cabinet Ministers which have outlined the concatenated chain of circumstances stretching from the Treaty of Versailles down to the present day. From that chain of circumstances I want to pick out one important link, and that is the vital link of the Hoover Plan and the circumstances which caused that plan to be brought into existence.

Some 18 months ago it was well known that Germany was fast getting into a position in which she could no longer pay her obligations under the Young Plan. America by that time had lent to Germany over £1,000,000,000, under conditions which meant that the security for that lending was second after Reparations: in other words, that the £1,000,000,000 was lent to Germany on a second mortgage after Reparations. We ourselves had lent money to Germany on similar terms, post-war commercial lending, and these sums of money were ob- viously going to be in very severe jeopardy if by any chance Reparations were not to be paid. What was going to happen to that £1,000,000,000 if the reichsmark was to follow the mark down the road to oblivion? It was obviously a very much better and sounder thing for President Hoover to propose that there should be a one year's debt moratorium and a postponement of interest, of sums approximating £50,000,000 or £60,000,000 at the most, on the credit of all the Allied countries. That was a much better plan than that they should run the risk of losing something like £1,000,000,000 of commercial debt, and when we bear in mind that it was subsequently agreed that those postponed debts were to bear interest at 4 per cent., it will be seen that the Hoover Plan became a bit of very good business.

I think the House should remember that, although the Hoover Plan undoubtedly saved a pitiful situation, it also saved extraordinarily large sums of American and, incidentally, English lending, and that it was not a pure piece of altruism. Naturally we backed up this proposal of President Hoover because, as I have said, we had also made great lendings to Germany through our financial institutions, commercial lendings on postwar account, all of which stood after the Reparation payments. France, which did not enter into any of these financial negotiations, looked upon the Hoover proposals rather more critically. However, the plan was taken up, and the Hoover Moratorium came into force. Inter-governmental debts were suspended for one year, and America, as the Chancellor of the Exchequer so vividly pointed out, asked this country and the Allied countries to use the respite in order to come to an agreement among ourselves to scale down the total volume of inter-Allied Debts and Reparations to a figure which would be agreed to be within the capacity of Germany to pay. We took that advice. Lausanne was the result. Incidentally, as the Chancellor pointed out, we were not only asked to make that agreement, but we were told that when this agreement had been made we should be in a favourable position to approach the United States. We made the agreement, and we made the approach. The result was that we were told to pay.

If the issue before the country were the simple issue of pay or default, which I have read in the American newspapers is the issue, it would be comparatively simple. If by the payment of £19,500,000 of gold we were being asked to decide once and for all that we should answer the critical question whether we are to honour our obligations or not, there is no doubt what the reply of the country and of this House would be. We should say, "We will pay. We will make any sacrifice to pay." But that is not the issue. The plain fact is that unless something happens between now and six months hence to change the opinion of the American people, we shall have to default.




Because we shall not have the means of payment. I know the argument which is in my right hon. and gallant Friend's mind, and I will answer him before he makes it. He would say that we have gold and that we should ship it all over to America. He will agree with me that, even if we shipped every bit of it, we would not be able to pay the whole of the debt.


We can make things here.


Then the question arises whether the American people will take goods. They will not; they have a tariff wall. They will, however, take gold. I appreciate that in these modern times there is no necessity to use gold as the basis of the volume of currency or credit inside the country, but to move from that position and say in the present circumstances of the world that we can do away with gold as a means for rectifying international balances, and that we do not need gold for our international payments in countries where may be they have no banking system, is to mistake the plain facts of the affairs of the world. In times of trouble a gold reserve is just as vital as our battleships or any other means of defence, and we cannot pursue a policy of getting rid of our gold reserve and at the same time pretend that we are really safeguarding the vital interests of the nation. I have been rather dragged from the point which I was making.

I was saying that we shall not be able to continue these payments beyond this particular payment. The question which we have to ask ourselves is, "Shall we part with £19,500,000 worth of gold in the hope that between now and June next something will happen to make Congress change its mind? Shall we speculate that amount on the chance that between now and then what Congress now considers to be reasonable, namely, that they hold us to the letter of the Agreement of 1923, they will then consider to be unreasonable?" That is the issue. It is a speculation. When one enters into a speculation there are at least two aspects which affect it. The most important is the need of the speculation, because the average prudent individual does not speculate unless he has to. What would happen if we do not speculate this £19,500,000 worth of gold? The result would be that we could not pay. There would be an immediate default. There are those who say—and I think that the Chancellor lent colour to that view—that if there is an immediate default by this country, it will be a lead to all the nations of the world to default in all their debts, that we will lead the world in wholesale repudiation. I very much doubt that view. In 1922 France, Italy and several other nations defaulted. They refused to settle their American debt. There were no repercussions of any character in respect of international commercial debts.

The existing movement which is taking place in the world to repudiate debts arises from more fundamental causes. It is based on the whole on the fact that the people who are endeavouring to repudiate cannot pay. The reason that they cannot pay is that the price level of commodities has got so low that producers cannot make a profit. If there were profitable producers all over the world, there would be no talk of repudiation. Again, it is argued that this country is owed very much more than it owes. There is a suggestion that £4,000,000,000—at present value, £2,500,000,000—is to be put into the balance against the American debt. There is a great confusion of thought here again between inter-governmental and commercial debts. I see no reason why the wiping out of governmental debts should be an incentive to wipe off private debts. On the contrary, the Chancellor of the Ex- chequer has already told us that we found it desirable in our own interest to wipe out £2,500,000,000 of our own commercial credits which were owing to us. It is not true to say that there is a close connection between international commercial indebtedness and those special intergovernmental debts arising out of the War:

It is by no means certain that a refusal on the part of the Government to pay this instalment would have led to wholesale repudiation, or would have caused a tremendous loss in the form of interest by the holders of British investments abroad. There is a further consideration that a speculator must have. It is his chances of success. For our speculation—and it is a speculation—to be successful Congress has to be influenced. It is no good talking to the informed, educated opinion of the Eastern States. They already know the case, and sympathise with us. They appreciate the desirability of scaling down these debts to some reasonable figure. The people we have to influence are those of the Middle West, the farming class. How are we going to influence them? We can only influence them through their daily activities, through the price of the commodity they make. We can only influence them by lowering commodity prices, by increasing world depression, by making the present parlous state of the world very much worse than it is.

Moreover, even if that depression does take place—and it is suggested by our Note that it will—how can we feel confident that the farmer in the Middle West will associate that increased depression with the payment of this interest? I think it is very unlikely that he will. It is much more likely that that large mass of opinion in the Middle West will say, "Well, we squeezed Britain this time, and she paid; we will squeeze her again, and she will pay again." I have read many popular papers from the United States of America and they all convey to me the opinion they have out there that they have only got to force this country to pay and it will pay. I fear we are going to get the worst of both worlds. We are going to pay, and we are also going to default. It is true there is a choice. There is the choice between the speculation on which this Government have now entered or of immediate default. It may be that in the cir- cumstances the speculation is the better course, but it is a choice of two evils. Whether it is better to face the issue now instead of engaging in a six months' gamble with world trade, history alone can tell.

The speech of the Chancellor of the Exchequer raised one very important point. He said this gold would be provided from the Issue Department, and that we were not going to increase the fiduciary issue in order to maintain the volume of currency. I most strongly protest against that action. I ask the Financial Secretary to report that this matter is looked upon by the commercial community of this country as of the most vital importance. The currency of the country is going to be reduced; the credit of the country, which is related to its currency, is going to be even more reduced. We are going to have further steps in deflation, and it must be clearly understood—I think practically every economist in the world realises it—that under deflation you cannot maintain employment and at the same time retain the value of your savings. You are continuously driving one interest against the other. You are either going to lose all your savings or lose all your employment. We are going to adopt a policy in this country which will accentuate the already bad position of unemployment and jeopardise our savings. I protest most emphatically against the proposal that we should begin now, at this late hour, a further deflationary policy. I think it will be ruinous to the interests of the country, and I, on behalf of my constituents, most strongly protest against it.

9.0 p.m.


I hope the Financial Secretary to the Treasury will make a note, among those which he is so industriously writing for the Chancellor of the Exchequer, of the fact that everyone—on both sides of the House in every party—is unanimously of opinion that we must not combine this payment with deflation. [HON. MEMBERS: "No."] We may disagree on other points, but let us have this made certain—on that issue, we are 613 against 2. The hon. Member for Stockport (Mr. Hammersley) spoke as though this issue was one between default and speculation—I think he said a gamble. I would rather say between honour and dishonour. We are at a testing point for the whole of British traditions to-night. I am not ashamed of the Debate as far as it has gone. We have never defaulted, and I do not think we ever shall; and we are certainly not going to be jockeyed into default by the pressure of people who dislike the part America has played—in the War and ever since. If we have a bad Press in America it is largely the fault of some people in this country, mostly the cheap Press who have been making the position almost intolerable for decent people on both sides. The audience at this Debate of ours is not this House, the audience is America. The only people who will read this Debate will be Americans. I cannot help thinking that speeches such as we have listened to from my hon. and learned Friend the Member for East Bristol (Sir S. Cripps), the right hon. Member for Epping (Mr. Churchill), and the right hon. Member for Hillhead (Sir R. Horne) will help matters in America.

