Essays in Liberalism Part 2

Director of Military Operations--Imperial General Staff, 1915-16.

Sir Frederick Maurice said:--This problem of the reduction of armaments is one of the most urgent of the international and national problems of the day. It is urgent in its economic aspect, urgent also as regards its relation to the future peace of the world. The urgency of its economic aspect was proclaimed two years ago at the Brussels conference of financiers a.s.sembled by the League of Nations. These experts said quite plainly and definitely that, so far as they could see, the salvation of Europe from bankruptcy depended upon the immediate diminution of the crushing burden of expenditure upon arms. That was two years ago. Linked up with this question is the whole question of the economic reconstruction of Europe. Linked up with it also is that deep and grave problem of reparations. It is no longer the case to-day, if it has ever been the case since the war, which I doubt, that sober opinion in France considers it necessary for France to have large military forces in order to protect her from German aggression in the near future. For the past two years, however, it has been the custom of those who live upon alarms to produce the German menace. There is a great body of opinion in France at this moment which feels that unless France is able to put the pistol to Germany's head, it will never be able to get a penny out of Germany.

You have the further connection of the att.i.tude of America to the problem. America said, officially through Mr. Hoover and unofficially through a number of her leading financiers, that she was not ready to come forward and take her share in the economic restoration of Europe so long as Europe is squandering its resources upon arms. The connection is quite definitely and explicitly recognised in the Covenant of the League of Nations. Article 8 begins: "The principles of the League recognise that the maintenance of peace requires reduction of national armaments to the lowest point consistent with national safety, and the enforcement by common action of international obligations." These words were promulgated in 1919. Personally, I find myself in complete agreement with what Lord Robert Cecil said this morning, and what Lord Grey said a few days ago at Newcastle, that one of the prime causes of the war was Prussian militarism. By that I mean the influence of that tremendous military machine, which had been built up through years of labour in Germany, in moulding the public opinion of that country.

A GROUP OF NEW ARMIES

Well, how do we stand in regard to that to-day? We stand to-day in the position that the armaments of Germany, Austria, Hungary, Bulgaria, have all been compulsorily drastically reduced, but in their place you have a whole group of new armies. You have armies to-day which did not exist before the war, in Finland, Esthonia, Poland, Lithuania, and Czecho-Slovakia, and the sum total is that at this moment there are more armed men in time of peace in Europe than in 1913. Is there no danger that this machine will mould the minds of some other peoples, just as the German machine moulded the minds of the Germans? This is the position as regards the peace establishments of Europe to-day in their relation to the future peace of the world. What about the economic position? I have mentioned that certain Powers have had their forces drastically reduced, and that has brought with it a drastic reduction of expenditure, but I have before me the naval, military, and air force estimates of the eight princ.i.p.al Powers in Europe, leaving out Germany, Austria, and Bulgaria, whose forces have been compulsorily reduced.

At the economic conference of financiers in Brussels in 1920 it was mentioned with horror that 20 per cent. of the income of Europe was then being devoted to arms. I find that to-day 25 per cent. of the total income of these eight Powers is devoted to arms. I find, further, that of these eight Powers who have budgeted for a smaller service, only one--Yugo-Slavia--has managed to balance her budget, and the others have large deficits which are many times covered by their expenditure on arms. And this is going on at a time when all these eight nations are taxed almost up to their limit, when the whole of their industries are suffering in consequence, and when the danger of bankruptcy, which horrified the financiers in 1920, is even more imminent.

That being the case, what has been done in the last few years to remedy this matter, and why is more not being done? As you all know, this question is in the forefront of the programme of the League of Nations.

And the League began to deal with it at once. Lord Robert Cecil will agree with me that the framers of the Covenant, of which he is one of the chief, could not foresee everything, and they did not foresee at the time the Covenant was framed, that machinery would be required to deal with this extraordinarily complex question of armaments. They created an organisation then called a Permanent Military Command, still in existence, to advise the Council of the League on all military matters.

But when these gentlemen got to work upon such questions as reduction of armaments, they at once found themselves dealing with matters entirely beyond their competence, because into this problem enter problems of high politics and finance, and a thousand other questions of which soldiers, sailors, and airmen know nothing whatever.

