20 
LAND 6? WATER 
October 17, 1918 
Debt Redemption: By Hartley Withers, 
THIS war— not only the biggest and the costliest, 
but one of the \Vorst financed that the world has 
ever seen — has been paid for to a varying extent 
in different countries, by a modern improvement 
on the mediaeval system of debarring the currency. 
The monarch of the Dark Ages, when in need of funds for 
war purposes, was wont to put base metal into his coinage 
to make it go further, and so was enabled to get round an 
awkward corner, until his subjects and others from whom 
he bought found him out, and adjusted prices. Govern- 
ments in these days of economic enlightenment would scorn 
such devices, especially as they are made unnecessary by 
the invention of the printing press, which does the job much 
more cheaply. They just print hatfuls of new notes, or, 
by borrowing from banks instead of from investors, create 
with the help of ,thc banks new credit ; these new forms of 
money, or buying powers, are added to the existing stock, 
and as' there is little or no addition to the stock of goods 
•to be bought, the amount of buying power in relation to 
goods is increased, and so prices go up by the process that 
is called inflation of currency ; everybody's money buys less, 
and the depreciation of currency is just as effectively done 
as it was by the medixval monarch. The Government, by- 
reducing everybody's buying power and increasing its own 
by its paper issues, gets the goods that it needs. 
The evils that result are obvious. Prices go up, the war 
costs much more than it need have cost, the public, wliich 
does not understand what has happened, is angry and sus- 
picious, strikes happen because workers think they are being 
exploited, and numbers of well-meaning people come to the 
conclusion titat a new way of creating wealth has been dis- 
covered, and that all that is needed to make the world happy 
and comfortable is to give it enough paper to handle, for- 
getting that comfort can only be increased really by increasing 
the output and improving the distribution of good things 
that we need^good food, clothes, houses, fuel, transport, 
and all the other goods and services that we consume. 
So pernicious is this effect of the bad example set by the 
warring Governments that anyone who is nowadays cursed 
— however undeservedly — with the reputation of being a 
financial expert is continually bombarded with highly ex- 
plosive memoranda from gentlemen who have discovered a 
way of dealing with the cost of the war, and whose schemes 
nearly always boil down into a proposal for paying off the 
debt with new currency. Sometimes these schemes get into 
■print. A notable one, because it is on a magnificent and 
■international scale,. is contained in Mr. A. E. Stilwell's book, 
called The Great Plan : How to Pay for the War," lately 
published by Messrs. Hodder & Stoughton. I have some- 
times wondered whether Mr. Stilwell is not an incorrigible 
humorist, who is taking a gigantic pull at the legs of all the 
extant Finance Ministers. But I have reluctantly decided 
that he means to be taken seriously. 
This is his great plan. Each nation appoints an additional 
member of the Cabinet, to be called the Secretary of Peace, 
and the various Secretaries of Peace form the first Inter- 
national Congress, "to meet as soon as possible." Each 
nation in the meantime totals up its own war cost, by adding 
the total that it has raised in war taxation to the total of 
its War Loans. Neutrals, who have had to mobilise, etc., 
are included in the programme. If the total of all the war 
costs is £25,000 millions sterling, then the International 
Congress authorises an issue of loo-year Sinking Fund Bonds 
for this amount. These bonds increase in value i per cent, 
each year for fifteen years. When they are ready, they 
are distributed to the nations to the amount of their war 
cost. With these bonds each nation is able to deal with 
its war debt, since, as we have seen, each one receives the 
exact amount that it has spent on the war. First of all, 
the nations pay off their debts to one another. "We will 
assume," says Mr. Stilwell, "that all the financial repre- 
sentatives of the nations when the distribution of certificates 
is made are seated at the same table. As soon as the dis- 
tribution is made, all the nations to which England has 
made allowances . . . hands the English representative 
enough of their shares of these certificates to liquidate at 
once their nation's debt to England. If the United States 
has advanced to England 200 million pounds, tlren the 
English representative hands to the representative of the 
United States certificates to that amount." And so on all 
round. " All debts between nations are at once cleared off 
