(Place of writing not indicated.)—States his views on the general situation, which he has arrived at independently, having had no opportunity for discussing them with colleagues.—It would appears to ‘the ill-informed and inexpert eye’ that all schemes for driving the Germans out of France which have hitherto been tried or suggested must be abandoned. The Anglo-French offensive, about which Joffre and French were optimistic, has failed. More troops would be required for the success of such a frontal attack, and they cannot surprise the enemy without lateral communications which enable troops to be quickly concentrated at a given point on an extended front, while the lavish use of high explosives was also found to be ineffective.—The kind of misjudged optimism associated with this campaign is dangerous to morale. It occurred to him that the Germans might be drawn up to Paris again by a calculated retreat, thus lengthening their line, and then attacked with hidden forces from the south, but the tactical difficulties involved and the current state of French feeling make this impossible.—Although high explosives do not lead to decisive victory, offensives unaccompanied by heavy artillery and plentiful ammunition only result in numerous casualties. Heavy guns, however, are scarce everywhere. The future of the war will largely depend on mechanical invention, but the success of any scientific surprise depends on it not being used until it is available in sufficient numbers to make its employment decisive, and it is unlikely that any such machines will be available for many months. Moreover, it is a waste of human material that attacks are unrelated in the different theatres of war. In view of these considerations, and since the Russians are, as he understands, incapacitated till next March, it is essential that they use the intervening time to prepare for an overwhelming action throughout Europe.—Since the war is likely to last a long time, finance will become increasingly important, but if they go on as they are they will not be able to endure long enough to ensure an undoubted victory.—The first problem is that the Government has been trying to prevent the people from feeling the effects of the war. It has been suggested that consumption might be curbed by heavy taxation or forced loans, but this would merely lead to demands for increased wages. Rather, an appeal should be made to the people to consume less, the import of unnecessary articles should be prohibited, and supplies should, if necessary, be limited. Before the war Germany had a commercial advantage in the lower standard of living of its people, represented by lower wages, and during the war this has lowered even further by the assent of the people to Government action tending to reduce consumption—a lesson of self-discipline which will be useful to the Germans at the end of the war, whatever happens. In Britain, conversely, the working classes are in more constant employment and their wages and standard of living are higher than ever before. ‘They must be made to feel the pinch of war.’ Unnecessary imports should be prohibited, and bread, meat, and perhaps other items should only be sold by card or ticket [i.e. rationed]. The reduction of consumption is specially important for Britain because it imports so much of what it consumes.—This policy must be accompanied by rigid economy in Government. He has urged the Chancellor of the Exchequer to undertake an inquiry with a view to reducing waste in public departments, something which Montagu cannot do by himself, but which can only be done by the Chancellor with the support of Cabinet Ministers, setting their loyalty to their own departments aside. The War Office and the Admiralty must be included in the inquiry. He is glad that public opinion is turning against systematic waste in camps and hospitals. In his view the housekeeping and cooking of ordinary regimental camps (at home, at least) should be done by capable women, not amateurs, and places like the Carlton and the Ritz, where people eat and drink luxuriously, should be closed.—Demands for extravagant pay must also be resisted. Many army officers are paid very highly, and the separation allowance paid to married men in the army is much greater than that paid by the Germans. The War Office’s tendency to pay a man at a rate as high as it has been at any time of his life, whatever his occupation, must be checked. The Royal Commission, chaired by [Henry] Duke, set up to issue compensation for damage sustained by the operation of the Defence of the Realm Act, should not be stopped, but the evidence heard by it should be ruthlessly published to pillory the unpatriotic. For instance, while the Commission rightly refused to compensate a man for damage to his sporting rights, they made an award of £10 to Lord Aberconway.—The time has also come to tackle the selfseeking and unpatriotic conduct of the joint-stock banks, who have constantly sought (though unsuccessfully) to obtain money from the Government or the Bank of England at a lower rate than they would lend it to the public, in order to increase their profits, and have not really been helping the War Loan. If they do not mend their ways, the Government should announce a rise in the interest on the loan to 5%, keep the subscription list open, and, when the banks’ business became impossible, intervene to guarantee their depositors, leaving their shareholders to suffer. Even now, it appears to be their intention to keep their dividends as usual, notwithstanding the serious depreciation in capital values.