I wish I could say the same of the speech delivered by the Chancellor of the Exchequer, and of this extraordinary sort of snowstorm of Notes passing between this country and America. When you have got to pay it is much better to pay without squealing. You get much better credit from the people you are paying. There was the first Note, that wonderful, conclusive document which, according to the Press, must have been drafted by Sir John Simon, because nobody else would be capable of its perfections. This is the famous "further Note" which explained to the creditor why the debtor should not pay. It is a sort of "Debtors Vade Mecum." I gather it has been translated into every European language, and has been enthusiastically received in Ireland and South America. I have no doubt that for years to come we shall have copies of it from people who feel, as the Government feel, that they do not like paying their debts. We explain elaborately to the creditor that we should like to pay, but that we think that it would be so bad for him to get it. That sort of Note is written without any conception of the feelings of the people who receive it. I have no doubt that even an uneducated Western American will rather smile when we explain to him that it is bad for him to be paid; and the arguments we use are really not very sound ones. This Note was intended to persuade America to be reasonable and let us off or let us postpone payment, and we sandwiched in the following, which is not a threat, we understand, but is merely a statement of fact: In the present circumstances this could only be done— That is, pay our way with America— by adopting measures which would further restrict British purchases of American goods. "Measures restricting the purchase of American goods." If they do not let us off our debt, we shall increase the tariff upon American goods coming here. Is that likely to influence Americans in our favour? Does the Financial Secretary to the Treasury think that trade is only stopped by putting duties upon goods coming from another country? I can assure him that the House of Commons realises that if America is paid £30,000,000 in gold, sooner or later that sum must leave this country in manufactured goods or else it will automatically reduce the imports coming from America. It need not only be shown by the restriction of imports from America. It can be shown by an increase of exports from this country to America. The exports of this country will undoubtedly increase if the dollar exchange goes against sterling and gives a greater impetus to the exportation of British goods. Likewise, as the pound falls, that will form an automatic obstacle to the importation of American goods into this country. There is no need for a further protective tariff. The operation of the sterling exchange does all this for us. Why then say that in present circumstances this can only be done by adopting measures for further restrictions of American trade? Even in the Western States of America they understand economics quite as well as we do here, and much better than does the hon. Member for Farnham (Sir A. M. Samuel).

That being so, this Note does not really teach them anything. It is an irritating Note, and if it is irritating to them to receive such stuff it is humiliating to us to have to send it. It would have been much better if, when we had to pay, we had paid up quietly and had not published to the world a statement of the awful results of paying. Having sent that Note, why follow it up with a further Note still further calculated to annoy every American? You have to pay; you have made up your mind to pay, and be honest, and then you make the worst of both worlds. You lose your £20,000,000 and you lose your honour at the same time. Listen to paragraph 5 of the Note. I suppose that it was drafted by the Treasury: In the view of His Majesty's Government, therefore, the payment to be made on the 15th December is not to be regarded as a resumption of the annual payments contemplated by the existing Agreement. What is that but a technical default? Very properly when the Americans got that message they said they did not want the money on those terms. In the next Note this Government ate their own words, and said that they did not mean what their words meant and that America could regard it as something else. America very kindly smiled and said, "Oh, carry on!"

The British Government do not come out of the correspondence with credit. If they had said at first, "We promised to pay. We do not like paying, but as we promised, we will do it," then we should have been in an infinitely better position to talk to people anxious to be helpful. Fortunately, during the next six months we shall no longer manifest that "magnificent loyalty" to other debtors who are less scrupulous. Even that is not clear. The attraction to the House of Chamberlain to the House of France is notorious. It appears to have a fascination for them far more exacting than any mere normal loyalty would account for. Loyalty to whom? Loyalty to England? Loyalty to our traditions? Or loyalty to people who do not pay their debts, who have not paid their debts owing to us, and who will not pay their debts? They borrowed during the War and then depreciated their currency so that they paid us only one-fifth How much longer are our relations with America to be rendered impossible by this united front with other people to whom other standards than ours seem to be sufficient? The possibility of coming to a satisfactory settlement with America during the next six months depends entirely, as everyone who knows America must know, upon arrangements between two sets of friends and not as a sort of Dutch auction, with half-a-dozen different peoples whose ideas are completely different from those of the Anglo-Saxon race. It always makes our problem more difficult and leaves us as ever to carry the baby and to make sacrifices for the affections of the Latin races.

The result of these Notes has been infinitely bad. We have already seen the sort of remarks that are being made in the American Congress about us, remarks which make an Englishman blush to read. This Debate has done something to improve the situation. It is quite certain that the good effect of this Debate and the bad effect of those Notes can only be very little. There is something which is much more important in paying your debts than the prevention of losing debts owed by one. This is a debt of honour. The ordinary debts between you and me may be collected in a court of law, and the individual who defaults goes to prison. A debt between Governments cannot be collected, and there is no possibility, if we do not choose to pay or if we announce that it is not just to pay, of sending His Majesty's Government to prison. They cannot be prosecuted. We know that the Americans cannot collect the debt and both parties knew it when the bargain was struck in 1923. It was on those terms that we undertook to pay. Let me say here and now that I am proud of what the Lord President of the Council did in making that agreement in 1923, and that he has stuck to his word in 1932.

When you have debts of that sort to deal with, and when you have creditors of that sort to deal with, the only way is, not to bargain, not to send Notes persuading them that it would be bad for them to receive the money, but to talk to them like equals, like people who have been Allies, like people who have been friends, like people who understand our point of view without being told; and to remember that, in bargaining with them, you are bargaining, not from a united front of alien peoples, but as one man to another over a debt which you intend to pay. If they come to that bargain, we know perfectly well that it will not be merely a question of reducing or abolishing our debts, but that other questions will crop up. Let us try to meet them, not in the huckstering spirit, not even in the Ottawa spirit, but in a spirit of attempting to improve both trade and feeling between the peoples. I hope that they will insist on disarmament. I hope that we shall make it quite clear that we are prepared to disarm, and that we should welcome the taking over by America of part of those infinite police duties which we are ever assuming in all parts of the world. I hope that we shall meet them on questions of tariffs. I hope that we shall show them that we can pay in goods, even when our gold has gone. I hope that such payments will result, at any rate, in more employment in this country. It is a curious inversion of the old order that the only countries that are happy now are those that are in debt, for there only is employment to be found. Even in the settlement with America., cash payment is equivalent to improvement of our export trade.

Let us remember here to-night that we in this House can do a. great deal to affect that settlement, whether for good or for evil, by what we say here, by what we say outside, and by what our Press says. To talk about Shylock is beside the point. I would ask hon. Members to remember those days during the war when we pledged every cent in this country to America to buy munitions of war, when there was nothing left to pledge, when all our securities had gone, when everything had gone—except our ground rents; we could not part with them. Then, when, really, we were nearly losing the war through sheer inability to borrow any more, America came in, and we were saved; and civilisation was saved. It was really not America's quarrel; perhaps it was not originally our quarrel; but they came in to save us. They paid in every way—perhaps not so much as we paid, but the quarrel was not theirs. The payment of that debt this country ought to be the last to repudiate. If it comes to repudiating this debt, I ask hon. Members opposite to remember one thing—that to do so would be to sacrifice our own security should trouble come again. Nations, like people, who repudiate their debts, are never able to borrow again.. It is true that in peace time we might be able to borrow again internally; but if we default now, as France has defaulted, we shall never be able to borrow again in time of war. Indeed, it might be an argument for the pacifists to urge repudiation, because, without the power to borrow, you cannot carry on war. By our payment of this instalment we are creating the best circumstances for securing a reconsideration of our debt to America—of our sole debt to America. The whole difficulty now is that the American Senate may say, "You are like the rest. If you are ready to default next time, we will make you default. If you do not pay, we shall know where to class you." It is against that feeling that we have to strive in America, in order to secure a settlement honourable to both parties and tolerable to ourselves.

9.20 p.m.


The right hon. and gallant Gentleman the Member for New castle-under-Lyme (Colonel Wedgwood) is always extremely refreshing and interesting in his observations to the House, and he has added to our interest in that kaleidoscope which we are now getting accustomed to see on the Front Opposition Bench by enabling us to witness the interesting spectacle of a Member on that Bench openly defending, in sincere and vigorous terms, the sanctity of contract. He was preceded by the late Solicitor-General, who spoke exactly in the opposite sense—


He spoke in exactly the same sense.


I shall have occasion to make some references to what the hon. and learned Gentleman said. The right hon. and gallant Gentleman said one thing with which all of us here will agree, and that was that the speeches in this Debate have been directed not so much to this House of Commons as to an audience overseas in the United States of America, and that, in my Opinion, is why it has been such an extremely bad Debate. In the first place, we have been speaking in circumstances in which we are not entitled to give expression to any collective view; and, secondly, we are speaking to a Government which is committed to a certain course of policy, because this payment has been arranged for, and to that extent the Debate is emasculated. In the last resort, too, we are speaking, not to the American Government, but over the heads of the American Executive to the American people in the Wild and Woolly West. The result has been a great lack of reality, because we have been speaking of a fait accompli, and we have been speaking to a population which we imperfectly understand, and which certainly has no power, at the present moment at any rate, of influencing world decisions.

