THE British Government at the close of the fiscal year ending March 31, 1934, was able to show the largest surplus which it had had in ten years. Yet in the following June and December, when the semi-annual instalments on the war debts to the United States became due, no payments were forthcoming. This was a new departure in British policy. Great Britain had been the first of the war debtors to negotiate a funding agreement with the United States, and from the time of its ratification in 1923 until the Hoover moratorium in 1931 the British obligations under this agreement were discharged to the letter. After the expiration of the moratorium in June 1932, the next debt instalment, due December 15, 1932, was also paid in full.

But 1933 brought a change in British debt policy. The government paid only about 10 percent of the scheduled instalments for that year, offering small "token" payments solely to avoid being adjudged in default. On the pay dates in 1934, and again in June 1935, it failed to offer even "tokens," since these, under new American legislation, would no longer spare it from being adjudged a defaulter. The Johnson Act of April 13, 1934, had been officially interpreted as meaning that any war debtor thenceforth in arrears was a defaulter and was debarred from further borrowing in the American market until all payments in default since the passage of the law had been liquidated.

To rehearse the details of the war debt controversy may seem to some people like digging up bones in an old churchyard. Yet because of prevalent misunderstandings and the difficulty of obtaining information free from propaganda of some sort concerning the status of Great Britain as a war debtor, the following table may be of some interest. It shows: 1, the British surplus or deficit at the end of each fiscal year (March 31) since the debt payments began; 2, the combined payments due the United States in June and December following; and 3, the amounts actually paid on these debts. (British figures converted into dollars at average rate of exchange each year.)

Calendar Treasury Surplus (+) or Debt Payments due Amounts Paid
Year Deficit (-) March 31 June and December on Debts
1923 +$464,928,000 $161,000,000 $161,000,000
1924 + 213,344,000 160,310,000 160,310,000
1925 + 17,773,000 160,620,000 160,620,000
1926 - 68,225,000 160,900,000 160,900,000
1927 - 178,333,000 160,150,000 160,150,000
1928 + 20,844,000 160,400,000 160,400,000
1929 + 89,595,000 160,590,000 160,590,000
1930 - 70,581,000 160,780,000 160,780,000
1931 - 104,436,000 159,940,000 65,970,000a
1932 + 1,268,000 161,100,000 95,550,000b
1933 - 136,863,000 176,120,000c 17,500,000
1934 + 156,985,000 193,621,000c 0
1935 + 96,738,000d 193,621,000c 0
a Only the instalment due on June 15 was paid this year, because of Hoover moratorium.
b June 15 instalment postponed by moratorium.
c Amounts due under the debt agreement, plus instalments on deferred payment under moratorium.
d This is the comparable surplus. The reported surplus does not include allocations to the new Sinking Fund.

This exhibit shows that for eight years, some of them fat and some of them lean in a fiscal sense, the British Treasury regularly paid its instalments. Sometimes, as in 1924 and 1929, there was a large surplus in March in spite of debt payments in the preceding June and December. At other times, as in 1927, there would have been a deficit whether payments were made or not. Without the moratorium, the slight surplus in 1932 would have been a substantial deficit, and if full payment had been made in the following years there would have been no surpluses in 1934 and 1935.

It was a coincidence that the year of the British Treasury's first complete default on the war debts was also the year of its largest surplus since 1924. This matter did not escape the attention of those members of Congress who seldom miss an opportunity to castigate the war debtors for their sins of omission. They were impressed by the similarity between the amount of this surplus and the amounts due on the American war debt in the same fiscal year. If full payment had been made in June and December 1933, the large surplus of the following March would have been cancelled; for by another coincidence the combined "token" payments and surplus, amounting to $174,548,000, almost matched the $176,120,000 which Great Britain was supposed to pay.

This situation evoked sarcastic comment in the Senate, especially following the exultant statement of Mr. Neville Chamberlain, Chancellor of the Exchequer, that Great Britain had now finished the sad story of "Bleak House" and was beginning the opening chapters of "Great Expectations." Senator Robinson of Indiana asked, "How many individual debtors in this country could not have 'great expectations,' if with a careless wave of the hand they could get rid of the mortgages on their homes, their grocery and furniture and clothing bills, and spend their money for new purposes without regard to valid existing debts?"

In view of the surplus in 1934, the British income tax for the ensuing year was reduced by 10 percent (from 5s. to 4s. 6d. in the pound), and this brought further American criticism. The British Treasury was alleged to be seeking to wipe out the surplus in order to be able to say that there were no funds with which to pay the war debt. And this "at the very time when America is cutting down her payments to her soldiers" and "paring down her pensions to widows." The fact that no one in Congress took issue with such statements would seem to indicate that most members concurred in these views, and that others were either indifferent or else deemed it good politics to refrain from defending a foreign government -- especially a debtor government.

Since 1931 the British Government has omitted debt payments from its budget. But it has also made no provision in the budget for reparations from Germany or for payments by Britain's own war debtors, of whom there are no fewer than fifteen. The "all-around cancellation" which the British had repeatedly advocated before the funding of the war debts is now practically in effect, even if it is not legally recognized.

W. O. S.

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