With taxation on a really sound basis no further sacrifice would be involved by the debt charge, and no diminution of the nation’s wealth or consuming power, which will depend, as always, on its output of goods and services; but only a transfer of consuming power from taxpayers to debt-holders in accordance with the sacrifice made by the latter during the war.  What we produce as a nation we shall consume as a nation, subject to the extent that we financed the war during its course by operations abroad.

These operations were twofold.  We sold to foreigners part of our holdings of foreign securities, thereby and to this extent paying for war cost out of capital—­out of the investments made by ourselves and our forbears in America and elsewhere.  Mr Bonar Law, in a recent interview in the Observer, stated that we had sent back to the United States practically the whole of our holdings of American securities to be sold or pledged as collateral for loans, and that the value of them was three billion dollars—­L600 millions sterling.  Any of them that have only been pledged can presumably be used to meet the loans raised as they fall due, and so will lighten our burden in the matter of repayment.  These loans raised abroad are the second mode of foreign financing.  By it we had raised up to November 9th nearly L1300 millions, as shown by the Economist’s table, and to that extent we have pledged our future production and that of our posterity, to meet the annual service for interest and repayment.  On the other hand, all this sum and more we have (as shown above) lent to our Allies and Dominions, so that the ex-Chancellor was well justified in his boast that we had only borrowed to finance our Allies, and that we had been self-sufficient for our own war cost.[1]

[Footnote 1:  Budget Speech, Parliamentary Debates, vol. 105, No. 33.]

In other words, all that we needed for the war we were able to produce ourselves, or to obtain in exchange for our produce and assets.  On paper, therefore, our position as a creditor country is only impaired by our sales of securities.  But that is only so on paper.  In fact, the loans that we have raised abroad are good debts that have to be met to the last penny, and are a first charge on our future output, but the advances that we have made to our Allies, much harder hit than we are by the war, are assets on which we cannot depend.  They were taken in our balance-sheet above at half their face value, but there is much to be said for writing them off altogether and tearing up the I.O.U.’s of our foreign brothers-in-arms.  Their need is greater than ours, it would be little satisfaction to receive interest and repayment from them, and the payment due from them, involving difficult problems of taxation for them, would not help the good relations with them which, we hope, may be a lasting effect of the war.  And such an act of renunciation on our part would do something towards a restoration of the spirit with which we entered on war, a spirit which has been seriously demoralised during its course, largely owing to the results of our faulty finance, which encouraged profiteering in all classes.