In these circumstances, I am really inclined to be a little disappointed and regretful that I sacrificed what might have been a more valuable discussion in order that this one might take place; and I was the more disappointed when I heard the interminable wrangle in the earlier part of the Debate on the prehistoric and difficult subject of the Debt Settlement of 1922. I really think that some respected Members of the House have completely lost touch with the problems of the present moment and with the method of approach that is cognate to this House of Commons; and, if this Debate has resulted in nothing else, I hope that at any rate we have seen the last of these funereal wrangles as to what happened in prehistoric times, which are just about as relevant to the problems of the present day as the moon is to green cheese. When one heard the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) reproaching my right hon. Friend the Leader of the House, one could not help remembering that, after all, the right hon. Gentleman was the villain of the piece. It was he who gave these I.O.U's to the American nation, who handed over, through Lord Reading, who was the accredited representative of this country at the time, a series of blank cheques and bearer bonds which, if I am correctly informed as to the situation, the American Government was prepared to negotiate on the market and to present, as bills payable on demand, to the Government of this country.

It is perfectly fair, I think, to say that if we are to have these wrangles, for which most of us are not responsible and in which we are completely disinterested, we ought to go a little further hack. I join with my right hon. Friend in criticising only one feature of the Government's handling of this intricate and difficult situation at the present time. I would go further than he did, and say that the first Note was a masterly and convincing exposition of the whole of the difficult situation. I hope it will come, in time, to take its place with the Balfour Note. I do regret my right hon. Friend's last Note. I join with the right hon. Gentleman, the late Solicitor-General, with regard to that. If you say to your creditors, "I owe you x pounds under a certain contract, but I will not pay you x pounds under that contract, but under a contract I have not yet concluded with you," that seems to be default. I can only express satisfaction that in the last Note, and in his speech to-day, the right hon. Gentleman has made it plain that that never was our intention.

I want to turn to two or three other points which emerge from the situation as it is at present. If there was a vote taken of this House of Commons, opinion would be absolutely overwhelming in favour of the payment of this instalment. I think the majority would be so overwhelming that the opposition would be negligible, and that arises from the firm conviction that default, as long as we have the means of payment, is unthinkable. The second proposition is that, if further instalments are insisted upon, ultimate default is absolutely certain—it cannot be avoided. The third point I would like to make is that, if ultimate default does occur, then the whole credit structure of the world will be shaken. The whole system of obligations, as between nations and private individuals, will have to be recast and reconsidered in a manner of which my hon. Friend the Member for Bridgeton (Mr. Maxton) is probably the only logical exponent. I say with perfect conviction that the credit structure goes if we are forced to default. How can we go to India, to our Round Table Conference, and say: "We insist upon safeguards upon your financial matters as the linchpin of your constitution," five minutes after we have defaulted. How can we go to Australia which is suffering stringencies which compare very unfavourably with our own? How can we go to the Argentine and other countries of the world? In that collapse of the credit structure the two countries of the world which would suffer most are Great Britain and the United States of America. If we are to preserve the credit structure intact it is absolutely essential we should get together at the earliest possible moment to see what can be done to keep the credit structure intact.




Among the remarks of the right hon. Gentleman the Member for Epping (Mr. Churchill) I find stimulation, but I do not always find agreement with him. I find agreement with him that one of the fortunate circumstances which has emerged from the situation is that it has freed us from our European entanglements. Now we stand alone, the one non-defaulting country. The two great creditor nations can do far more to establish the credit structure than trying to secure agreement by amorphous international agreements. The consequences of payment by us to the United States of America may be only less serious than the consequences of default. The payment of a debt may be as damaging to the recipient as to the payer. I think it is a matter on which we are entitled, as the great managers of credit in the world, to give our views. We happen to be a debtor, but we are perfectly right to point out some of the disadvantages of a creditor nation receiving a debt in circumstances in which the debt cannot be discharged in goods, because the debt represents a kind of exploded goods which no longer exist. The first thing that the United States would be right to apprehend would be that this marks on the part of this country a definite step towards a devaluation of gold—towards gold being treated as irrelevant. If this were to continue, we would have to come to the conclusion that gold is utterly irrelevant. If we come to that conclusion, what becomes of the existing disparity of wealth between the United States and the rest of the world? You then bring it down to the industry and resources of a nation itself, and you disregard the huge mountains of an obsolete commodity which the nations are building up. That ought to bring a good deal of disturbance into the minds of farseeing Americans.

Take the second element which leads me to think that payment is almost as damaging as default. It is bound to result in a fall of the sterling exchange. It may be that the fall has already overreached itself, so that it may only result in perpetuating sterling at an unduly low level. Payment of this kind must result in a lowering of sterling value and, if we have discovered anything in the last 12 or 14 months, it is that commodities are linked much more closely to sterling than to anything else. A depression of sterling is likely to produce one condition which, above all, America has got to fear—a further fall in commodity prices. From that point of view America has reason to apprehend the payment of debt.

Payment must inevitably reopen the question of reparations. It cannot be avoided. The two matters are linked together to that extent. If we go on paying, we must call upon our debtors, and they in turn must call upon Germany. One of the main interests of the United States at present is in the huge commercial loans which she has made to Germany, and to protect which the Wilson Agreement and the settlement of reparations was one of the most valuable contributions that have been made. If the reparations agreement is to be unsettled, the people who are most likely to lose are the United States, by reason of the weakening of the security behind the commercial loans which she has advanced. I cannot think that a great nation like the United States can fail to be cognisant of these facts and to see their cogency and their value on reflection, and it seems to me that an unrivalled opportunity presents itself to the Government. Now you have a free hand. You can disregard the commitments that you have made during the last 12 months. Get together with the United States, abandon your entanglements, and see if you cannot join with them and frame some constructive edifice in order to solve this tangle, which may bring civilisation and credit to the ground.

9.36 p.m.


A good deal of this Debate has turned upon the settlement of the American Debt that was made in 1923, and I do not agree with my hon. Friend that that is not a matter in which we are deeply concerned. I want to make one or two observations upon the difference in the situation when the agreement was reached and the position to-day. It is very often forgotten that, when that agreement was made, we were the only country in Europe that professed to be not only willing but able to pay its debts. That is the proud position which we be lieved ourselves able to take up at the time. The position of France and Italy was entirely different. They had quite openly declared that they could not pay their debts to America. I was rather surprised to hear the attitude taken up by the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) on that subject. No one can be better aware than he must be of the difference with which debts would be treated in ordinary civil or commercial life. It is obvious that, if an honourable debtor comes to you and says he is unable to pay his debt, you seek some accommodation, and in most cases there is little that you can do except to accept the best that he is able to offer you. On the other hand, if you have another debtor who you know is able to pay and who affirms that he will pay, it is obvious that such a debtor has not, either in national or in private or in commercial transactions, any possibility of making an arrangement in any way comparable with that which can be made by the other sort of debtor.

There were at that time, in my view, justifiable reasons for the attitude that we adopted. We believed we were owed more money than we owed to other people. We desired to get back to the Gold Standard. That has been much criticised since, but I believe, in the light of the facts as they then existed, we were perfectly right in taking that course. We either had to pay the money we owed with the premium attached to it owing to not being on the Gold Standard, and at the same time receive money due to us at a discount, or else we had to get back to the Gold Standard. We have only one thing to blame ourselves for, and that is that we were not possessed of that wonderful foresight which would have enabled us to know what was going to happen in the succeeding years. The fact is that we acted honourably and on a perfectly accurate commercial basis. What we did not foresee is that those from whom we counted on receiving payment owing to the critical period that came upon the world afterwards were and have since been unable to fulfil their obligations to us.

The position to-day is completely changed. Much as we may dislike it, we have to admit that we are no longer in the position of being able to say we owe money and we can pay it. Anyone who has perused the note that we have recently sent to America can have no doubt in his mind that we have now declared that we acknowledge our debt but that we are no longer in a position in which we can meet it. We are not to blame for that. It is owing to many events which were entirely beyond our control, and we find ourselves to-day in the position of an honourable debtor who has done everything it is possible to do to meet his obligations and who is at last obliged to acknowledge that the time has come when it will shortly be impossible for him to meet those obligations any longer upon the same basis as they have been met in the past. Such events are not unknown in commercial life. If I might compare America, France and England to three important financial houses in a big city like London, if they found themselves in a similar position and one of them had to take up the attitude that we have to take up today, it would be obviously in the interest of the other two, and of the whole financial position of the country and of the world, that they should find some means of accommodation. The last thing in the world that they would seek would be that that honourable debtor should be forced into default. I have no doubt in my own mind that that is the view that America will take.

I want to say one more word about the position at an earlier date. I think it is very often overlooked that it was hardly reasonable to expect the United States to be able to offer us the kind of terms that were accorded to France and Italy so long as we took up the attitude that we then rightly and honourably took up. I think these are facts that are very often overlooked and entirely disregarded when attacks are made on the Lord President of the Council. It is also frequently overlooked that he was not sent to America to decide whether we should honour our debt or not—to decide whether we should pay or not. That had already been decided, and I believe it was decided without any disagreement among all political parties in this country. The only thing that he was sent there to decide was, having agreed that we would pay, how the debt would be paid with the least amount of disturbance. He was never in a position really to negotiate, because he had nothing to offer. He simply had to endeavour to obtain some remission in the interest terms, and that he succeeded in obtaining.

