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.
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 Chau79] 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.
“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 later80 Mr. Lloyd George re-echoed that judgment when dealing with the Welsh miners’ strike.
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 Clémenceau 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
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