at this meeting— a wonderful settlement of debts, and a 
payment of debts that might otherwise never be made in 
some cases, or that could be paid only after long years of 
struggle on the part of the weaker nations." It is, indeed, 
a most wonderful settlement of debts, because, so, far, it is 
not a settlement at all ; it is merely an exchange of one 
kind of security for another. For instance, the United 
States, which previously held England's promise to pay, 
which it rightly regards as good to the. last penny, now holds 
International Bonds instead, for which all the nations 
involved, some of which will not be nearly as solvent as 
England, will be liable. These bonds are to be secured as 
follows. All the contracting nations will agree to reduce 
their armies and navies to a certain proportion of their 
population, and the amount that they thus save, on the 
sums that they spent on armaments before the war, is to be 
paid each year into a Sinking Fund, which will be paid to 
the holders of the International Bonds in proportion to their 
holdings. If they fail to do this, they are to be proceeded 
against, first, by boycott and, finally, by armed force. But 
if, as seefns very likely, the nations that have more to pay 
into the International Sinking Fund than to receive from it 
(that is, the debtor nations) are in a majority on the Congress, 
and come to the conclusion that -they can make a better 
use of the money saved by reduction of armaments than by 
"muddling it away in paying their debts," as Sheridan said, 
how can the creditor countries rely that their debts will 
be paid, or that the Congress will put in force the proposed 
measures against recalcitrant debtors ? If not, the "wonder- 
ful settlement" would ultimately become very much like a 
composition of debt on the part of the less solvent peoples 
engaged in the war. That such a composition may have 
to be faced is possible enovfgh, but we shall not improve 
matters by giving one security of questionable value in 
exchange for another, and then pretending that debts have 
been paid. 
How to Liquidate Debt 
Still more "wonderful" is Mr. Stilwell's proposal for dealing 
with internal debts. Having taken its net share of the 
International Bonds, each nation will then proceed to issue 
currency against them. England, for example, is supposed 
to have in hand, after paying her debt to the United States, 
and after all the nations have paid their debts to her, 5,400 
million pounds of these World Bonds. "This amount of 
bonds is deposited in the Bank of England, and the Bank 
issues an equal amount of currency in notes of £5, £10, £100, 
£r,ooo, £5,000, etc." This currency is handed to the English 
Government, which "passes a law that one-fifth of its war 
loans is arbitrarily called in and pa^^able in ninety days, and 
each ninety days thereafter one-fifth becomes payable. 
Thus in five periods of ninety days all subscriptions to 
England's war loans are repaid. This is contrary to the 
terms in which the issues were made, . . . but if a nation 
has power to conscript wealth — and no one doubts that 
it has— in order to carry on war, it must also have the power 
to call in and redeem its bonds before they are due"— in 
other words, to cheat all the people who subscribed to its 
loans on terms which are to be set aside under Mr. Stilwell's 
proposal. But if it prefers not to compel the holders of 
War Loans to accept the Bond Currency for their stock, 
it could pay off all those who were willing to sell, and the 
remaining sum of Bond Currency could be " loaned to rail- 
roads, manufactories, and industrial enterprises." As the 
sums received from the International Sinking Fund come in, 
each nation is to use them in redeeming the Bond Currency 
at a premium,, to be derived from the premium at which the 
Bonds that it holds are redeemed. Thus the world, already 
suffering severely from the effects of inflation of currency, 
is to be flooded with an enormous mass of new currency 
the effects of which on prices is easily imagined, but does not 
seem to occur to Mr. Stilwell as an evil. He notes that 
"one of the first objections which will occur to the reader is 
that this plan involves inflation of currency." But he dis- 
misses this objection with airy insouciance. How prosperity 
is to be brought back by cheating debt-holders (who would 
be repaid in depreciated currency), and by pouring out a 
mass of new money with fatal effect on the prices of every- 
thing that we had to buy, Mr. Stil\yell does not demonstrate. 
Nor does he explain why, if printing paper has all the bene- 
ficial effects that he claims for it in highly rhetorical passages, 
he makes such elaborate provision for its redemption. If 
we can all be made happy by the printing press, why call in 
and destroy its beneficent output ? 