With reference to the present negotiations, I can find only one fault with the attitude which has been taken up by His Majesty's Government in the recent Notes, and it arose after listening to the speech of the right hon. Gentleman the Chancellor of the Exchequer to-day. He stated that we had three alternatives. The second alternative was that we should pay the present debt in part, that is to say, that we should avail ourselves of the benefit which apparently existed of only paying interest and not at present paying capital. Our attitude in that respect appears to me to have been entirely illogical. We gave excellent reasons why we considered it undesirable to pay the debt. After having given those reasons, although there existed a means by which, if we had availed ourselves of it, we might have paid a considerably less amount, His Majesty's Government appear to have decided, for some reason which does not appear to have been put any higher than that of dignity, that we would not avail ourselves of it. We have openly declared what our position is and that the debt is a grievous burden which we cannot bear and which we shall be unable to bear in the future, and apparently there was some loophole by which we might escape part of the burden. There is such a thing as false dignity. In those circumstances, I cannot say that it was logical that we should fail to avail ourselves of that opportunity.

9.48 p.m.


At this late hour I wish to intervene only for a very few moments, and the more so because, on the broad question at issue, I find myself entirely at one with the action which His Majesty's Government have taken, not only in the long Note, which we all recognise to be a masterpiece of which any Government might be proud, but in their second Note which, apparently, has not in this House obtained quite such unanimous approval. I think that the point that was made by the Chancellor of the Exchequer, that we had been asked to give our views and had given them, but that the time had not yet come when those views could be considered by any body in the United States who is in a position to give a decision upon them, made it impossible for us thereafter to refuse to pay. The further point which I feel as being conclusive to every Member of this House and to nearly every citizen in the country, is that, cogent as were our views, as expressed in those Notes, it was not yet quite physically impossible for us to make this payment, and, that being so, I do not believe that it seriously crossed the mind of any Englishman that we should refuse to make that payment.

Having said that, which is obviously most important, I should like to take this opportunity of questioning two very minor points which have arisen in the speech of the Chancellor of the Exchequer to-day. I am anxious not to press them, because I feel that at this time it is important that, as far as possible, we should all stand behind the Government. The first point is that we have taken up the ground that this payment is a capital payment to the United States. I ventured to make a somewhat similar observation in some remarks which I made to the House some weeks ago, and I cordially approve of that line, if I may say so with respect. But surely, if it is a capital payment as far as the United States is concerned, it is a capital payment as far as we are concerned. Why, therefore, should it go into the Revenue Account of this country? Why should we burden the Budget of this year thereby, presumably, putting aside the opportunity for remission of taxation while making a capital payment?

The other point is one which has already been referred to in this Debate, but I should like to refer to it once more. It is with regard to the method by which the gold payment is being made. It is being taken out of the Issue Department and, of course, will he replaced by Treasury bills—a book-keeping entry. We are given to understand that the fiduciary issue will not at present be raised. That, of course, must have, as far as it goes, a deflationary effect. I do not feel disposed in the slightest degree to press the Chancellor of the Exchequer upon this point because, as he himself by implication reminded the House, there is a considerable amount of slack, so to speak, to be taken up in the City. The Bank's own reserves are at a higher level and the bill market is, at the moment, in a decidedly unhealthy state, and, therefore, a slight tightening up is not necessarily to be regarded with anxiety. But I hope that the Chancellor of the Exchequer is at one with those Mem- bers of. the House who have already referred to the point, that anything which might, after that slack has been taken up, put the Bank into the position that it has to restrict credit seriously, would be a disaster. If there are two things which the country needs, they are remission of taxation and cheap money. I imagine that we are at one on that point. If the Chancellor of the Exchequer can see his way to indicate in his reply that, should it appear necessary in the course of the next year or so, the fiduciary issue will be increased, I believe that it would be the cause of allaying a certain genuine anxiety by no means confined to anti-gold cranks.

The only other point I desire to bring up is one that has been referred to by implication in passing by the Chancellor of the Exchequer, and more particularly by an hon. Member from those benches. I think that it is worth making at rather greater length, because it is of fundamental importance. It is well known to His Majesty's Government, but for good reasons has not been referred to so far in public correspondence with the American Government. I refer to the question of private debts. If the House will bear with me for a moment, I should like to remind it of a few figures on that point. The United States, in Germany alone, in the last published calculated figures, had something of the order of 10 milliard rich marks invested. Our own investments were considerably less than half. Not only are those figures startling in themselves, but the United States proportion of long-term investments was between four and five times ours. In other words, ours were nearly all banking acceptances pretty well secured. The greater proportion of American money was lost without Lausanne; a good deal of it even at this time is probably bad.

The point at issue is not confined to German investments. If we take the increase of the United States' foreign investments in the six years before the Stock Exchange crash, the United States had invested abroad something of the order of 7,000,000,000 dollars, considerably greater than the present value of all her War Debts. We ourselves in that time had invested something like half of that figure, but the figure to which I particularly wish to draw the attention of the House in this connection is that of those investments of ours, which amounted only to one-fifth of our total investments, considerably less than one-fifth were in Europe, whereas practically half of America's were in Europe. If we take the other storm centre, namely South America, we had invested during that time only something like 650,000,000 dollars. The United States, on the other hand, had invested three times that amount. I wish to point out to the House that America, the second biggest creditor nation, has most of her credits invested in countries that are definitely bad, unless an early solution to this overmastering problem of indebtedness can be found. Most of our investments are in comparatively safe hands, old-established investments in our own Empire, in Africa and elsewhere. We have a tremendous interest in the early solution of this problem of private indebtedness, but America is far more vitally concerned.

In the very friendliest way, we are entitled in the negotiations that are to take place soon, to point out to our friends across the Atlantic that the situation has long passed a discussion of War Debts. That problem is really solved; it solved itself. What is now at stake is the whole commercial structure of credit throughout the world. The whole basis upon which the trade of the world is conducted is trembling in the balance, and the people most immediately concerned in that are the United States. They hold the most of what is likely to go first. The two of us together are vitally concerned to see that neither of us puts the other in the position of forcing a situation in which no man's signature at the bottom of a bill will any longer be considered to be worth anything. The United States could force us into default, but if Great Britain's signature is not worth anything it is impossible to foresee in our lifetime that anybody's signature upon any document will be worth anything.

In the light of the considerations put forward in the correspondence with the American Government and consideration of the position of private indebtedness, which are perfectly well known to the Government, we can put up an unanswerable case to our American friends, not for giving us lenient consideration but for consideration upon the only lines on which commerce based upon credit and a man's signature is going to be possible in the future. Once that goes, there will be nothing for it but some completely new system of society which none of us can foresee. In the light of the correspondence that has taken place, the vast majority of the House and the country will feel that we can leave the presentation of our case in the hands of the Government with the completest confidence that it will be put forward without exaggeration and without overlooking the fundamental and vital issues which are at stake.



Until the speech of my hon. Friend who has just spoken and one or two other speakers before him it seemed a little doubtful whether the Debate was about, reparations or repudiation or exculpation or exhumation. The right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) praised France for facing realities. I should like to bring the Debate back to realities. Much of the Debate, as one speaker has already remarked, has been addressed to the West, of America and not to this House. I should like in the few moments that I address the House to say something about the Middle West of the United States. Not only was I a Chicago child, brought up in the Middle West, on the edge of the Far West, for a large period of my life, but I was there as the son of a primary producer, and the rest of my life has been spent in this country as a primary producer also. In each case I have heard a great deal against finance and the banks. In so far as we are going to try to educate the Middle West by any presentation of our case, we are simply firing blank cartridges for nothing.

We were let down in the Treaty of Versailles by President Wilson not being backed up by his own Senate and Congress. If we are going to have any more Royal Commissions, the first Royal Commission that I would suggest setting up would be one to advise our own Front Bench on the opinion in the Middle West and the West of America, as against the so-called opinion of American Governments and American Cabinets in the East. Surely, by now we must know that it is no use putting our implicit reliance upon what an American Cabinet or what an American banking group want. So long as democracy exists, those who must have the final word in regard to our agreements with America, if there are to be agreements, are the people themselves. The "Times" has glibly suggested that the British Note has presented our case so well that we shall get six months' breathing space.

I heartily concur in the view that we were right in paying our debt at this moment, but if we honestly believe that in six months time we are going to present such a case that the Congressmen who draw their votes every two years from the Middle West will agree to giving us an immediate revision of the debt agreement on the lines suggested by my hon. Friends, we are not going to get very much further. Nor can we blame the West. For a very long time they as primary producers have felt themselves sorely aggrieved over the financial policy of the East. Nobody reading the recent history by John Adams in the United States could be surprised at the feeling of the primary producers of the Middle West towards the financial policy of the East. Therefore, they are not going to look kindly on any suggestion which we make, and which the East take up, with regard to our War Debt. They are not going to be greatly encouraged to wipe out our War Debt by the fact that we have only 3,000,000 unemployed, although we have about one-third of their population, while they have over 10,000,000 unemployed and have no unemployment insurance system. "There is nothing," they will say, "that is going to make it easier for us to take on your debt and to pay our share of the Liberty Bonds, which we were advised by the United States to buy in the hysterical moment of the boost campaign, in order to help out the old world." We have to remember that point of view.

We may know in our heart of hearts, just as the intelligent Congressman knows, just as the intelligent banker knows and just as the President himself knows, that it helps nobody if we go on paying our debt, but we have to find a better reason to persuade the Middle West that they are not going to get their money than the fact that it is inconvenient or that it may destroy their trade, because they cannot see that at the moment. They realise the truth of Disraeli's remark that industry has been mortgaged to protect finance. If they are not going to see that international situation, they have either to decide to become a self-supporting and non-exporting nation or to become completely Free Trade. That is their business and not ours. Therefore, we have only one other method of teaching them. They say, and quite rightly, "Yes, you want to repudiate your debt to us—and you have got it at a lower rate of interest than you originally agreed to pay. You say that you will pay your own internal War Debt while you ask us to forgive you your external debt." If we are not prepared to look that sacrifice in the face, how are we honestly to ask to be forgiven by nations abroad? It is true we have already wiped the slate clean on the lines of the Balfour Note with European countries, but we have done nothing at all with the far more crucial issue of our internal War Debts. It is not a difference in kind but only a difference in degree.

