our national debt. The revenue of the Federal Government now amounts, in round numbers, to four billions a year. The debt receipt amounts for the present to 200 millions, more or less-say 5 per cent of the government revenue, possibly 6. It happens that for the last fiscal year the Government came out, quite unexpectedly, with a surplus substantially largersome 300 millions; and we are at odds with each other about its disposition. Nor does it matter much what we do with it. As regards reduction of our national debt, we are repeating the course of events which followed the Civil War of 1861-65. Then, as now, we began to pay off a great debt with speed and with ease; and now, as then, we are in a fair way to get rid of it in a decade or two. This unexampled procedure no other country has ever handled a public debt in this way-is due in but small degree, for either period, to surpassing financial leadership. It is the result of the growth of this industrial giant of ours; of an abounding and increasing prosperity, which gives us in many a way occasion to pause, to reflect, to consider what we shall do with our abundance of material things.

Consider, finally, what the repayments amount to in their possible effects on our foreign trade. What kind of effect they will have I shall presently indicate; here my question is, how great an effect? It happens that our imports it is these which will be primarily affected — at present amount to about the same sum as our Federal revenue roughly four billions a year. The debt repayments will again be 5 or 6 per cent of this sum total. Now the imports fluctuate from year to year by many hundreds of millions by much more than 5 per cent a year. These fluctuations trouble us not at all. The business

world hardly knows that they take place, and the public at large knows not and cares not, nor has it any reason for knowing or caring.

To sum up, the impressiveness of the figures when stated in suppositious capital sums is misleading. What actually comes to us- namely, the annual payment is little as compared with the national income, with the Federal Government revenue, with the country's foreign trade. If we get these receipts we shall not be made rich. If we do not get them we shall not be ruined.

II

So much as to the magnitude and proportions of the facts of the case. I turn now to their meaning for us. Two questions arise. So far as all this payment goes, be it great or small, is it to our advantage or is it not? The second question is different: not whether the payment is to our advantage, but whether it is right that we should receive it. There is an economic question, and behind that there is a question of justice. I say justice. Perhaps it would be better to say chivalry, or even longrun expediency—at all events something other than the bare matter of measurable gain or loss.

As regards the immediate economic aspects of the case, the underlying fact is that payment must come to us in goods. Of course the debt settlements are in terms of dollars, and we have to reckon in dollars. But it is the merest commonplace in economics that payment cannot come in cash, or that but the merest fraction can so come. If it did come to us in cash- that is, in gold-we should be embarrassed to know what to do with the money. Our Federal banking system already has more gold in its reserve than it knows how to use with advantage. But, to repeat, it is through goods, not

in money, that we must expect the remittances to be made. Our imports will become larger or will be made larger than they otherwise would have been. The increase will not be great relatively to the total volume of our foreign trade, as was just explained. But somewhat larger the imports will be. More goods will come in from abroad, and this is the way in which we shall really be paid.

No doubt the inflow of the additional imports of goods will be staved off for a time by loans, such as we have been making to foreigners in these post-war years. We used to be borrowers from Europe; now we are lenders to all the world. Like so many other things, our international credit position is being turned topsy-turvy. These lending operations of ours are not likely to cease, though they may not continue indefinitely at the pace of recent years. They bring possibilities of postpone ments of the rise in imports, of temporary overlappings and adjustments, by which our foreign trade for the next few years will be affected in ways not easy of prediction. These minutiæ are interesting and sometimes perplexing to the economist and the financier, but do not affect the outstanding fact: it is in goods that we must take payment.

The goods, however, will not necessarily come in from the countries which have to make the payments. They will probably come by indirect ways from other countries. English people will not sell us many English goods direct. They will send their goods to other countries- the Orient, South America, Australia. We shall then buy goods in those countries, and shall be able to pay for their goods by utilizing the debt remittances to our Government. This sort of indirect trade is going on all the time. Our imports now consist chiefly of raw materials and tropical commodities, most of which come in

free of duty. It is imports of this very class that are likely to be swelled in consequence of the debt payments. We shall get more tea, coffee, raw silk, wool, jute, rubber, and the like.

