M.A., C.B.; Fellow of King's College, Cambridge; Editor of _Economic Journal_ since 1912; principal representative of the Treasury at the Paris Peace Conference, and Deputy for the Chancellor of the Exchequer on the Supreme Economic Council, Jan.-June, 1919. Mr. Keynes said:--I do not complain of Lord Balfour's Note, provided we assume, as I think we can, that it is our first move, and not our last. Many people seem to regard it as being really addressed to the United States. I do not agree. Essentially it is addressed to France. It is a reply, and a very necessary reply, to the kites which M. Poincare has been flying in _The Times_ and elsewhere, suggesting that this country should sacrifice all its claims of every description in return for--practically nothing at all, certainly not a permanent solution of the general problem. The Note brings us back to the facts and to the proper starting-point for negotiations. In this question of Reparations the position changes so fast that it may be worth while for me to remind you just how the question stands at this moment. There are in existence two inconsistent settlements, both of which still hold good in law. The first is the assessment of the Reparation Commission, namely, 132 milliard gold marks. This is a capital sum. The second is the London Settlement, which is not a capital sum at all, but a schedule of annual payments calculated according to a formula; but the capitalised value of these annual payments, worked out on any reasonable hypothesis, comes to much less than the Reparation Commission's total, probably to not much more than a half. THE BREAKDOWN OF GERMANY But that is not the end of the story. While both the above settlements remain in force, the temporary regime under which Germany has been paying is different from, and much less than, either of them. By a decision of last March Germany was to pay during 1922 L36,000,000 (gold) in cash, _plus_ deliveries in kind. The value of the latter cannot be exactly calculated, but, apart from coal, they do not amount to much, with the result that the 1922 demands are probably between a third and a quarter of the London Settlement, and less than one-sixth of the Reparation Commission's original total. It is under the weight of this reduced burden that Germany has now broken down, and the present crisis is due to her inability to continue these reduced instalments beyond the payment of July, 1922. In the long run the payments due during 1922 should be within Germany's capacity. But the insensate policy pursued by the Allies for the last four years has so completely ruined her finances, that for the time being she can pay nothing at all; and for a shorter or longer period it is certain that there is now no alternative to a moratorium.