The right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) mentioned with a catch in his voice the figure of £326,000,000 that we have already paid to the United States, but that is barely the figure we pay every year on our own internal War Debt to our own people. It may be patriotic to give up your riches in the time of your country's peril, but is it really patriotic and can we really face our creditors in the world if we say, "While we were patriotic and lent our money at a time of inflation we now want our money back at a time of deflation and with full interest all the time"? So much is that the case that one Member of the party to which I am proud to belong gave up his money because he saw that it was not patriotic to go on demanding interest on money that had been blown up into the blue.

I as a farmer and as a man who has to go through the industrial parts of this country, see that the taxation which is causing unemployment is largely going to make up the money, whether we borrowed it externally or internally, which has been blown up in war-time expenditure. Is it not curious that our great steel works which can build a thing like the Sydney Bridge, the finest engineering work since the War, cannot pay their way, and we can turn round and say we cannot in any circumstances default on our word on our War Debt internally or externally? It could have been accomplished had we faced the issue honestly 10 years ago, and if, as some Members of the party to which I belong had suggested, we had faced the necessity of a capital levy. We have dishonestly gone on encouraging the small sover to put his money in what is called gilt-edged securities, resting on nothing more than the credit which the producers of this country had to find. If we are going to settle this issue now it is going to be a long and very difficult process. We have a genius for softening such hard processes. But we cannot face the future until we have honestly faced our own bankruptcy at home. Nobody may want to face it for four or five years, but in that time it will be far more difficult than it is at the moment. It may be said that we have already faced it by a conversion of one part of our debt, but the conversion has only brought a part of our debt back to the price at which it was issued, and no more. Are you going to save the part at the expense of the whole and ruin them both? Or are you going to save the whole, that is the producer and the nation?

Hon. Members to-night have praised and dispraised the Lausanne Agreement. For my part, I cannot believe, however we may direct our efforts in the future for the civilisation of the world, that we can possibly desert the foundation of civilisation which is England leading Europe. To that extent we must have Europe behind us. No European country has defaulted honestly, but crashed its currency instead. But we cannot honestly lead Europe unless we honestly face our own internal debt first, and then we can lead Europe in facing the United States on debts and on other questions.

10.15 p.m.


In spite of what some hon. Members have said, I think most of us will agree that the discussion to-night has been quite worth while. Even although we have not to take a vote on the subject, it will be possible, I hope, when the Chancellor of the Exchequer has told us how he proposes to bring the question of the provision of this money before the House, for the House to give a vote on the matter. It may be that to many other hon. Members, like myself, the provision of the money for the pay- ment of this debt is very difficult to trace. We spent some time last night trying to get to the bottom of it. As I understand it, when the House approved of the agreement made with the United States Government the Lord President of the Council said that provision for the payment of the money would be made in each Budget. The right hon. Gentleman the Chancellor of the Exchequer, when he presented his Budget, told us that he had made no provision this year. Now £30,000,000 has to be paid, and it is to be paid through arrangements made with the Bank of England. But there must come a time when the House will have to know in what way the money has been provided, and who has provided it. I want the Chancellor of the Exchequer to state whether he intends to carry it over as part of the deficit in next year's Budget, or whether, when the House reassembles, he will bring the matter before the House and take a vote on it.

To the ordinary layman, it is extraordinary—experts may know all about it—that there should be no clear indication from the Chancellor of the Exchequer as to how the money is to be provided, and how it can be carried through as a deficit to the next Budget. On occasions right hon. and hon. Gentlemen have called in question the financial arrangements of local government authorities, especially East End authorities. I do not think those authorities could match the sort of financing that the Chancellor of the Exchequer is able to arrange in these circumstances. I would very much like the right hon. Gentleman to explain the matter a little more fully than he did when replying to a question by my hon. and learned Friend the Member for East Bristol (Sir S. Cripps). Right hon. and hon. Gentlemen have complained that there will be no opportunity for a vote. I do not advocate that, and should be very sorry to see it done, but, if there had been any very great feeling on the part of anyone, calling into question the payment of this money, it would have been quite easy to have moved a Motion that would have amounted to a Vote of Censure and to have had a vote upon it. The Motion for the Adjournment of the House is open to a vote as much as any other Motion that comes before the House.

I would be glad also if the Chancellor of the Exchequer would tell us a little more clearly what we are doing. There has been a great deal of talking about default. I am sorry that my right hon. and gallant Friend the Member for Newcastle-under-Lyme (Colonel Wedgwood) is not here. He has made a great point about honour, and the fact that we must not in any way depart from our original bond. On reading the document that was sent by the United States on 11th December, and our reply of the same day, it seems to me that what we are doing is paying this money and making conditions of payment which the United States have not accepted. We have made reservations. We have said: "We are paying this money, not as part of the original bargain, but because the payment has become due, and we are going to stand on the proposition that the debt settlement must be revised and that when it is revised this sum must be taken as a capital payment." That is what I gather from this document, and, if that is not a measure of default, perhaps somebody who understands the English language better than I do will tell me what it is. I. myself, cannot gather anything from this document other than that the British Government have definitely decided that this is the last payment—indeed, that the payment before this is to be regarded as the last payment under the terms of the agreement—and that the present sum is being paid on new terms which we ourselves have laid down.

It may be that the right hon. Gentleman the Member for Epping (Mr. Churchill) and my right hon. and gallant Friend the Member for Newcastle-under-Lyme know better than I do what is meant, but to those of us who have been brought up in a common or garden sort of way there can be only one meaning. If anyone had written to me a letter of that kind, I should not hold that it was a statement indicating that its author was standing to be the very letter of his bond. I am sure that my right hon. and gallant Friend does not believe that at all. I am sure that when he stood here making his statement he did so with his tongue in his cheek. I am certain that he understands language, as does everybody else in this House, as well as I do and the language of the note is quite definite. We will pay to-morrow, with reservation that, from our point of view, the old agreement is at an end, and that we hope a new agreement will be made at the earliest possible moment. I desire the Chancellor of the Exchequer when he replies to elaborate that part of the business so that people like myself may be under no misapprehensions on the subject.

I wish to refer to the spectacle—which I will not describe as unedifying, because it was amusing and to be amused is to be edified—of the triangular or rather quadrangular wrangle which took place earlier between great experts on this subject. I think it is rather tall, and is not treating the House quite fairly, that these right hon. Gentlemen should just come down to the House every now and again to deliver speeches such as we have heard. They never attend regularly and they take no interest in the proceedings except when they come here to unload speeches of three-quarters of an hour or an hour's duration each. I think it is pretty thick and is not in accordance with the best traditions of the House. To come and descend to a squabble such as we had this afternoon was a disgrace to Parliament. It would have disgraced a parish vestry.




The right hon. Gentleman says "Rubbish," but I am certain that, if that kind of thing had happened at a borough council, he would be the first to stand up and say: "These vulgar persons!" When myself and some of my late colleagues fell out as to what had happened in the Cabinet, look what was written about us and think of what was said about us. "This is these Labour men. They have no sense of honour. They are not worthy to untie the shoelaces of right hon. Gentlemen like the right hon. Member for Epping or the right hon. Member for Hillhead." All I want to say is that if I sat with colleagues that had such a code of honour as these right hon. Gentlemen have attributed to one another to-day, I would not be found dead with such people. It is said of us, and it is said by the right hon. Gentleman and his friends, that we do not understand the code of honour of gentlemen.


I have never said that.


I have heard you say it.




I have heard you say the most contemptuous things of the Labour movement.


I may have said very contemptuous things about the Labour movement, but I have never said about such gentlemen of the House of Commons that they did not understand the code of honour of gentlemen.


I never said you said it in the House of Commons.


What I said—


No, I am going to pin you down to it—and you can keep on gibbering as much as you like—that if the vulgar nonsense that we heard from the right hon. Gentleman and his friends this afternoon is the code of honour that is learned at Oxford and Cambridge, then, thank God, I learned mine in the East End of London. I wanted to say that, Mr. Speaker, and I want also to say that this business that we are discussing to-day did not start when the right hon. Gentleman went to Washington. It started when the right hon. Gentleman and his colleagues were going about the country telling the nation in 1918 to search the pockets of the Germans for the last penny, and to squeeze them till the pips squeaked. That is the sort of "guff" you put across them, and then you have the audacity to come here and talk as you have done to-day. You created all the conditions that compelled the people to find the sort of verdict that you wanted them to find. Those who discuss this question to-day as if it never ought to have arisen are the very people who created the conditions that made it arise. They went about this country telling the electors that the Germans could pay for all the War, and that the Austrians could pay. As a matter of fact, we were going to make a profit out of the War, and it is no use their coming along now and saying, "Please, sir, it was not me; it was somebody else." It was the Government of the day that went in to that Peace Conference with vengeance in their minds to squeeze out of the Germans as much as ever they could. They are only to-day reaping what they have sown. They are gathering the fruits of what the right hon. Member for Epping is as much, responsible for as any Member of the House or anyone in the country.

