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.
After several weeks' negotiations, and a thorough study of the
question, an agreement was struck up between the Imperial Russian Bank
and the Banque de France, by which the latter institution placed at
the disposal of the former the requisite sum in francs which was
specially earmarked for the payment of Russia's private debts in
Paris.
The fall in the rouble was partly caused by the diminution of Russian
exports, in consequence of the closing of the Baltic, the
Mediterranean, and the land routes _via_ Germany and Austria. The
whole harvest of 1914 lay garnered up in the Tsar's dominions, where
prices fell to a low level, while the rouble lost one-fourth of its
value. Russia's interest on her foreign debt was thus increased by
twenty-five per cent. The Western allies, on the other hand, were
paying huge sums for corn to neutrals. As in the long run all Entente
Powers will have to bear their share of eventual losses, it behoved
them to prevent or moderate them. And this they accomplished to a
limited extent. It might have been well to go further into the matter
and consider the advisability of entering into closer partnership than
was established by their concerted efforts in Paris. An economic
league with privileges for importation and exportation accorded to all
its members--and only to these--not merely during the war but for a
series of years after the conclusion of peace, might perhaps have
tended to solve that and kindred problems. But the Allied Governments
were constitutionally averse to taking long views or adopting
comprehensive measures.
But the reopening of the Dardanelles and the liberation of Russia's
corn supplies called for immediate attention and a concrete plan of
campaign. The idea of rigging out a naval and military expedition had
been mooted in London before the Financial Conference in Paris, but on
grounds which do not yet constitute materials for public history it
was dropped. At the Conference the scheme was again taken up, and the
previous objections to its execution having been successfully met it
was unanimously accepted. It is worth observing that the original
plan, so far as the present writer was cognizant of it, was coherent,
adequate and feasible, and involved co-ordination on the part of all
three Allies. It did not contemplate a purely naval expedition to the
Dardanelles, but provided for a mixed force of land and sea troops, of
which the number was considerable and under the conditions then
prevalent might also have been ample for the purpose. Although the
Allies had thus made what they believed to be adequate provision for
the success of their project, they took measures to render assurance
doubly sure. They entered into pourparlers with Greece, from whose
co-operation they anticipated advantages which would tell with
decisive force not only on the outcome of the expedition but also on
the upshot of the war.
Venizelos was approached and sounded on the subject. His authority in
his country, like that of Bismarck on the eve of his fall, was held to
be supreme. For he had saved Greece from anarchy and the dynasty from
banishment; he had reorganized the army, strengthened the navy,
established good government at home, extended the boundaries of the
realm and laid the foundations of a regenerate State which might in
time reunite under the royal sceptre most of the scattered elements of
Hellenism. His personal relations with King Constantine were, however,
understood to be wanting in cordiality, but the monarch was credited
with sufficient acumen to perceive where the interests of his dynasty
and country lay, and with common sense enough to allow them to be
safeguarded and furthered. It was on these unsifted assumptions that
the Governments of the allied Powers went to work.
One redoubtable obstacle to be dislodged before any headway could be
made was Bulgaria's opposition. In order to displace it, it would be
necessary to acquiesce in her demands for territory possessed by her
neighbours. And in view of the intimate relations, political and
economical, which the military empires had established with Bulgaria
and their firm hold over Ferdinand, even this retrocession might prove
inadequate for the purpose. According to a binding arrangement
between Serbia and Greece, no territorial concession running counter
to the settlement of the Bucharest Treaty might be accorded to
Bulgaria by either of the two contracting States, without the consent
of the other. And now Venizelos was asked to signify his assent to the
abandonment by Serbia of a part of the Macedonian province recently
annexed. This point gained, he was further solicited to cede Kavalla
and some 2000 square kilometres of territory incorporated with Greece,
to Bulgaria, in return for the future possession of 140,000 square
kilometres in western Asia Minor. It was stipulated by him and hastily
taken for granted by the Governments of the Allied States that these
concessions, together with those which Serbia and Roumania were
expected to make, would move Bulgaria to follow Russia's lead and
enter the arena by the side of the Allies. But before Venizelos's
readiness to compromise could be utilized as a practical element of
the negotiations, the Bulgarian Cabinet had applied for and received
an advance of 150 million francs from the two Central empires on
conditions which, in the judgment of the Greek Premier, rendered
further dealings with that State nugatory.