THE LEAGUE'S COMMISSION

The first step was to remedy an oversight in the machinery, and that was done at the first meeting of the a.s.sembly. The first meeting of the a.s.sembly created a temporary mixed commission on armaments, which was composed of persons of recognised competence in political, social, and economic matters. It consisted of six members of the old Permanent Commission, and in addition a number of statesmen, employers, and representatives of labour. This body started to tackle this grave question. Before it began the first a.s.sembly of the League had suggested one line of approach--that there should be an agreement to limit expenditure; that an attempt should be made to limit armaments by limiting budgets; and nations were asked to agree that they would not exceed in the two years following the acceptance of the resolution the budgeted expenditure on armaments of the current year.

That proposal did not meet with great success. It was turned down by seven Powers, notably by France and Spain. On the whole, I think France and Spain and the other Powers had some reason on their side, because it is not possible to approach this problem solely from the financial standpoint. You cannot get a financial common denominator and apply it to armaments. The varying costs of a soldier in Europe and in j.a.pan have no relation to each other. The cost of a voluntary soldier in Great Britain has no relation to the cost of a conscript on the Continent.

Therefore, that line of approach, when applied too broadly, is not fruitful. I think myself it is quite possible that you may be able to apply financial limitations to the question of material, the construction of guns and other weapons of war, because the cost of these things in foreign countries tends much more to a common level. I think this is a possible line of approach, but to try to make a reduction of armaments by reducing budgets on a wholesale scale I do not think will lead us anywhere at all. I may safely say that for the present that line of approach has been abandoned.

The Temporary Mixed Commission got to work, and in its first year, frankly, I cannot say it did very much. It concerned itself very largely with the acc.u.mulation of information and the collection of statistics, bearing rather the same relation to world problems as a Royal Commission does to our domestic problems. By the time the second a.s.sembly met practically nothing had been done by the Commission. But other people had been at work, and our own League of Nations Union had put forward a proposal--a line of approach, rather, I would say, to this problem--which I for one think is extremely useful. It began by inquiring as to what armaments were for, which after all is a useful way of beginning, and the inquiry came to the conclusion that nations required them for three purposes--to maintain internal order; as a last resort for the enforcement of law and order; and to protect overseas possessions. After these purposes were served there was a large residuum left. That residuum could only be required for one purpose--to protect the country in question from foreign aggression. When you had gone thus far in your reasoning, you had obviously got into the zone where bargaining becomes possible, because it is obvious that by agreement you can get the force by which a nation is liable to become reduced. That line of approach received the general blessing at the second a.s.sembly of the League of Nations. Things began to move, primarily because the Dominion of South Africa took a keen interest in this problem of the reduction of armaments, and South Africa appointed Lord Robert Cecil as its representative, and instructed him to press the matter on, and he did. The a.s.sembly definitely instructed this temporary mixed Commission that by the time the third a.s.sembly met plans should be prepared and concrete proposals put on paper.

WASHINGTON

Soon after that came the Washington Conference--a great landmark in the history of this problem. For reasons I need not go into in detail, the naval problem is very much easier than the military or air problem. You have as the nucleus of naval forces something quite definite and precise--the battleship--and it also happens that that particular unit is extremely costly, and takes a long time to build, and no man has yet ever succeeded in concealing the existence of a battleship. There you had three important points--a large and important unit in the possession of everybody concerned, very costly, so that by reducing it you make great reductions in expenditure. There was no possibility of avoiding an agreement about the construction of battleships, and it is to these facts mainly that the happy results of the Washington Conference were due.

But for the furtherance of the problem the point is this. The Washington Conference definitely established the principle of reduction of armaments on a great ratio. The ratio for battleships between Great Britain, the United States, j.a.pan, France, and Italy, was settled as to 5, 5, 3, and 1.75. They all agreed on a definite ratio. All agreed to sc.r.a.p a certain number of ships, to bring their tonnage down to a certain figure, and by doing that relatively they were left in the same position as before, with this advantage--that they at once obtained an enormous reduction in expenditure on armaments.

That opened up a new line of approach for the attack on this problem from the military and air standpoint. And the next development took place in February this year at the meeting of the Temporary Mixed Commission on armaments, when the Esher proposals were presented. There has been a great deal of talk about the Esher proposals, and I am glad of it, because the one thing wanted in this question is public interest.