There is no use attempting to escape responsibility. We are very often told in the House that we should trust the people who know, the experts who know. The story of this reparations business is one long story of the ineptitude of the experts. They first said how much should be paid; then they scaled it down. That was not paid, and they scaled it down again. That has not been paid, and now they have scaled it down to almost nothing, and there is not a soul in Europe who believes that that amount will be paid. None of us here are experts, except my hon. and learned Friend the Member for East Bristol. The bulk of us are supposed to know nothing about it. Only right hon. Gentlemen like the right hon. Member for Epping are supposed to know, but when they get bowled out, they say, as the right hon. Gentleman said the other day: "I naturally acted on the advice I was given." Any fool can do that. Half-a-dozen navvies out of Poplar would have come to a better conclusion at any time on the subject, but none of those who had the dealing with the question had the honesty to stand up and say what were the actual facts of the case.

Even they are now wise after the event. They have had an economic conference on the subject, and they have said unanimously that the whole business must he scrapped, and that until it is scrapped there will be no recovery for the world. Yet they are the people who made all the muddle and mess in regard to these Reparations and debt payments. We who sit here, as my hon. and learned Friend said, have right from the beginning always been against this policy—


Always right.


Yes, always right. We were so right that even the Noble Lord the Member for Basingstoke (Viscount Lymington) has told us quite frankly and honestly that if the rich people who made money during the War had followed the example of the Lord President of the Council and handed back the money they had made out of that bloodshed, the country would not be in the position in which it is to-day. No one can deny that. The Noble Lord also said that the Labour party, when they were demanding a capital levy, were demanding the one thing that would have saved the nation. Who opposed it? who fought against the late Mr. Boner Law when he advocated it? They were the people who to-day are telling us what a terrible thing these War Debts and indemnities are and how they have ruined us all for the last ten or a dozen years. I want the House to understand that we shall vote for this payment because we think that if any nation, and especially our own nation—if a great capitalist nation like this were to default, the consequences would be very terrible indeed for all the people of our country and probably for the people in other countries, too. But that does not mean that we are going to support continuing these payments world without end.

What we want to make the House understand—and I am certain the years will prove we are right about this—is that at present there is no authority in the world to deal with this abnormal situation, and that what the statesmen of the world should be trying to discover is how. without any delay, we can set up a tribunal to deal with national debts generally, and not merely the War Debts and Reparations, which are only part of the problem. Anyone who travels through Central and South-Eastern Europe today will find that the nations there are living under terrible conditions, not one of them will be able to pay, under present conditions, the terrible load of debt they are bearing. All those smaller countries are having to get moratoriums, to get assistance in one way or another. Sooner or later we must have an international court to deal with the subject. Again, I want to join with the Noble Lord in making a protest against what I think is the very wicked doctrine of my right hon. and gallant Friend the Member for Newcastle-upon-Lyme that we should line up with America against the rest of the world on this matter. I do not want to line, up with France and Germany against America. I want the world to line up all together.


Ask America about that.


The right hon. Gentleman may think he knows a good deal about America. I have been to America, and have many friends there, and I know the American point of view as well as he does. I think it will do a great disservice to the United States, as well as to ourselves, if the idea gets abroad that there is going to be a union of the English-speaking peoples against the rest of the world. In any case, we are not in that bargain. We think that the only way the present situation can be settled and the only way peace can come to the world is through an international agreement with regard to these debts and with regard to trade generally.

A further point I wish to make is that we are not going to cry down the Agreement at Lausanne. It may be that it was premature, but I think the Chancellor of the Exchequer gave a good answer to the critics on that point. We considered it, because it is said to he our business always to see how we can find fault with, the Government. Personally, I do not quite take that view. My job here, as I understand it, is to endeavour on every occasion to put the point of view that we here hold. On this particular question Mr. Hoover had told Britain and Europe to get together and, in effect, make some proposition on these matters. That, I think, vitiates a good deal of the argument against what was done at Lausanne, but what was done there was, so far as it went, a. very good thing for the peace of Europe. If only France and Germany can come together, first on this business of debts and reparations, and then on the question of armament, there may be some hope for the world. At least those of us who want to see peace will still hope, even though we are disappointed in the end.

I want to say this other thing before I finish. The right hon. Gentleman in his speech traced the story of the difficulties with Germany and Austria until last June. That part of his speech could be printed as a, Socialist leaflet to explain why it was that the Labour Government went out last year. If the right hon. Gentleman will read what he said, I think that he will agree with me that it puts an altogether different complexion upon the crisis of last year from that which prevailed in this House at this time last year. That crisis arose because of the inability of Germany to meet her liabilities and, as has been pointed out, the Hoover Moratorium saved it for the time being. But, when all is said and done on the business, we who sit here have to face the fact that the mass of the people of this country have had to pay the penalty because of the blundering and mistakes of the statesmen who made the supposed Peace Treaty a dozen years ago. They have had to pay in lower standards of life and in living, many of them, in almost starvation conditions. No one can deny that. When it is said that the rich have paid, think of the toll of human misery and suffering in this country to-night. Think of the millions of unemployed. Think of the destitution under which many of them are living. They are living in these conditions because statesmen blundered, criminally, in my judgment, by blundering into the War and blundering into a peace which any decent people ought to have been ashamed to make.

Unless the House and the world face up to the fact that we are at present travelling to the end of a sort of epoch in the history of mankind, there is no hope for the world. An hon. Gentleman who spoke a, few minutes ago said that there might be a change which nobody wanted. There will be a change of one sort or the other. Great empires and great nations go down not merely because people overthrow them by violence, but because of economic decay and because they decay at the centre while they are apparently strong on the outside. This country—we have heard it said again and again—is still the great creditor nation of the world, yet within its borders there is a mass of people living in conditions which are a disgrace to civilisation and a disgrace to any nation that calls itself civilised. You are not going to get out of those conditions by defaulting now, or by paying this debt, or by anything of that kind. You are only going to get out of that set, of conditions by building your life on a new and better foundation. You have built it on bloodshed, domination, and on the starvation of the masses. The greatest Imperialism always—[Interruption.] I can understand the insolent jeer of the hon., well-fed Members sitting there—[HON. MEMBERS: "Order !"] He knows perfectly well that—




I cannot raise a point of Order, because it would not be proper for me to do so on a matter of this kind, but I do protest against the Leader of the Opposition pillorying me every time he wants to find the end of a sentence.


The right hon. Gentleman is a wonderful blunderer. I never accused him of anything. He looks at me, smiles, nods his head—I do not know what he is doing. I only want to say that a better way out has to be found, and the only better way out is to substitute co-operation for this blundering, which is a disgrace to humanity.

10.46 p.m.


If ever the time should come when this Government finds itself in a tight place, if it should ever commit some blunder which would expose it to the just censure of the Opposition, and I see the right hon. Gentleman opposite sharpening his weapons and charging his guns, I know what I shall do. I shall appeal to my right lion. Friend the Member for Epping (Mr. Churchill) to come and take his place, for, so long as he is there, he will provide such an irresistible attraction for the right hon. Gentleman that he will entirely forget to fire off his ammunition at the Government. I entirely agree with the right hon. Gentleman's observation that this Debate has been well worth while; and, although the "big guns" have occupied a good deal of the time, nevertheless we have had the opportunity of hearing a few valuable contributions from Members who sit on the back benches. In the time at my disposal, I should like to answer some of the criticisms and some of the questions that have been addressed to me in the course of the Debate, and I will begin by complying with the desire expressed by the right hon. Gentleman that I should deal a little more clearly, as he said, with the mechanism of the accounting of the transaction which is to take place to-morrow.

As regards the actual process, the gold which is to be used in payment of the amount which we are going to transmit across the water will be taken from the reserves of the Bank of England in the Issue Department, and it will be paid for by the Government, at the current price of gold, in Treasury bills. According to the law, the gold in the Issue Department of the Bank is valued at the old par value, and any profits on the sale of gold, or losses on the purchase of gold, as compared with the old par value, are dealt with in the Exchange Equalisation Account. The Bank, therefore, will keep £19,500,000 as the value of the purchase of its gold, and the other £10,000,000, making up the £29,500,000 in all, will go into the Exchange Equalisation Account, where it will remain an asset until it is required for the purpose of buying gold again at the current price of the day.


May I ask the Chancellor of the Exchequer one question? It is an important int. Will the Treasury bills which are handed to the Bank go into the Issue Department or into the Banking Department?


That is just the point with which I was about to deal. On the liability side of the Issue Department, the notes, of course, will be reduced by the £19,500,000 by which the gold has been reduced. That means a. reduction in the bank reserves in the Banking Department, and that reduction in the Banking Department will be made good by the Treasury bills for £19,500,000. With regard to the question as to the manner in which this payment will be dealt with, I think the right hon. Gentleman is under a misapprehension. This payment is in discharge of a debt obligation and, like all debt obligations, it is charged on the Consolidated Fund, and no special legislative authority is required in pens, since we had to make this payment these savings must be used for the payment of this particular debt.