No doubt the whole of the additional imports ascribable to the debt payments will not be accounted for in this way. Some share will come to us in the form of manufactured goods sent directly from England, France, Germany. Certain lines of American industry will experience additional competition from their European rivals. Consequences of this sort, even though less in quantitative importance than is commonly supposed, must be faced as a probable result of the debt payments. So far as this direct inflow of goods from Europe takes place, it raises the question whether added competition from abroad is on the whole a good thing for a country or a bad thing. The answer to that question depends upon one's entire attitude with regard to foreign trade and the maintenance of a system of very high protection - a much larger topic than I can go into on this occasion. I will merely remark that in my judgment the consequences do not all run one way. In the main they will not be harmful to us, in some part they will be. But in any event they will not be of great moment.

I may remark, in passing, that the free traders and tariff reformers are disposed to exaggerate the importance of this particular matter for the problems which interest them. They urge that, since payment must be made in goods, we must make it possible to receive the goods; whereas, by imposing tariff barriers, we make it impossible to receive them. A necessary corollary of the debt payments, in their view, is a lowering of our customs duties. Not quite so, for the reason just adduced. True, our high duties do make it somewhat harder to send in

the goods directly from the remitting countries, and in so far impede the process of payment. I am entirely in sympathy with the movement for cutting down our high protective duties; and am willing to admit, too, that there is an obvious and indeed amusing inconsistency in our policies. We cannot insist on the debt payments and at the same time keep out European manufacturers from our own markets and also boost our own exports of similar manufacturers to their outlying markets. But it is all a question of more or less, and rather less than more. Some special kinds of goods have always been coming in from European countries. Probably more of these quasi-specialties will be sent us. The main inflow will be of the so-called noncompetitive articles - tropical products, raw materials, and the like. The staunch protectionists can hold to their policy, if they will, and yet not be seriously troubled by the consequences of the debt payments.

a

There is, however, another aspect of the process of payment in goods which must make us pause. We have to remember that from this point of view there is a contrast with the past resemblance in one way, but a disquieting contrast in another. When we made the loans to the Allies in 1917-19, we handed over to them not cash, but goods. This is the resemblance: our loans were made in goods, just as the repayments are to be made in goods. But now the contrast. We charged high prices for the goods that we sent out in 1917-19. 'Charged': this is a misleading term. No one deliberately charged high. But the plain fact is that the circumstances of those years. were such that the goods which the Allies got from us- the only things they received- were debited to them at very high rates. While we put vast dollar funds at their disposal, they got

few goods per dollar. Now the price situation is quite otherwise; and it will be otherwise, so far as we can foresee, for many years to come. Prices have gone down to two-thirds of what they were when the loans were made. Our debtors, to make up the same dollar values, must send us 50 per cent more of goods than they received - one half as much again. We are profiting as a people by the revulsion in prices since the great upheaval; not deliberately or intentionally, but profiting

we are.

III

So much about the bare economic aspects, on which I feel qualified to speak with some assurance. I turn now to the other aspect of the problem, on which my qualifications cannot be those of the specialist. What can be said of the equities of the case?

First note that we that is, the constituted authorities have modified our position within the last few years.

When Congress in 1922 passed the first act for regulating the debt payments, it was provided that the commission then established for arranging the settlements should accept nothing but payment in full. The principle on which Congress legislated was that a debt is a debt, and that a debt should be paid. The letter of the contract should prevail. And this principle was virtually followed in the settlement with Great Britain. Virtually; it was not followed without some slight qualification. The total payments made by Great Britain can be figured out to be something less than the face value of the debt owed to us by Great Britain. But the deficiency is slight. To all intents and purposes it may be said that Great Britain met us on our own ground. Since the United States took the view that this was a plain and simple debt, Great Britain, in a period of

acute depression in her industries, of painful recovery from enormous losses, of sad uncertainty about the future, conformed to the letter of the law as laid down by the United States. No complaint, no arguing; if you will have it so, let it be so.

When it comes to the other countries, however, our procedure has been different. With Belgium, Italy, France, not to mention the smaller countries, we have dealt in quite another spirit. With them we have regarded what is called their capacity to pay. Ordinarily, when one deals with a debtor and proceeds on the basis of the letter of the law, one does not regard his capacity to pay. Or it is regarded only if he is bankrupt and the creditor is in the position of simply taking what is left of his assets. We have not acted in this way with Belgium, Italy, France. We acceded to a compromise-even proposed it. With all these countries the compromise means, whatever be the actuarial method of computation, that we are accepting very much less than the amount of our loans. Congress has ratified the compromises (all except that with France, still to be ratified by France herself). Thereby it would seem that Congress has come to a state of mind not the same as that which prevailed when the original debt settlement act of 1922 was passed.

