beyond the domain of pure finance, and appeals are made to what for want of a better term may be called the psychology of nations. Where the light of science sometimes but feebly shines, men resort to rhetoric for argument, passions are apt to inflame, and dangerous international hatreds to develop.

3. At the outset three types of international indebtedness may be distinguished:

(1) Where a State contracts a debt towards the members of another State, but the State to which the lenders belong does not guarantee or take any political cognisance of the debt owed to its subjects.

(2) Where a State obtains a loan directly from another State or raises it from the subjects of that State, under a guarantee from their Government, with the avowed object of applying the loan to its own interest and self-development. (3) Where a State obtains a loan from another State or from the subjects of that State for the avowed purpose of war.

The procedures indicated in (1) and (2) need not detain us; they are commonplaces of the ordinary money market; and no one ever dreams of questioning the reality of the indebtedness. War loans, however, granted by one State to another in a common war effort fall into a different category from the two preceding. Sometimes the loan may be dictated by a vague complex of feeling called national sympathy, and sometimes by the feeling that the general political interests of the State granting the loan demand the favouring of one of the opponents. If the favoured nation be annihilated in the struggle, the debt can only be regarded as a bad one; but history tells us that such debts have been acknowledged and paid when the favoured nation emerged victorious from the struggle. A reference to this will be made in paragraph 7. Where, however, the lending nation enters into the arena of war and shows thereby that the borrower was not fighting solely for his own, but for their mutual interests, the question of adjustments, subsequent to the conflict, becomes singularly difficult. The interaction of many complex mental make-ups determines the point of view of a nation; in other words, the attitude of a nation towards these matters depends on the psychology of the nation. The more one sees of public opinion the less one likes it, as it is always apt to be unbalanced,

going first to one extreme and then to the other. Nevertheless the Executive, especially that of the great and friendly Republic, the United States has to attach great importance to such opinion, which determines the government of the country. Public opinion acts in different ways in different countries thus in the United States, as contrasted with Great Britain, public opinion is composed of different elements and it operates in a very different environment, slowly, and far from the problems of Europe.

I. LOANS AND SUBSIDIES TO THE UNITED States from France

4. During and immediately following the American War of Independence France made four loans to the United States. These loans were as follows:

1 Congressional Record, 68th Congress, Second Session: Speech of Hon. William E. Borah of Idaho in the Senate, Jan. 22, 1925.

2 The livre was a money of account, just as the tael is to-day in China. The silver livre at the time of Charlemagne weighed 367 grammes and was worth more than 78 francs; at the time of the establishment of the metric system its weight was less than 5 grammes and it was worth something less than the modern franc at par.

These loans, according to the American Treasury, both as regards principal and interest, were ultimately settled in full. All amounts still unpaid in 1795 were converted into domestic loans bearing interest at 4 per cent and 5 per cent per annum. Of the total amount of $6,352,500 the sum of $4,327,600 was repaid by 1795, and the balance of $2,024,900 was refunded in 44 per cent and 5 per cent domestic (American) stock. The 4 per cent stock was repaid between 1807-8, while the final payment was made on the 5 per cent stock in 1815. In addition to these loans there were certain subsidies granted by the French King to the United States. In these subsidies Spain participated to the extent of one million livres. The amounts of these subsidies were as follows:

The subsidies, therefore, amounted to $1,996,500, and of this sum the subsidies from France amounted to $1,815,000. The American Treasury point out that there was never any mis

understanding over the gratuities, amounting to 8,000,000 livres, granted by the French King to the United States through Benjamin Franklin in 1777 and 1781, and the adjustment in 1795 shows this to have been the case. In the subsequent settling of claims between the two countries no reference is made to any supposed debt to France originating in the support given by France to the United States in the War of American Independence. The earliest of these Treaties between the two parties is dated 30th September 1800, followed by that of 30th April 1803, ceding Louisiana to the United States. The Treasury Memorandum adds that: "A dispute, however, arose between Beaumarchais and Congress over the claims of the former. He made large shipments of munitions and supplies to this country for the use of the Revolutionary Army aggregating over 6,000,000 livres, according to Bayley's history of national loans of the United States. These were afterwards the subject of claims presented by Beaumarchais and his heirs. Settlement was finally made in 1835 by the payment of 810,000 livres to his heirs. Mr. Bayley made a careful investigation of the claims of Beaumarchais against the United States, and in stating the account in the volume referred to shows an overpayment by the United States of 1,426,787 livres (about $250,000)." 1 Congress in consideration of the services of General Lafayette, in the War of the Revolution, authorised the payment of the sum of $200,000 and granted to Lafayette one township of land, to be laid out and located under the authority of the President, in any of the unappropriated lands of the United States. This was approved 28th December 1824.2

"1

II. INTER-ALLY DEBTS IN THE NAPOLEONIC WARS

5. In the struggle against Napoleon Great Britain was the chief banker of her European Allies as in the World War of 1914-18, except in one essential respect, viz. that she herself was obliged to borrow from the United States. It is interesting to examine the inter-Ally debts of this period.

From 1792 to 1817 the sum of £57,153,819 was advanced by

1 Memorandum of loans made to the United States during and immediately following the Revolutionary War (Congressional Record, Jan. 22, 1925).

2 United States Statutes at large, vol. 6, 9. 320 (18th Cong., 2nd sess.).

6

way of subsidy or loan to foreign States by Great Britain.1 Of this sum £6,820,000 was in the form of loans, and the remainder almost entirely in the form of subsidies.2 The loans were made up of two loans to the Emperor of Germany (Austria), one in 1795 of £4,600,000 and the other in 1797 of £1,620,000, and one loan of £600,000 to Portugal in 1809. In the Convention of 1795" His Majesty engaged to propose to Parliament to guarantee the regular payment of the half-yearly dividends of £4,600,000 to be raised in this country for the Emperor of Germany, and the Emperor of Germany engaged to make provision for these payments so that those payments should never fall as a burden on the finances of Great Britain'". The half-yearly payments were made regularly for three years only, and from that date (1st May 1797) the whole charge fell on the British Exchequer. In regard to the Imperial Loan of £1,620,000 (1797), an Act of Parliament guaranteed the payment of both interest and sinking fund. The loan was raised in order to pay advances which had been made by the British Government to the Emperor. No provision was made by Austria for the payment of the halfyearly charges, and the cost was defrayed from the British Exchequer. In 1823 a Convention was concluded between Great Britain and the Emperor of Austria for the liquidation of the claims of Great Britain, and the British Treasury agreed to the Austrian proposal of £2,500,000, and in 1824 an Act of Parliament to that effect was accordingly passed. The total burden entailed on Great Britain by the Imperial Debt up to 5th January 1824, after allowing for the net repayment by Austria, was £13,459,444 16: 8. "Of this settlement", says Chisholm, "there is little more to be said than it is to be supposed the British Treasury made the best they could of a bad bargain. They had to pay the usual penalty of becoming the security for a friend, by far the greater portion of the consequent charges having to be defrayed by them at their own cost." 5 Portugal

:

1 See Appendix to this chapter.

2 Vide p. 681, Accounts of the Net Public Income and Expenditure of Great Britain (Part 2, House of Commons Return 366. 1, 29th July 1869). This return is usually known as "Chisholm ", who was the chief clerk of the Exchequer mainly responsible for the work. The two volumes are indispensable to every student of British finance.

3 Act 37 Geo. III. c. 59.

4 Act 5 Geo. IV. c. 9.

5 Chisholm, op. cit. vol. xi. p. 550, cp. p. 681.