There is another question which has been raised, and on which some opinions have been expressed not altogether, perhaps, in accord with the statement that I made this afternoon. That is as to whether, or not, the fiduciary issue should be raised. I should like to say that I find myself very much in accord with what was said by the right hon. Gentleman the Member for Hillhead (Sir R. Horne) about the country's credit, but I rather differ from hire in the emphasis he laid upon this question of the fiduciary issue. It is true, in one sense, that if the fiduciary issue is not raised there is a contraction of notes but, as was pointed out by the Member for Central Southwark (Mr. Horobin), there is a certain amount of slack to be taken up. There is sufficient credit available for the present without creating more. With regard to the future I may say that I see no reason for anticipating that there is going to be any shortage of credit unless some circumstances should arise which I do riot foresee at the present time. The control of credit and currency must in the future be governed by circumstances, and must lie with the monetary authorities. For that reason, I must be rather carefully guarded in anything I say, but I would say that nothing which I said earlier in the afternoon Is to be taken to imply any expectation that the guardianship of the sterling exchange will dictate any departure from the general line of policy that has been followed by the Bank of England, which has received wide approval, and which is in accordance with the principles laid down at Ottawa, to which my right hon. Friend alluded.

May I come for a moment to my right hon. Friend the Member for Epping. He has a grievance against me because, on a previous occasion, I expressed the view that he had done no service to the country in some criticism which he addressed to the settlement, then recently made at Lausanne before he knew what that settlement was. My right hon. Friend gave an account to-day of what took place on that occasion. I think hon. Members will agree that that is hardly borne out by the OFFICIAL REPORT. He said it was only that morning that he had seen a statement in the newspapers which showed him that the premises on which he based his original criticism were entirely unfounded. I did not think my right hon. Friend did any service to the country in endeavouring in any way to weaken the impression of relief and renewed confidence which followed upon the settlement at Lausanne. He retorts on me by saying that I misled the House and committed what he describes as an un- fortunate indiscretion. If I was betrayed into an unfortunate indiscretion by anything that he said, I do not now withdraw anything in substance from what I said, but I am prepared to admit that the words I used on the spur of the moment did very badly convey what I meant, because they might well have been taken, and in fact in some cases were taken, to mean that we had had some communication from the United States Government which implied their approval of what we had been doing at Lausanne. That I never intended to convey and, when I spoke of representatives of the United States, I should rather perhaps have said citizens of the United States. Therefore, if I accept my right hon. Friend's rebuke with a little better grace than he accepted mine, I am glad, because I recognise that on the subject of indiscretions there is no greater authority than he is.

I feel bound to deny his assertion that anything that we did at Lausanne proved to be a cause of offence in the United States. In the account that I gave to-day of the indications that we had received at various times as to the course of procedure that was agreeable to the United States Government, we were fully justified in supposing that it was their idea that we ought to go to Lausanne, or to go somewhere in Europe, to settle among ourselves, if we could, an arrangement to deal with reparations and, if we were successful in that, we should at least have made some approach to a. situation in which they would be ready to discuss with us the question of our debts to them. Nothing that has happened since has given me any reason to suppose that we were mistaken in that belief. On the contrary, I entirely agree with my right hon. Friend the Member for Hillhead that, if we had failed to make an agreement at Lausanne, it is very doubtful whether we should have been in the position in which we stand to-day, when at least we have received the ready assent of the United States Government to an exchange of views between us on the whole subject.

The whole case of my right hon. Friend turned upon the question whether the Lausanne settlement was a good settlement or not. On that, I think he was completely answered by my right hon. Friend the Member for Hillhead. As one of those who took an active part in trying to obtain a settlement at Lausanne, I should naturally speak with some diffidence as to the value of the results that were obtained, but I attach very great weight to the opinion of my right hon. Friend the Member for Hill-head', who has very extensive acquaintances on the Continent and is also so well in touch with financial and commercial affairs in this country as to be an exceptionally good judge whether that settlement was or was not a beneficial one for this country and for Europe as a whole. But, when my right hon. Friend speaks of our having at Lausanne whistled down the wind the admirable arrangement which he had made with France in 19265 he is simply ignoring entirely the explanation that I gave to-day of what actually happened at Lausanne.

It being Eleven of the Clock, the Motion for the Adjournment of the House lapsed, without Question put.

Motion made, and Question proposed, "That this House do now adjourn."— [Captain Margesson.]


At Lausanne we whistled nothing down the wind as regards our debts from the various Allies or ex-Allies in Europe. I made an observation this afternoon that, in the course of the conversations there, inquiries were made of us both by the Italian and the French Governments as to whether we were then prepared to cancel altogether the debts which they owed to us. We replied that that was impossible in the circumstances, that we could only do that if there was a general cancellation of Debts and Reparations all round, and that since it was not possible to obtain such a general cancellation in the absence of the United States of America and before any agreement to that effect was reached by the European countries, we could not possibly contemplate any cancellation of the debts owed to us. I do not know whether my right hon. Friend had an opportunity of reading the remarkable speech which was delivered, I think, the day before yesterday in the French Chamber by M. Herriot, the French Premier, at that time, but, if he did, he would have seen there a passage in which M. Herriot specifically stated the view of the French Government that there was absolute equality between the debts which France owed to America and the debts which France owed to this country. There was no priority given to the one or the other, but both were exactly on the same footing. Therefore, that statement confirmed, if confirmation was necessary, what I said, that the arrangement at Lausanne altered nothing in the agreements which had already been made by us and our various debtors, and that the only difference was that certain payments were agreed to be held in suspense—not remitted, but held in suspense—until we knew whether it was possible to supplement the agreement at Lausanne by another agreement with the United States of America about War Debts.

My right hon. Friend said a good deal about our having tied ourselves up with France, and more on the same subject and to the same effect was said by my hon. and learned Friend the Member for Central Nottingham (Mr. O'Connor), who spoke about the necessity of freeing ourselves from the entanglements and leaving the leashes in which we were bound. There never was any entanglement; there never was any leash. We never have been bound to a united front with France. On the contrary, we have made it clear from the beginning—and in this the French Government have been in absolute agreement with us—that, while we must as signatories to the Lausanne Agreement communicate to one another from time to time information as to what we are doing, we would not attempt to make any joint representation to the United States, and that each of us must hold ourselves absolutely free to make what arrangement we think desirable and feasible with the United States Government. I repeat once again that never at any time have we entered into any arrangement with France or any other country owing money to the United States that we would take decisions in common or that we would abstain from any settlement which was not approved by the other. But while I say that we have never entered into any such agreement with them, on the other band, those of us who believe that Lausanne was a satisfactory settlement and that any upsetting of the provisional arrangement come to at Lausanne might well prove disastrous to the signatories at Lausanne and the whole world, have been all the time anxious not to do anything which would be likely to lead to such a misfortune as that.


Can the right hon. Gentleman deal with the statement of M. Herriot that Great Britain could have made a more favourable arrangement for herself independently, but had abstained from doing so out of loyalty to France?'


Yes. I saw the statement to which my right hon. Friend refers. The statement in question is not an entirely accurate version of something which took place in Washington, of the details of which M. Herriot could not be aware. I will say, quite frankly, what the position was. We understood that it might he possible for us to obtain from the United States Government an arrangement under which, instead of requiring payment in dollars or in gold, payment might be made in serial bonds, to which I referred this afternoon. At that time, as the information came in its original form to us, there was no suggestion that those bonds were to be marketable bonds and without that stipulation the suggestion would not necessarily have been unattractive for us. But we thought it desirable to inquire whether a similar arrangement would be offered to the other debtors, and went so far as to intimate that we should attach importance to the same treatment in that respect being offered to other countries, and that we should probably urge upon the United States Government if we could make a satisfactory arrangement on those terms, that those terms should also be extended to the others. When we examined the proposal, it appeared that it was not what we supposed it to be. It was not a proposal which we could have accepted for ourselves and, therefore, the matter did not arise. That is the whole story.


I am very much obliged.


In regard to the speech of my right hon. Friend the Member for Hillhead, part of it seemed to arouse in the mind of the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) an amount of resentment which was very puzzling to some of us sitting on this bench. I want to say to my right hon. Friend the Member for Hillhead that not only the personal friends of the Lord President of the Council, but I think everybody who cares about fair play in controversy and who hates to see public men made the subject of misrepresentation and calumny, are grateful to him for the generous and unanswerable defence which he made. I regret that the right hon. Member for Carnarvon Boroughs is not here. I regret also that he entered upon a controversy about what passed in a Cabinet which sat many years ago. I should very much regret if the minutes of the Cabinet were published. It seems to me that that is not setting a good precedent, and that it would be difficult for Cabinet Ministers to carry on their discussions with that freedom which is really necessary if they are to do their duty, if they are all the time to be under the recollection that at some future date, 10 or 12 years afterwards, what they said in Cabinet, in secret, in privacy, could be brought up against them. I think that would be a bad system, and I cannot believe that in this particular case, whatever publication was made would particularly help the right hon. Gentleman the Member for Carnarvon Boroughs. If I understood him aright, and of course I was a back bench Member at that time and have no personal knowledge of the matter, his contention was that the Cabinet instructions to the then Chancellor of the Exchequer were that he was to go and make an arrangement in America on the lines of the Balfour Note. How could he have made an arrangement on the lines of the Balfour Note? The Balfour Note said: "We will not take more from our debtors than it requires to pay our creditors." How would that statement have helped him in making an agreement in America? Surely the right hon. Gentleman had got the Balfour Note upside down. He must have been assuming that what the Note said was: "We will not pay more to our creditors than we can get from our debtors."


I wish it had been.


