§ THE EARL OF BALFOUR rose to call attention to misunderstanding that has arisen respecting the, Note on International Indebtedness of the 1st of August, 1922. The noble Earl said: My Lords, it 338 may be in your Lordships' recollection that when I was in an official position I wrote, on behalf of the then Government, a Paper dealing with the most difficult, most dangerous, and most anxious question of international indebtedness. It created some controversy at the time—a controversy in which I took no part—and I certainly thought that as time went on, and as with regard to this very question changes of momentous importance have taken place since August 1 of last year, the matter might have been allowed to rest. But I think you will agree with me that when so important a personage, a statesman so highly placed in an official position of such special importance in this connection as that of Ambassador to the United States, declares that a statement made by me in that Despatch is misleading, and that he publicly desires the present British Government formally and explicitly to remove a misapprehension which that statement is said to have occasioned, silence on my part would probably lead to misunderstanding.
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Now the sentences complained of occur in the following passage of the original Note:—
For it should not be forgotten, though it sometimes is, that our liabilities were incurred for others, not for ourselves—
that refers of course to our Debt to America, and to that alone—
The food, the raw material, the munitions required by the immense naval and military efforts of Great Britain, and half the two thousand million sterling advanced to Allies were provided, not by means of foreign loans, but by internal borrowing and war taxation.… Appeal was therefore made to the Government of the United States; and under the arrangement then arrived at the United States insisted, in substance if not in form, that, though our Allies were to spend the money, it was only on our security that they were prepared to lend it. This co-operative effort was of infinite value to the common cause; but it cannot he said that the rôle assigned in it to this country was one of special privilege or advantage.
That is the whole of the passage in which the extract complained of occurred.
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The actual sentence which the Ambassador complained of runs as follows:"—
Under the arrangement then arrived at the United States insisted, in substance if not in form, that, though our Allies were to spend the money, it was only on our security that they were prepared to lend it.
Now, my Lords, I am unable to find in these words anything which is either mis-
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leading or obscure. It is perfectly true that they are very compressed, and that without knowing all the circumstances of the case their full import may not be very easy to determine, but I do not think they deserve the strictures passed upon them by His Excellency.
§ The essential facts of the case are as follows:—Up to America's entry into the war the burden of financing those Allies who could not adequately finance themselves fell mainly, though not wholly, upon Great Britain; and the most anxious and difficult part of our financial task in those early days of the war was that of finding dollars wherewith to pay the American producer for war material required by ourselves and our friends. Of course, this state of things was changed by America's entry into the war, but her belligerency, which changed so much, naturally could not diminish the demand made for American war material in Europe, although through the operation of loans it most undoubtedly did diminish materially the difficulty of paying for this war material. Now the way the system worked was that, in essence, the American Government borrowed in America; that out of these internal loans the American producer was paid; and that one or other of the European belligerents (not necessarily the belligerent who was to use the material) became liable to the United States Treasury for the amount of the loan.
§ How did this system, which I thus roughly indicate, work out as between the different nations concerned? In some cases the loan was a direct transaction between the United States and some particular Ally, such as France or Italy, and this is the origin of that international indebtedness between those countries and America to which, in the course of his speech, the American Ambassador particularly referred. But the case of Great Britain was not so simple. It was complicated by the fact that, unlike other European belligerents, we were straining our credit to finance our friends, and that, unlike America, we were making very large purchases on our own account of goods which we had to import from overseas: in other words, goods which we imported from America.
§ Our case, you will observe, was thus differentiated, broadly speaking, both 340 from the case of the other European belligerents and from the case of America herself. We had, as it were, two tasks thrown upon us. Either of these tasks we could have accomplished without assistance and without external borrowing; but we were not in a position to accomplish both at the same time—a fact which surely need surprise nobody who remembers the enormous loans which we had already made to other nations before America came into the war, and which we continued to make afterwards.
§ In these circumstances the British Government suggested to the Government of the United States that the latter should relieve us of the first of these two tasks, in other words, that as we had borne the main burden of financing the European Allies in the earlier years of the war, America, who came fresh into the great struggle, might relieve us of that part of our difficulties; and we assured her that, in these circumstances, we should be able to find all the dollars necessary for purchasing our war material, without borrowing from her or from anybody else; we could find them out of our own resources, out of our own Taxes, out of our internal loans.
§ Had the United States Government seen its way to adopt this plan there would, of course, have been no loan from America to Britain, many controversies would have been avoided, and international arrangements would have followed another course. But, for reasons which I am the last person to question, and which, I doubt not, were amply sufficient, the American Government declined to adopt our proposal, and the double burden, the character of which I have endeavoured to describe to your Lordships, was still borne by this country. The result has been that Great Britain had to borrow from the United States, using the American money thus obtained to pay the American producer, and employing her own resources, thus set free, to aid her Allies. In other words, the American producer obtained his price, the American lenders got British security, our Allies were helped through their financial difficulties, and we obtained their promise to pay. As it seems to me, these transactions were not inaccurately, though, I admit, most imperfectly, summarised in the phrase to which objection has been taken.
341§ I cannot help feeling, however, that, after all, there may be a deeper difference between the American Ambassador and myself on this subject than any mere criticism or rejoinder with regard to one particular phrase in the original document would lead one to expect. The American Ambassador, as I understand it, regards the financial arrangements between the partners in the great war as so many isolated undertakings, to be separately considered and carried through one by one, as occasion offers. Not only is this policy (in his view) necessary if the sanctity of contracts is to be maintained, but he thinks that it confers actual benefits on the debtor himself by improving his general credit. Speaking with hesitation before so great an authority, I am inclined to a somewhat less commercial view.
§ The extraordinary circumstances of the war, the magnitude of the co-operative effort made by the Allied and Associated peoples, each contributing its utmost to an enterprise in which all alike were interested, might seem to remove their financial arrangements into a sphere where the ordinary categories of debtor and creditor, though still valid, can hardly he deemed to be sufficient. Both views have something to recommend them; both may be held by honourable men. I do not propose to compare them, still less to criticise those who differ from me. But one final observation I may permit myself. If, as I suppose, it is the first of these competing views which commends itself to public opinion in the United States of America, the uncontested and incontestible legal rights of that country could not have been enforced in a manner less likely to injure the happy relations which, I am glad to say, prevail between the two peoples.
342§ [From Minutes of March 7.]
§ The Marquess of Milford Haven—Sat first in Parliament after the death of his Father.