This acceptance of something other than the letter of the law would seem to carry with it an admission that, after all, the principles of settlement are not easy to define. Shall we treat these obligations as plain ordinary debts, to be collected in the same way and in the same spirit as debts between man and man, and have no regard for past community of spirit, for good relations in the future, for things other than the bare face of the contract? We are often told that it is healthy for people to pay their debts; nay, it is to their own

advantage, if they wish to keep their credit good and perhaps borrow again another time. So it is, no doubt, in the ordinary transactions of trade. It is so, too, as regards those international loans which are extended by individuals (banking houses and their customers) to foreign Governments. Otherwise the fountains of business credit would be dried up. But were our loans to the Allies of this character? Were we moved by any such considerations as apply to ordinary loans? And were the Allies, on their part? Let us not forget the past, the very recent past. Surely we made these loans not as investors, in the way of a bargaining contract, but as peoples to peoples for mutual aid. We thought it our duty, and our interest also, to stand with the Allies in the dreadful struggle. For the first year of our participation the only effective thing we could do was to put at their disposal our supplies of goods. The form of loan was chosen because it was the easiest and quickest way to get the thing done. Doubtless in the rush and pressure of the crisis no deliberate choice was made. It was all a matter of getting things done. And so it was with the Allies. Loans if you will; anything that brings instant help.

Consider the loans for a moment, as it has been urged they should be considered, from the point of view of the debtor's own ultimate interest. Let him repay for his own good, we are told; if he repays now he will be able to borrow another time. Quite true as regards ordinary business operations. But in the stress and ferment of war is any such reflection or reckoning ever made by either party? Does anyone suppose that, if another such conflict should come (God forbid!) and if we were again compelled to align ourselves, we should hesitate to do anything and everything that might help the cause we deemed right; that we should debate

whether to lend or not lend, to give or not give, to go ahead or to dicker, because once upon a time, in the forgotten past, another loan had been made, also in a great war, and had not been treated either by us or by our associates as a business contract? It is in no such spirit as this that individuals or peoples deal with each other when war comes on.

Reasoning and cold-blooded calculation, however, help little on the aspect of the case we are now considering the equities. We get scant aid from any analysis of the bases of contractual obligations, from historical precedent, from economic lessons. The matter reaches into higher realms. However we deceive ourselves by focusing attention on the measurable gain or loss, whether for ourselves or for our allies, we cannot but be moved at bottom by conscience-by sentiment if you please. My own conscience is not easy. My sense of self-respect as an American is not happy. I find myself admiring the attitude of Great Britain and not entirely admiring our own attitude. For many, many dreadful months we were unable to aid our allies with anything except money and loans. We did this cheerfully. Surely we then had no thought of being engaged in purely commercial transactions. We gloried in being a rich and powerful country, and thereby in a position to aid our almost exhausted allies and friends. Has that spirit entirely disappeared?

to ours (payments spread over a long series of years). But there is a marked difference in degree, and a difference even more marked in spirit. She too is willing to accept annual installments; but the sums are very much less than those we call for. They are not half so much from France, barely a quarter as much from Italy. And what is more on my conscience she agrees to reduce these payments exactly in the proportion in which her own payments to us may be reduced. If we cut down, she will also cut down to the same extent. Early in the post-war negotiations she announced that she would proceed on this basis; and thus she is still ready to proceed.

One's attitude on the whole question is necessarily influenced by one's hopes or fears, confidence or despair, about the post-war situation. Did we really do well to enter on the war? Are we quite disillusioned about the consequences? Does the future still seem as dark and uncertain as it did three or four years ago? He who believes it was all in vain, that the world was bad and still is as bad as before, will acquiesce in turning our backs on the old allies. He will be disposed to deal with them at arm's length, collect what can be collected, disregard their plight, disregard, too, any feelings they may have about us. But he who believes that good is stirring, and that the world may be starting on better ways; that something is due from us to improve on the bad pastpast he will ask himself how this problem can be dealt with so as to promote the good that stirs and foster between nations a spirit of mutual help.

I have no proposal to submit. The time is not ripe for conferences, negotiations, revisions. We in the United States have not rid ourselves of the lamentable partisan divisions and entanglements which followed the war. At the present juncture, too, political