If that had been the effect of the Balfour Note, I could have understood that that would have been a limiting condition on anyone sent on a mission in regard to the debt to the United States of America. But the right hon. Member for Carnarvon Boroughs had another grievance, in which perhaps he might have carried greater assent from Members of the House. I refer to his complaint that, alone of all Parliaments, the Mother of Parliaments was not allowed to discuss this question. I do not think that it lay in the mouth of the right hon. Gentleman to make that accusation. After all, what we are discussing here is the immediate payment of a debt which is owing by us. Did the right hon. Gentleman submit to the Mother of Parliaments the Balfour Note itself before it was published? No, Sir, the Balfour Note waived debt owing to us amounting to £2,500,000,000, and, if that was not submitted to the Mother of Parliaments, the tu quoque argument would apply in this case with particular force. There really is no substance in the right hon. Gentleman's complaint, because, as has been justly pointed out by the Leader of the Opposition, we can take a vote upon this question to-night. If the right hon. Gentleman the Member for Carnarvon Boroughs had been here and had been prepared to challenge us, we would have been prepared to take up that challenge; we would have been prepared to treat the vote upon this Motion now before the House as a vote of confidence, a vote of approval or disapproval of what the Government have done. Therefore, I say that his complaint has no substance or foundation whatever.

The right hon. Gentleman told us that in his opinion we have been making an entire mistake; that we should never have agreed to pay the instalment that is due on the 15th December, but that we should have withheld payment and earmarked the necessary sum. His slogan was that we should go to the United States and say, "No parley, no pay; we do not pay until you consent to parley with us." What would have been the reply of the United States to an observation of that kind? Let us not forget what was said in one of the Notes which they sent to us, the Note of the 23rd November. They say: Such importance is attached by our Government and people to the maintenance of the original agreements in full by a payment on 15th December as to far outweigh any reasons now apparent for its suspension, and by such payments the prospects of a satisfactory approach to the whole question, in my opinion, would be greatly increased. Therefore it would appear that the United States Government might well have replied to the right hon. Gentleman, "No pay, no parley." Where we should finally have come out when we had reached that deadlock, I find it very difficult to guess.

The real position, I think, was very well put by my right hon. Friend the Member for Hillhead (Sir R. Horne) when he said that by this payment we had bought time in which we might discuss the whole question with the United States. That, really, is exactly what the position is, as it appears to us to-day. I do not think that we need feel dissatisfied with the progress that we have made in the course of these negotiations or conversations with the Government of the United States. In our first Note we made two requests. One, the minor one, was for the suspension of the payment of 15th December. The other, the infinitely more important one, was the request that they would exchange views with us on the whole subject of the debt still owing to them. That major point they have conceded to us at once and we find ourselves, therefore, in this favourable position, that we have raised no obstacle to a friendly conversation upon the whole subject of the debts by the refusal of a payment to which the United States Government attach so much importance. When we come to enter upon those discussions, we shall he able to put before them arguments which indeed may not appeal to the Middle West, as my Noble Friend behind me suggested, but which will, I think, appeal to the more informed and more responsible section of opinion in the United States, arguments which will show that the continued attempt to transfer these great sums from one country to another without any corresponding return in goods or services is as fatal to the creditor as it is to the debtor.

Do not let us take too gloomy a view of the future. Do not let us waste our time in hypothetical questions to ourselves as to what is to happen if the United States should take up an attitude which would be, to our thinking, altogether unreasonable. Why should we assume that anything of the kind is likely to take place I Surely everything points to the contrary assumption. Everyone must have noticed, in the Notes that we exchanged, the remarkable, and indeed exceptionally friendly tone that pervaded the negotiations from beginning to end. That, I take it is a good augury for the success of the negotiations to be undertaken hereafter. It is true that the ultimate power will not reside in those with whom we have negotiated hitherto. That is one of the inconveniences of the American Constitution. But nevertheless, as far as we can judge by such utterances of the incoming President as have reached us, he is not disposed to take an unreasonable or a one-sided view of the implications of this very serious world problem.

Let us, therefore, be satisfied that we have taken all steps that we could take, on the one hand to preserve the sense of confidence in British credit, and on the other hand to keep open the door through which we must ultimately pass if we are to achieve the object we all; have at heart, namely, the final settlement of this long-standing debts problem.

11.20 p.m.


In the few minutes still at our disposal I should like to contribute some remarks on the settlement in January, 1923, in respect of the American Debt. I well remember, though 1 was not then in Parliament, reading with great care, and more than once, the Debates which took place on the 1922 Budget when the right hon. Gentleman the Member for Hillhead (Sir R. Horne), then Chancellor of the Exchequer, explained how he had pro vided in the estimated sum for debt interest, I think it was £25,000,000, in order that interest might be paid on the outstanding debt as from 1st October that year. That was for a period of six months, and in the subsequent discussions it is remarkable now to realize that nobody then challenged the suggestion that interest might be paid at5 per cent. The view that now prevails is profoundly different from that ex pressed by speakers of every party at the time when the provision was being made. The problem which faced the Lord President of the Council when hearrived in Washington was one of some difficulty, because he met in negotiation a body of people who were not free agents. They had been appointed under the mysteries of the American Constitution, with limited powers. They were not supposed to permit more than 25 years for repayment of the capital, nor were they to permit interest less than 41 per cent. I have always thought that it was very remarkable that the Lord President persuaded the Commission to go outside its terms of reference and extend the period of repayment from 25 years to 62 years and reduce the rate of interest to 3 per cent. for 10 years and 31 per cent. for the remaining period.

I have always regarded it as a remarkably good bargain. Every bargain must be judged, not by what you think of it when thousands of other things have happened, but by the circumstances which prevail when it is made. I remember, only three or four days after the announcement of the details, meeting in the street the right hon. Gentleman the Member for Hillhead and expressing the view that it was a good bargain, and he said to me then, in substance, practically what he said this afternoon. I remember looking through the Debates of the 1923 Session. Parliament met a few days after the Lord President of the Council had returned from the United States. There were one or two questions, but no Debate. The Budget was introduced, in which the necessary provision was made. Financial Resolutions were introduced, and Second Reading, Report stage, Committee stage afforded ample opportunities for discussion. Not a word of protest was heard; not a word from the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George); no objection from anybody, until, one day in July, the then Member for Central Hull, Lieut.-Commander Kenworthy, expressed regret that the right hon. Gentleman, who is now Minister of Health, had not developed an argument upon the point, and because he had not done so, Lieut.-Commander Kenworthy took his place, and discussed the American Debt Settlement. He thought, having regard to all the circumstances that prevailed, it was a good bargain. There were sundry references later in that Debate and the then Sir Arthur Churchman, now a member of the other House, joined with Lieut.-Commander Kenworthy in congratulating the Lord President of the Council, who was then Prime Minister, on the able way in which he had dealt with the matter.

I have never been able to understand why, ever since, there has been this ceaseless and unjustifiable attack on bringing about what was in all the circumstances a very good bargain. It was not as if he went to the United States for the purpose of negotiating whether or not we should pay. The Government of the right hon. Member for Carnarvon Boroughs had committed us to paying, I think rightly, in a very fine phrase which appears in the Balfour Note. The determination to meet the claim made upon us by the United States was advanced in language which no one could misunderstand, and when you bear in mind that it was on the 16th October, 1922, that the first large sum was handed over—a sum of about £12,000,000, and a similar sum a month later —and that the first payment was made three days before the right hon. Member for Carnarvon Boroughs ceased to be Prime Minister, it is clear that the first large payment was actually made by the Government of which the right hon. Gentleman was Prime Minister. I have never been able to understand his point of view.

Moreover, I have never been able to understand why the critics quote from a speech made by Mr. Bonar Law with reference to generations having to bear heavy burdens. We are never told that that speech was not made after the settlement, but during the course of the Debate, in December, 1922. Half the quotation is left out, because what Mr. Bonar Law said was that if we paid in full and got nothing from Germany or our Allies, then the consequences which he described would follow. It was never a speech having any reference to the settlement, yet hundreds of times it has been quoted. I meet the quotation from people I run against all over the country, and when I tell them the actual facts, as I have done dozens of times—and I have written them as well—people are amazed to find the extent to which they have been deceived. I am glad to have this opportunity of expressing in this House what I have frequently expressed outside.

I took the opportunity of asking the Chancellor of the Exchequer a question when he was explaining the mechanism of our payments. Those hon. Members who to-morrow evening look at the Bank Statement which will appear in the later editions of our evening papers will see the accounts of the Banking Department and of the Issue Department of the Bank of England. They will find the great bulk of our gold sits quietly in the Issue Department, and that in the Banking Department there is a quantity of notes, about £45,000,000, all of which can be turned into gold by putting them into the Issue Department arid drawing the gold out. When those transactions take place to-morrow, the Treasury bills will be handed to the banking department, and for the moment the Chancellor of the Exchequer will own £19,000,000 of currency notes which he will hand to the Issue Department, which will give him £19,000,000 in gold, and in turn he will ask them to put it into another vault in the Bank of England. When the transaction is completed the notes in the banking department will drop from £45,000,000 to about £26,000,000, and the ratio between the deposits and reserve, instead of being, as it was last week, over 40 per cent., will drop to something in the neighbourhood of 20 per cent.

I have no hesitation in saying that that is a deflationary action. It may be that the slack to which the Chancellor has referred will save us from any difficulties, but I would strongly urge upon him the desirability of keeping a very open mind on this matter, which is of great technical complexity. Some of my hon. Friends are inclined to be inflationists. I am "as you were," because I think inflation is like getting drunk, deflation is like getting sober, and reflation is a hair of the dog that bit you. I hold an open view on these matters, and I hope the Government will not close their minds to the possibility of increasing the fiduciary issue.

Question put, and agreed to.

Adjourned at accordingly Twenty-nine Minutes after Eleven o' Clock.