At the same time King Constantine, yielding to German importunity and
to personal emotions, adopted a series of measures of which the effect
would have been to discredit in the eyes of the nation Venizelos's
patriotism as a minister and his veracity as an individual. The upshot
of these machinations was the voluntary retirement of the Premier from
public life, the dissolution of the Greek Parliament, the accession
to power of a Germanophile Cabinet, and the frustration of that part
of the Allies' plan which had for its object the immediate
co-operation of Greece and the subsequent enlistment of the
neighbouring Balkan States. As yet, however, Greece was not wholly
lost to the Entente. Another opportunity presented itself which, had
it been seized by the Governments of Great Britain and France, might
yet have altered the course of Balkan history. But the acceptable
offer in which it was embodied by the Hellenic Government elicited no
response whatever in London or Paris. This was the last hope.
Thenceforward the Allies were constrained to rely upon their own
unaided exertions.
How they approached the problem thus modified, and to what degree and
in consequence of what technical occurrences the achievement fell
short of reasonable expectations, are matters which do not come within
the scope of this summary narrative of historic events. It may suffice
to contrast the belief, which in March 1915 was widespread--that the
Dardanelles would be forced and Constantinople captured in the space
of four or five weeks--with the circumstance that since then the
British troops alone had nearly a hundred thousand casualties and that
in the month of January 1916 it became evident that nothing could be
gained by further prolonging this painful effort, and the enterprise
was abandoned.
In spite of Turkey's hostility, the tone of the Allied Press lost
little of its buoyancy. Japan, who had declared war on Germany in
August,[78] had since captured Kiao Chau[79] and that achievement
coupled with the results of four months' warfare in Europe were held
to be promising. For Germany's original plan of campaign had been
foiled, her army driven back from Paris, and Austria had been defeated
in Galicia. If on the debit side of the balance nearly all Belgium and
nine departments of France had fallen into the enemy's hands, it was
some solace to learn that the military authorities of the Allies had
reckoned with all that from the outset. Every reverse sustained by
their arms turned out to have been foreseen and discounted by their
sagacious leaders. Then, again, it was argued that time was on our
side, enabling us to develop our resources, which are much vaster than
those of the enemy. To this way of looking at the situation the writer
of these lines opposed another. "There is," he wrote, "a small section
of the nation, men conversant with the aims, modes of thought, and
military, financial, and economic resources of the enemy, whose gloomy
forecasts in the past have been unhappily fulfilled in the present,
and who would gladly see more conclusive evidence than has yet been
offered that everything which can be done at a given moment to turn
the scale more decisively in our favour is being expeditiously
undertaken by the responsible authorities.
[78] August 23, 1914.
[79] November 6, 1914.
"They are afraid that the gravity of the issues for which we are
fighting, the telling initial advantages secured by the wily enemy,
the formidable nature of the difficulties in the way of decisive
victory, and the tremendous sacrifices which we shall all be called
upon to make before we come in sight of the goal, have not yet
filtered down into the consciousness of any considerable section of
the people." Many months later[80] Mr. Lloyd George re-echoed that
judgment when dealing with the Welsh miners' strike.
[80] July 1915.
But optimism continued to prevail among the allied peoples, who
through the Press proclaimed their conviction that ultimate and
complete success was a foregone conclusion. At the same time, however,
an eager desire to hasten this consummation found vent among a
considerable section of politicians, more particularly in France. And
one of the means by which they hoped to attain their goal was by
inviting Japan to co-operate with the Allies in Europe. As
"invitation" was the term employed, the peculiar manner in which the
idea was conceived hardly needs definition. To the Japanese themselves
the inference was patent and distasteful. Theretofore it had been a
dogma that France, Britain and Russia, being quite capable of crushing
Germany and Austria, neither attempted nor wished to draw any neutral
or Asiatic nation into the sanguinary maelstrom of war. And even now
it was held to be undignified to swerve from that doctrine. Help
therefore, it was contended, was not indispensable to victory, it was
merely desirable from the humanitarian standpoint of putting an early
end to the campaign and sparing the lives of millions.