The Esher proposals were an endeavour to apply to land armaments this principle of reduction on a great ratio. And the line taken was this. It was necessary to find some unit in land armaments which corresponded with the battleships, and the unit selected by Lord Esher was the 300,000 regular soldiers of the peace armies in France, England, and Spain. It was selected because it happened to be the number to which the Austrian army was reduced by treaty, and with that unit he proposed a ratio for the armies of Europe, which would leave everybody relatively in much the same position as before, but would obtain an immediate reduction in numbers of standing armies and a great reduction of expenditure.

This proposal was subjected to a great deal of criticism, and I am sorry to say nine-tenths of the criticism appears to emanate from persons who have never read the proposal at all. It is a proposal which lends itself to a great deal of criticism, and the most effective criticism which could have been applied at the time it was presented was that it put the cart before the horse, and approached the problem from the wrong direction, for, as Lord Robert Cecil has said here this morning, what nations require is security. Some of them have clear ideas as to the way of obtaining it, but they all want it, and before you can expect people to reduce their armaments, which are, after all, maintained mainly for the purpose of providing security, you must give them something that will take the place of armaments.

A GENERAL DEFENSIVE PACT

In June an important development took place in this Temporary Commission. It was increased by the addition of a number of statesmen, and, amongst others, of men who ought to have been on it long ago. Lord Robert Cecil was added, and he at once proceeded to remedy what was a real difficulty in Lord Esher's proposals. He put forward a plan for providing security in the form, as the a.s.sembly of the League had asked, of a definite written proposal--really a brief treaty. The purport of that treaty is included in the form of resolutions, which are roughly as follows:--No scheme for the reduction of armaments can be effective unless it is general; that in the present state of the world no Government can accept the responsibility for a serious reduction of armaments unless it is given some other equally satisfactory guarantee of the safety of its country; such guarantee can only be found in a general defensive agreement of all the countries concerned, binding them all to come to the a.s.sistance of any one of them if attacked.

A general defensive pact, with a proviso! It is obviously unreasonable to expect the States of the American continent to be ready to come over at any moment to help in Europe. It is obviously unreasonable to expect the States of Europe to bind themselves to come and fight in Asia.

Therefore, there was this proviso added that an obligation to come to the a.s.sistance of the attacked country should be limited to those countries which belonged to the same quarter of the globe. Thus, you see, you are getting the obligation of the League into regional application. Personally my own conviction is that this is the line upon which many of the functions of the League will develop.

The main point of the situation as it is to-day is that you have got a committee working out in detail a general pact, which when it is formulated will be far more complete and satisfactory than the very general and vague Clause 10 of the Covenant. We have reached the position when practical proposals are beginning to emerge. What more is wanted? How can we help on this work? You will have gathered from what I said that it is my own conviction that with this problem of reduction of armaments is so closely linked up the problem of economic reconstruction and reparations that the whole ought to be taken together. I believe one of the reasons why so little progress has been made is that the economic problems have been entrusted, with the blessing of our and other Governments, to perambulating conferences, while the disarmament problem has been left solely to the League of Nations. I believe if you could get the whole of these problems considered by one authority--and there is one obvious authority--progress would be far more rapid.

There is another matter which concerns us as citizens--the att.i.tude of our own Government to this question. I was delighted to see recently an announcement made by a Minister in the House of Commons that the Government was seriously in favour of a reduction of armaments on a great ratio. I was delighted to read the other day a speech, to which reference has already been made, by the Prime Minister. We have had a great many words on this question. The time has come for action, and quite frankly the action of our Government in the past two years with regard to this question has been neutral, and not always one of benevolent neutrality. Our official representatives at Geneva have been very careful to stress the difficulties, but up to the present I am unaware that our Government has ever placed its immense resources as regards information at the disposal of the one Englishman who has been striving with all his power and knowledge to get a definite solution. I believe there is going to be a change; I hope so. In any case, the best thing we can do is to see that it is changed, and that Lord Robert Cecil is not left to fight a lone battle.

THE APPEAL TO PUBLIC OPINION

There is something more. There is something wanted from each of us.

