﻿ The Balfour Note- John Maynard Keynes

(ii) The Balfour Note (1925)

The Balfour Note insists that our receipts from Germany plus our receipts from our Allies must equal our payments to the United States. When the Note was written, its effect was indeterminate. We did not know how much it would require France to pay, or the proportion that this would bear to what Germany would be paying France. Now we can make limiting estimates of both sums.

We have to pay the United States about £35,000,000 a year, rising to £40,000,000. The Dawes Scheme will yield, if and when it is in full operation, and after allowing for various prior charges, about £100,000,000 a year. France's share of this will be about £54,000,000, Italy's £10,000,000 (less at first), and ours £24,000,000. (I neglect the minor Allies because they would complicate the calculation and hardly affect the result.) Thus the Balfour Note demands that France and Italy should pay Great Britain not less than £16,000,000 a year. Since the aggregate debts of these two Powers to ourselves and to the United States respectively are about equal (our share of Italy's total debt is greater, and of France's less), we must assume that the United States will not settle for a smaller sum than what we receive. If the whole of Italy's share of Reparations is devoted to her debts, France is left, on these assumptions, with £22,000,000 to pay. In this case the net result of the Debt Settlements and the Dawes Scheme would be that the receipts from Germany would be distributed as follows:

 United Kingdom Nil. Italy Nil. France £32,000,000 United States[1] £58,000,000

Very improbable things are easier said than done. Who believes that this will ever be done?

But we have not yet reached the gravamen of my criticism of the Balfour Note. The above is what would happen if the Dawes Scheme is perfectly successful. If the Dawes Scheme is only partly successful, then, by the principle of the Balfour Note, France must make good the difference to ourselves and the United States. For example, if the Dawes Scheme produces half its maximum, which, in the opinion of many good judges, would be a considerable achievement, France will get less than nothing at all and more than the whole of Germany's payments will go to the United States. France would become, in fact, a deferred claimant on a third share of the Dawes Scheme, if the Scheme works very well, and a guarantor of Germany, if it works less well. Is not any one very silly who thinks that this can come to pass?

It is obvious that France will never agree to such a settlement. But suppose per impossible that she did. In this case Great Britain and the United States have, theoretically, no further interest whatever in the operation or productivity of the Dawes Scheme. France becomes the only interested party,—interested not merely as a creditor but as a guarantor who must make deficiencies good.

This fatal objection is necessarily inherent in the Balfour Note. It is of the essence of the Note that the less Germany pays, the more France shall pay;—that is to say, the less France is in a position to pay, the more she shall pay. Diplomatically and financially alike, this is topsy-turvy. It would never bring us cash; yet it would destroy our diplomatic authority as a moderator between France and Germany. The Foreign Office would have sold its influence for a mess of pottage which the Treasury would never taste.

The Balfour Note, therefore, is bad in principle. There can be no working settlement except on the exactly opposite principle, namely that the less Germany pays, the less France shall pay. The amount of France's payment must vary in the same direction as Germany's, not in the opposite direction. This was the principle of the suggestion, which I offered recently, by which France's payment should be a proportion of her receipts from Germany. According to current report, France herself has put forward just this principle through the mouth of M. Clémentel. I suggested that the proportion be one-third. M. Clémentel's reported offer would amount, on the assumption that the United States got the same terms, to about half my figure. But it does not follow that he would not offer more to obtain a settlement on these lines.

Such a settlement would increase, instead of diminishing, the interest of ourselves and the United States in the Dawes Scheme. We should have, between us, a bigger interest than France. We might, in this way, obtain a moderate contribution towards our American debt, corresponding to that part of it which we contracted, indirectly, on French account. We should certainly place ourselves in a strong moral and diplomatic position to claim a moderating and pacific influence in the Franco-German problems which still lie ahead.

1. Including her own direct share.

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