FINANCE-P[JBLIC AND PRIVATE
INTER-ALLIED DEBTS 'To the Editor of the SPECTATOR.] SIR,—The year has not advanced far before two of the important factors I referred to when outlining the prospects for 1925 have come prominently into notice— namely, the question of inter-Allied Debts, and the reimposition of the Gold Standard in this country. As you are so fully aware of the feelings of the majority of the City, with regard to our return at the earliest possible moment to an effective Gold Standard and a free gold market, I do not propose to dwell upon that matter this week, but, with regard to the question of inter-Allied Debts, I think you may be interested to learn how entirely the City endorses the view taken in the Editorial of the Spectator of last week with regard to the French Debt to America. To bankers and business men, this problem of inter-Allied Debts, con- cerned as it is with the whole question of the sanctity of contracts, is very simple and one which admits of no argument. In fact, you can't argue about the sanctity of a contract when once the contract itself is admitted, and it is this attempt to argue about a principle which should at once be admitted which brings about the whole state of confusion.
As you will probably remember, Sir, we were very nearly involved ourselves in this mesh of argument some two years ago when the question came up of the funding of our own debt to the United States, and about that time Lord Balfour issued his famous " Note " which appeared to suggest that international debts should be pooled, in the sense that we were to mete out our judgment to our debtors in accordance with the treatment afforded to us by the United States. That -Note, despite its distinguished sponsorship, was immediately turned doWthi by the City, which, indeed, became very much alarmed lest not only our good standing with the United States, but our credit should-suffer through the American people's supposing that we did not recognize as a direct and separate responsibility our own covenant definitely entered into during the War to fund our debt to America at any time when called upon to do so. That Mr. Lloyd George's Government handicapped us severely by the absurd latitude which it gave to the creditor in that respect was felt to be neither here nor there. The point was that the contract had been entered into, and all that we were concerned with was the due fulfilment of the pledge.
Accordingly, as we know, Mr. Baldwin and Mr. Norman, of the Bank of England, crossed the Atlantic, and having once made it perfectly .clear that Great Britain was going to stand by the engagement, the American authorities were by no means unreasonable (having regard to the nature of the original contract) as to the terms imposed. And mark what followed ! Although, from the moment of the funding of the debt, we stood committed to remit anything from 35 to 45 millions annually to America, the American exchange, instead of moving against us, began to improve, and, with only temporary reactions, that exchange has hardened ever since. Our credit has steadily advanced in consequence of the frank facing- of our obligations, and that rise in our credit must have; saved the British Government in its borrowing operationii very large sums, while, in addition, the rise in sterling has lessened the amount we have had to remit across, the Atlantic in payment of our dollar obligations. Of course, directly we begin to argue about these inter- Allied War liabilities, it is easy enough to find plenty of good reasons for maintaining that they are not ordinary, obligations, and that they should not be treated in the ordinary manner. It is, however, I think, a very highly dangerous path to pursue. It is damaging to the good feeling between creditor and debtor, and, what is of practical importance, it reacts injuriously upon the debtor countries. Granted for the moment that the chief creditor (in this case the United States) may have taken a of the dire necessities of the debtor countries, both as regards the terms of the loans and prices charged for goods and services rendered. That,, however, is not a point upon which it is worth wasting half an hour's time in discussing to-day. The point is. that we contracted the liabilities with our eyes open,, and we are now called upon either to pay or to demon- strate our inability to do so. Nations, after all, are. but an aggregate of individuals, and in the aggregate the same tendencies apply as to the individual. Save in the case of the mere usurer, the creditor is not usually an unreasonable or impossible person, and once given evidence of the desire of the debtor to meet his obligations, there is usually a disposition on the part of the creditor to meet him in every way possible. And even in those cases where there is a desire to pay but complete inability to do so, it is usually found that the creditor is ready to grasp all the facts of the situation. If, however, there is the least sign of disinclination on the part of the debtor to recognize to the full the obligation entered into, then trouble at once begins, because the spirit is laeking which is essential for the settlement of a matter where the facts and the terms of a contract are not in dispute.
Of course, we know perfectly well that not merely in the debtor countries but in the United States itself there are many who maintain that these inter-Allied Debts do fall into a class by themselves, and that it is up to the creditor country to show an exceptionally generous attitude towards the whole question. That, however, it cannot be too clearly stated, is entirely a matter for the creditor country. Not only is such an attitude on the part of the debtor country inconsistent with the terms of the original contract, but, as I have" already said, it can have but one result, namely, a weakening_ of the, credit of. the debtor. That is why the City was so 'profoundly tbankfid two years ago that no heed was given to Lord Balfour's Note, and that all possibility of misunderstanding and, therefore, of a weakening of our credit. was removed by Mr. Baldwin's action in funding our debt to the States.
To-day, however, in the opinion of the- City, there is nothing but praise to be given for the latest communica- tion which, it is intimated by the Washington correspond- ent of the Morning Post, has been given by the British Government to the. United States Government . with regard to the present phase of international debts: Briefly stated, the position would seem to be this. By our own action two- years- ago we are now financially free, and are able to comnient upon the problem of the other international debts without any danger of our motives being misunderstood. Accordingly, ,and because we recognize that in the case of France, and presumably 'also .of -Italy, there is riot- the same ability inimcdiately to carry Out la lunding..sehenie of their debts on the same lines that we did with -regard to our' obligations to America, we have endeavoured -to contribute so far as possible to, an easing Of the situation. Obviously, the authorities -in- -Arneriaa. Would- feel• a difficulty in giving France easier terms than to this country, having regard -not -only to the promptness with which we met our own obligations, but . also to the fact that we were only able to fulfil our contract by imposing -taxation heavier than that borne by any .other country. Accord- ingly, the British Government appears to -have indicated to Washington that if. the authorities ,there are desirous of giving' France specially favoured terms because of present inability to pay,- this country will -raise no objection. whatever, nor will any objection be raised even it there is to 'be' a further' moratorium; The-only stipulation made. is that if and when France effects a payment, this country 'should share equally With the United States in such -payment. This is a message. thorpughly in harmony .with. the spirit which has animated this country throughout in desiring to aid the financial recuperation of Europe- as a whole, and it is an attitude-which, according to cable advices, appears to have . been, well _received by the American peoPle: -It now -remains for. Fiance to grasp clearly the character of the problem with which she is faced. It is a problem the solution of which can only come from within, although it is one in which we can feel the liveliest sympathy, having been in a similar situation some two and a half years ago. We realized then, however, that among other things the future of our own credit and our own currency was likely to be dominated by our prompt observance of the sanctity of our contract. And, so with France, it is not a question of theory or speculation or ingenious-. reasoning with regard to the peculiar character of this external obliga- tion, and still less is it a political 'Ordiplomatic question. According to the Manner in which the French Govern- ment of its own accord deals with its external obligations, so will the course of French credit and the value of French currency be determined for some time to come.
—I am, Sir, yours faithfully, ARTHUR W. KIDDY. The City, January 7th.
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