Personally, I am convinced myself that this problem is soluble on the lines by which it is now being approached. I speak to you as a professional who has given some study to the subject. I am convinced that on the lines of a general pact as opposed to the particular pact, a general defensive agreement as opposed to separate alliances, followed by reduction on a great ratio, the practicability of which has been proved at Washington, a solution can be reached. Given goodwill--that is the point. At the last a.s.sembly of the League of Nations a report was presented by the Commission, of which Lord Robert Cecil was a member, and it wound up with these words: "Finally, the committee recognises that a policy of disarmament, to be successful, requires the support of the population of the world. Limitation of armaments will never be imposed by Governments on peoples, but it may be imposed by peoples on Governments." That is absolutely true. How are we going to apply it?

Frankly, myself, I do not see that there is a great deal of value to be got by demonstrations which demand no more war. I have every sympathy with their object, but we have got to the stage when we want to get beyond words to practical resolutions. We want definite concrete proposals, and you won't get these merely by demonstrations. They are quite good in their way, but they are not enough. What you want in this matter is an informed public opinion which sees what is practical and insists on having it.

I am speaking to you as one who for a great many years believed absolutely that preparation for war was the means of securing peace. In 1919--when I had a little time to look round, to study the causes of the war and the events of the war--I changed my opinion. I then came quite definitely to the conclusion that preparation for war, carried to the point to which it had been carried in 1914, was a direct cause of war. I had to find another path, and I found it in 1919. Lord Robert may possibly remember that in the early days of the Peace Conference I came to him and made my confession of faith, and I promised to give him what little help I could. I have tried to keep my promise, and I believe this vital problem, upon which not only the economic reconstruction of Europe and the future peace of the world, but also social development at home depend, can be solved provided you will recognise that the problem is very complex; that there is fear to be overcome; that you are content with what is practical from day to day, and accept each practical step provided it leads forward to the desired goal. I therefore most earnestly trust that the Liberal party will take this question up, and translate it into practical politics. For that is what is required.

REPARATIONS AND INTER-ALLIED DEBT

BY JOHN MAYNARD KEYNES

M.A., C.B.; Fellow of King's College, Cambridge; Editor of _Economic Journal_ since 1912; princ.i.p.al representative of the Treasury at the Paris Peace Conference, and Deputy for the Chancellor of the Exchequer on the Supreme Economic Council, Jan.-June, 1919.

Mr. Keynes said:--I do not complain of Lord Balfour's Note, provided we a.s.sume, as I think we can, that it is our first move, and not our last.

Many people seem to regard it as being really addressed to the United States. I do not agree. Essentially it is addressed to France. It is a reply, and a very necessary reply, to the kites which M. Poincare has been flying in _The Times_ and elsewhere, suggesting that this country should sacrifice all its claims of every description in return for--practically nothing at all, certainly not a permanent solution of the general problem. The Note brings us back to the facts and to the proper starting-point for negotiations.

In this question of Reparations the position changes so fast that it may be worth while for me to remind you just how the question stands at this moment. There are in existence two inconsistent settlements, both of which still hold good in law. The first is the a.s.sessment of the Reparation Commission, namely, 132 milliard gold marks. This is a capital sum. The second is the London Settlement, which is not a capital sum at all, but a schedule of annual payments calculated according to a formula; but the capitalised value of these annual payments, worked out on any reasonable hypothesis, comes to much less than the Reparation Commission's total, probably to not much more than a half.

THE BREAKDOWN OF GERMANY

But that is not the end of the story. While both the above settlements remain in force, the temporary regime under which Germany has been paying is different from, and much less than, either of them. By a decision of last March Germany was to pay during 1922 36,000,000 (gold) in cash, _plus_ deliveries in kind. The value of the latter cannot be exactly calculated, but, apart from coal, they do not amount to much, with the result that the 1922 demands are probably between a third and a quarter of the London Settlement, and less than one-sixth of the Reparation Commission's original total. It is under the weight of this reduced burden that Germany has now broken down, and the present crisis is due to her inability to continue these reduced instalments beyond the payment of July, 1922. In the long run the payments due during 1922 should be within Germany's capacity. But the insensate policy pursued by the Allies for the last four years has so completely ruined her finances, that for the time being she can pay nothing at all; and for a shorter or longer period it is certain that there is now no alternative to a moratorium.