French statesmen of the calibre of MM. Pichon and Clemenceau pushed
into the foreground of international politics this question of Japan's
military intervention in Europe. An organized Press campaign was
carried on in several of the most prominent daily papers and reviews
of Paris.[81] Striking arguments were put forward in support of the
thesis that Japan's co-operation in Europe is desirable, and the
inference which many readers were encouraged to draw was that if the
aim had not yet been attained, failure should be ascribed to the
statesmanship of the Allies, which was deficient in sagacity, or to
their diplomacy, which was wanting in resourcefulness. M. Pichon, in a
masterly article in the _Revue_, wrote: "I am one of those who hold
that (Japan) could bring to us here on the European continent an
incomparable force, and I remain convinced that the Japanese
Government would like nothing better than to respond to the appeal of
the Triple Entente Powers if these requested its collaboration for
future combats."[82]
[81] In the _Petit Journal_, the _Homme Enchaine_,
_l'Illustration_, the _Revue Hebdomadaire_, and the _Revue_.
[82] Fevrier, _Revue_, 1915, p. 195.
The idea was that Japanese troops should come to southern Europe,
combine with the Serbs and create a new front there. This diversion,
it was contended, would transform the slow and costly siege war and
give the Allies access to Germany. And these decisive results could be
achieved by an expedition of less than half a million Japanese
warriors.
When it was asked what motives could be held out to Nippon potent
enough to determine her to embark on such an enterprise, the reply was
that she had a positive interest to undertake the task. For by
contributing to the defeat of Germany in Europe she would free herself
from Teutonic machinations in the Far East. The Allies would, of
course, have to promise her territorial compensation commensurate with
her sacrifices. And after the conclusion of peace Japan would extract
from Germany not only a sum big enough to cover all the expenses of
the expedition, but also a heavy war indemnity. Over and above this,
France and Britain would enable her to float on easy terms a loan of
some three hundred millions sterling, as a moderate return for the
three or four months curtailment of the war which costs the Allies
nearly a hundred and twenty millions a month. Lastly, Japan's horn
would be vastly exalted and her prestige increased by her
participation in the most tremendous conflict recorded in history.
Considered on its merits the enterprise impressed one more by its
arduousness than by the tangible advantages it offered to either of
the interested parties. The technical difficulties were many and
well-nigh insurmountable: the lack of transports, the distance at
which the Mikado's troops in Europe would be from their base of
supplies, and the length of time that must elapse before they could
replenish their stores of ammunition, whether these were drawn from
Tokyo or manufactured in Europe. And half a million fighting men,
however well trained, would represent but a drop in the ocean when
flung against the millions to whom they would be opposed.
Still more decisive was the question of motive. Why should the
Japanese sacrifice their brave soldiers? For the sake of territory
which they do not yet covet, or of prestige which they enjoy in a
superlative degree already? Although chivalrous and highly impressible
to everything that can appeal to a high-minded people, they are also
practical and far-sighted and are not to be lured by a will-o'-the-wisp.
They had already assisted the Allies in the Far East and performed
their part admirably.
The Japanese army is made up of patriots whose lives belong to their
country. To their spirit of self-sacrifice there are no bounds. And
that this splendid organism should be implicitly set down as a band of
mercenaries capable of being bought and sold is more than its leaders
can brook. The idea that mere money or money's worth could purchase
Japanese blood is resented by our Far Eastern Ally. Between Europe and
Asia Japan is the connecting link. Her people are endowed with some of
the highest qualities of the European and the Asiatic. Their
civilization is ancient and refined, and they understand and
appreciate that of Europe. The chivalry of the Samurai is recognized
universally. Their respect for their plighted word is scrupulous. And
their tact and moderation have been demonstrated time and again during
their relations first with Russia and then with the United States.
Japan's immediate task lies in the Far East, and to that region she is
minded to confine her activity, as was shown by the pressure which she
soon afterwards put upon China. None the less, it is symptomatic of
feelings which are still inarticulate and of currents which flow
beneath the surface, that more than once of late the Russian Press has
called for a defensive and offensive alliance between the Tsardom and
Japan.[83] That it will come and exert a noteworthy influence on the
politics of the world, is the firm conviction of the present writer,
who has had the good fortune to contribute more than once to bring the
two Powers closer together.[84]
[83] Cf. _Novoye Vremya_, June 26, 1915.
[84] See Hayashi's _Secret Memoirs_.