England and Germany

by Emile Joseph Dillon

CHAPTER XIII

PROBLEMS OF FINANCE

Finances are the nerve of warfare, and in a contest which can be decided only by the exhaustion of one of the belligerents they are, so to say, the central nerve system. The Germans being astute financiers, and aware that the war to which their policy was leading would soon break out, had made due preparations, with a surprising grasp of detail. Nothing was forgotten and nothing neglected. And success rewarded their efforts. The result was that they mobilized their finances long before they had begun to mobilize their troops.

France, on the contrary, persuaded that peace would not be disturbed, took no thought of the morrow. Yet her budgetary estimates showed an ugly deficit. This gap, however, would have been filled up in the ordinary course of things by a big loan which was about to be floated. But M. Caillaux, probably the most clever financier in France, who, if he applied his knowledge and resourcefulness to the furtherance of his country’s interests, could achieve great things, used them—and together with them his parliamentary influence—to upset the Cabinet and thwart the loan scheme. Then, taking over the portfolio of the Finance Minister in the new Cabinet, he arranged for borrowing a small instead of a large amount, thereby exposing his country to risks more serious than the public realized. For it was a heavy disadvantage on the eve of the most exhausting struggle ever entered upon by the French people, whose strongest position was weakened as no enemy could have weakened it.

Russia was in a different, but nowise better, position when suddenly called upon to meet the onerous demands of the world-contest. She, too, having pinned her faith to the maintenance of peace, had made no preparations for war, financial or military. Moreover, a considerable sum of her money was at the time deposited in various foreign countries, and especially in France, for the service of her loans and the payment of State orders placed with various firms. This money, on the outbreak of hostilities, was automatically immobilized by the moratorium, although the delicate question whether a moratorium can be legally applied to sums thus deposited by a foreign Government has not yet been decided with finality. As a matter of fact, Russia’s deposits remained where they were, and could not be utilized. The consequences of this embargo were irksome, and for a time threatened to become dangerous. Little by little, however, these restrictions were removed, partly by the French Government and partly by the spontaneous efforts of the banks.

France, too, suffered in a like way from the paralysing effect of the moratorium. For the French had no less than half a milliard francs lent out at interest for short terms in Russia. This sum could, as it chanced, have been refunded at once without inconvenience, seeing that it was liquid in the banks of Petrograd, Moscow, Warsaw, and other cities of the Tsardom. But as the money was in Russian roubles, and all international exchange had ceased, it too was incapable of being converted into francs. Thus the two allies, although really flush of money, were undergoing some of the hardships of impecuniosity, and to extricate them from this tangle was a task that called for the exercise of uncommon ingenuity. This happily was forthcoming.

But that was only one aspect of a larger and more momentous business which the financiers of the Entente Powers had to set themselves to tackle. Another of its bearings was the effect of the war upon the rate of exchange of the rouble, which is of moment to all the Allies. Indeed, so long as the conflict lasts the smooth working of the financial machines of the three States is of as much moment to each and all as is the winning of battles and the raising of fresh armies. In this struggle and at least until the curtain has fallen upon the final scene, the maintenance of financial credit and the purveyance of ready cash, together with all the subsidiary issues to which these operations may give rise, should be discussed and settled in common.

During the present world combat, which has not its like in history, whether we consider the issues at stake, the number of troops engaged, or the destructive forces let loose, the ordinary narrow conceptions of mutual assistance, financial and other, with their jealous care of flaccid interests, cannot be persisted in. The basic principle on which it behoves the allied Powers to sustain each other’s vitality can only be the community of resources within the limits traced by national needs. For our cause is one and indivisible, and a success of one of the Allies is a success of all. Hence, although we move from different starting-points and by unconnected roads, we are one community in motive, tendencies and sacrifices. The sense of Fate, whose deepening shadow now lies across the civilized nations of the Old Continent, has evoked the sympathies of the partner peoples for each other, and temporarily obliterated many of the points of artificial distinction which owed their existence to national egotism.

Russia’s resources, then, were immobilized at the outset of the war. The minister who had spent thirty-five years in the financial department of State had resigned shortly before. His successor, a man of considerable capacity and good intentions, was bereft of the help of the best permanent officials of the Ministry, who had followed the outgoing minister into retirement. And no minister ever needed help more sorely than M. Bark. For the sudden cessation of all international exchange and the consequent immobilization of Russia’s financial reserve, made it temporarily impossible for her to satisfy demands which could easily have been met under circumstances less disconcerting. Here her British ally came to the rescue. In the first place, the British Government gave its guarantee to the Bank of England for the acceptances which this bank had discounted. These were of two kinds: all acceptances whatever discounted before hostilities had broken out, and all commercial acceptances discounted since the declaration of war. The measure which brought this welcome assistance was general in its form, but it included Russian bills accepted in London. And this discount by the Bank of England will continue until one year after the close of the campaign. In plain English, that means that the greater part of Russia’s cash payments in London will be put off until then.

In Russia’s dealings with France a like trouble made itself felt, but the same remedy was not applied. The Government there did not offer a State guarantee for acceptances by the Banque de France. The reasons for this difference of method are immaterial. The main point is that some other expedient had to be devised whereby Russia could discharge her short-term debts to her French creditors. In the Tsardom money was available for the purpose, but it was in roubles, which would first have to be exchanged into francs, and, as there was no rate of exchange, this operation could be effected, if at all, only at a considerable and unnecessary loss.