—The next problem is the American Exchange position. The British can only prolong the war by flooding America with gold, but this can only be done if the Russians and French agree to contribute a proportion relative to their own gold reserves as compared with those of the British. If the Allies’ gold cannot be mobilised, they must resort to inconvertible paper. They can, of course, sell securities in America, but they do not want to flood America with her own securities or permanently diminish Britain’s wealth by parting with all its American investments. However, means of controlling the volume of sales by altering the minimum price in England are being investigated. Suggests issuing a War Loan free of income tax in Ottawa, in the hope that America would also subscribe to it.—Efforts to restrict the resources of the Germans must continue. Much trade with Germany still goes through London, including remittances for transactions from Germany to neutral countries, but it is difficult to detect because most of those involved do not know that they are trading with the enemy but simply take no trouble to ensure they are not. It can only be stopped by one or two successful prosecutions and by blacklisting certain Continental and American firms.—Despite all temptation, nothing must be done to make funds available for the Germans in America. It is true that the British need ships, but to purchase or allow the sale of interned German ships would be as useful to the Germans as exporting to Germany or America an equivalent amount of gold for their use. The Germans could use the money to buy American goods which could not be imported into Germany, then mortgage those goods and use the money to buy more goods. Attempts to starve Germany should not be abandoned, since, apart from the confession of weakness that would involve, a bad harvest in Germany means that they are nearer success than ever before. Repeats his recommendation that a new War Trade Department should be formed, the Board of Trade, in its anxiety to maintain trade, having been too easy with the Germans.—His most important point is that the Government’s continued recruitment of men of all ages and occupations is unsustainable. The necessary increase in export trade can only be achieved by employing more men, not only in munitions but in their normal jobs, and there is no point in increasing the size of the army even further when it cannot be equipped as it is. If they had begun the war with a smaller army and refused to enlarge it beyond a certain point, it would be smaller but better equipped, and they should have been able to make munitions for the Russians and be more use to the Allies. Refers to Asquith’s journey to France next week, and warns that he will eventually have to take over the whole finance of that country, since France was heavily in debt when the war began, but no-one has had the courage to raise a loan or increase taxation. ‘The English cannot be compelled to do anything but part with their money: the French can be compelled to do anything but will not part with a centime.’ Suggests that, if the French will agree to suspend attacks against the Germans for the winter (though continuing to try and kill them), the British should put a specified number of men under their command and finance them if necessary (though the British can only provide such finance if they can make money by selling abroad, as they alone of all the Allies can do owing to their command of the seas). This mutual arrangement would avoid friction between the French and English. It would not be in the interest of the French to let the Germans break through the English line any more than through the French line. Emphasises again that they cannot in-crease the army and do all the other work needed if the war is to be prolonged. He would not object to compulsory military service for young men, but older men required for other work should no longer be recruited. It is a mistake to think that the output of munitions can be increased by increasingthe number of orders, since all orders are competing for the same raw material, machinery, and tools. What is required is more men. The manufacture of unnecessary articles for home consumption should be stopped and profitable export encouraged, but either the Government should either take over the export firms and thus obtain the whole profit or there must be so heavy a tax on war profits as to prevent justifiable jealousy between one part of the public and another. The army is presently too large. It might be worth considering dividing profit from trade during the war between the Allies, but many soldiers already enlisted should be taken away from training. The size of the army should be governed by the number of men that can be spared from other occupations, and the number of men they can equip to ensure they are not helplessly slaughtered. Since there is no current prospect of adequately equipping more than 1,250,000 men, the number of men training and drilling should not exceed 2 million. The rest should be sent back to work, and future recruitment should be made from the young, from unnecessary trades, and from considered localities, as he urged when he was a member of the Cabinet. Really recruitment should be under the charge of Lloyd George, owing to its close connection with the production of munitions.—Apologises for the length of the letter, which was written hastily. If any of the suggestions are valuable he would like the opportunity of revising them. The crux of the matter is that, in order to finance the war, finance must be freed of certain obligations and a new war rigour must be imparted into national life. They will have to pay to nurse the French through the winter, because French finance has practically collapsed. But this cannot be done at the present rates of national and personal expenditure and production.
(Carbon copy, with handwritten alterations.)