What, in these circ.u.mstances, does M. Poincare propose? To judge from the semi-official forecasts, he is prepared to cancel what are known as the "C" Bonds, provided Great Britain lets France off the whole of her debt and forgoes her own claims to Reparation. What are these "C" Bonds?

They are a part of the London Settlement of May, 1921, and, roughly speaking, they may be said to represent the excess of the Reparation Commission's a.s.sessment over the capitalised value of the London Schedule of Payments, and a bit more. That is to say, they are pure water. They mainly represent that part of the Reparation Commission's total a.s.sessment which will not be covered, even though the London Schedule of Payments is paid in full.

In offering the cancellation of these Bonds, therefore, M. Poincare is offering exactly nothing. If Great Britain gave up her own claims to Reparations, and the "C" Bonds were cancelled to the extent of France's indebtedness to us, France's claims against Germany would be actually greater, even on paper, than they are now. For the demands under the London Settlement would be unabated, and France would be ent.i.tled to a larger proportion of them. The offer is, therefore, derisory. And it seems to me to be little short of criminal on the part of _The Times_ to endeavour to trick the people of this country into such a settlement.

Personally, I do not think that at this juncture there is anything whatever to be done except to grant a moratorium. It is out of the question that any figure, low enough to do Germany's credit any good now, could be acceptable to M. Poincare, in however moderate a mood he may visit London next week. Apart from which, it is really impossible at the present moment for any one to say how much Germany will be able to pay in the long run. Let us content ourselves, therefore, with a moratorium for the moment, and put off till next year the discussion of a final settlement, when, with proper preparations beforehand, there ought to be a grand Conference on the whole connected problem of inter-Governmental debt, with representatives of the United States present, and possibly at Washington.

THE ILLUSION OF A LOAN

The difficulties in the way of any immediate settlement now are so obvious that one might wonder why any one should be in favour of the attempt. The explanation lies in that popular illusion, with which it now pleases the world to deceive itself--the International Loan. It is thought that if Germany's liability can now be settled once and for all, the "bankers" will then lend her a huge sum of money by which she can antic.i.p.ate her liabilities and satisfy the requirements of France.

In my opinion the International Loan on a great scale is just as big an illusion as Reparations on a great scale. It will not happen. It cannot happen. And it would make a most disastrous disturbance if it did happen. The idea that the rest of the world is going to lend to Germany, for her to hand over to France, about 100 per cent. of their liquid savings--for that is what it amounts to--is utterly preposterous.

And the sooner we get that into our heads the better. I am not quite clear for what sort of an amount the public imagine that the loan would be, but I think the sums generally mentioned vary from 250,000,000 up to 500,000,000. The idea that any Government in the world, or all of the Governments in the world in combination, let alone bankrupt Germany, could at the present time raise this amount of new money (that is to say, for other purposes than the funding or redemption of existing obligations) from investors in the world's Stock Exchanges is ridiculous.

The highest figure which I have heard mentioned by a reliable authority is 100,000,000. Personally, I think even this much too high. It could only be realised if subscriptions from special quarters, as, for example, German h.o.a.rds abroad, and German-Americans, were to provide the greater part of it, which would only be the case if it were part of a settlement which was of great and obvious advantage to Germany. A loan to Germany, on Germany's own credit, yielding, say, 8 to 10 per cent., would not in my opinion be an investor's proposition in any part of the world, except on a most trifling scale. I do not mean that a larger antic.i.p.atory loan of a different character--issued, for example, in Allied countries with the guarantees of the Allied Government, the proceeds in each such country being handed over to the guaranteeing Government, so that no new money would pa.s.s--might not be possible. But a loan of this kind is not at present in question.

Yet a loan of from 50,000,000 to 100,000,000--and I repeat that even this figure is very optimistic except as the result of a settlement of a kind which engaged the active goodwill of individual Germans with foreign resources and of foreigners of German origin and sympathies--would only cover Germany's liabilities under the London Schedule for four to six months, and the temporarily reduced payments of last March for little more than a year. And from such a loan, after meeting Belgian priorities and Army of Occupation costs, there would not be left any important sum for France.