THE FOREIGN LIQUIDATION
Although as these words are written it is more than two and a half
years since the armistice of November 11, 1918, was signed, it is
still impossible to give a clean-cut and definitive statement of the
accomplishments of the industrial demobilization. It may never be
possible to do so. Although in the main it was possible to terminate
the war contracts with supplementary agreements fixing the Government’s
liability to the penny, the consolidation of these agreements would
not give the full cost of the termination. A few claimants are
stubborn and insist upon the ultimate legal redress guaranteed them
by the terms of their contracts. The administration in Washington has
changed, and some few of the claims once settled--as it was believed,
finally--are being reopened. And then, on the credit side of the war
ledger there is the same indefiniteness. Surpluses of war supplies are
indeterminate--expanding or contracting as policies change, as the
military establishment finds need of materials once declared surplus,
as war reserves deteriorate. Thus it is impossible to draw a line and
say that all transactions on the one side should be entered in the war
account and all on the other in the account of the permanent Army.
But in one important branch of our war industry there was a complete,
definite liquidation. The red line was drawn and the balance struck.
This was the branch in which the Allies and other foreign nations
were participants, as either buyers or sellers. The promptness with
which this transaction was consummated, and the completeness of
it--down to the last dollar due, down to the last pound of materials
exchanged--mark it as one of the outstanding accomplishments in the
whole industrial record of the war. Its benefits to the countries
affected are not to be read entirely in the footings of the columns
of debits and offsets: rather, they are political and economic--the
prestige of the United States enhanced, international good will
sustained, irritation and ill feeling, which might easily have been
aroused among the late Allies and their associates in the settlement of
their business arrangements, avoided.
It is evident that these war transactions fell into two classes: one
class in which the Allies dealt (through the American Government) with
American industry for the production of supplies; the other in which
the United States was the customer, and the industries of the Allies
(and to a slight extent the industries of certain neutral nations) the
source of supply. And, as the business of terminating the arrangements
was thus a double-barreled proposition, the War Department found it
convenient to attack it with two agencies: the so-called Cuthell Board
(which, officially speaking, was the “Special Representative of the
Secretary of War” and his assistants) and the United States Liquidation
Commission.
Mr. Chester W. Cuthell was the Special Representative of the Secretary
of War. His Board consisted of lawyers and accountants whom he chose
and appointed. The duties of Mr. Cuthell and his Board were to
terminate and settle up the war business of the Allies in the United
States under those arrangements in which the War Department had been
a participant, whether as agent, producer, or partner. The Board was
therefore essentially the agency for liquidating the international
business on this side of the Atlantic. The United States Liquidation
Commission, on the other hand, was the agency created to liquidate
America’s war industry abroad; and this was much the greater of the
two tasks. The United States Liquidation Commission was charged, also,
with an added duty: that of disposing of all American surplus military
property on foreign soil.
We must think of both these activities in international demobilization
as going on simultaneously, as they did. The two agencies were created
almost at the same time: Mr. Cuthell was appointed on January 22,
1919, and the United States Liquidation Commission was created on the
following February 11. Also it was necessary that they both work in the
closest contact and coöperation with each other, since the arrangements
of both would have to come together in the final settlements, the
American claims against the Allies, as substantiated by the Board,
going to offset the Allied claims against us, as acknowledged by
the Liquidation Commission. This liaison and harmony existed. The
coöperation, too, extended to the adoption of certain broad policies
which were to be followed by both in liquidating the business. One
of these, and perhaps the most important one, was that, in the
negotiations that were to follow, no nation should expect to profit at
the expense of any of the others. The settlements should be made on the
basis of actual cost. A second policy was that international agreements
and understandings, even though they had never been committed formally
to writing, were to have the binding force of formal contracts. In
other words, the business would be settled as among partners and
friends, no one of whom wished to take advantage of the others.
Upon both liquidating agencies bore the need for haste in terminating
the business. Armies were demobilizing, _personnel_ familiar with the
subjects in negotiation melting away. If the discussions were to be
long protracted they would take on the aspect of contentions, with
evidence and affidavits to be secured, inventories and audits taken,
hearings conducted, examination and cross-examination of witnesses,
causes perhaps finally going into international tribunals or before
commissions of arbitration. Nothing but ill feeling could result from
such an outcome. The international business relations had become
enormously intricate during the war. It was obviously an impractical
thing to go into details, as a creditor might attack the schedules of
a bankrupt corporation. Such procedure would drag along for years. It
was to the advantage of every party to the transactions, the parties
being sovereign nations having regard for their international contacts,
to give and take in rough bargaining, accepting estimates and lump sums
rather than insisting upon items and particulars, and finally to agree
to totals which at the best would be only approximations. The important
thing was to get the business over with justice done to all.
That was the spirit in which both boards worked.
Mr. Cuthell, upon his appointment, found in the Division of Purchase,
Storage, and Traffic a consolidated and condensed record of every
claim held by the War Department against the governments associated
with us in the war. This showed him the field. He discovered, however,
that none of the war missions maintained by the Allies in the United
States was vested with power to adjust and settle these claims, many
of which were disputed. Therefore, while his hastily gathered force of
experts was preparing the claims for presentation, Mr. Cuthell himself
(in April, 1919) was sent to Europe to ask the foreign governments
concerned to create liquidating agencies competent to deal with the
United States and, further, to retain in their respective services,
until the liquidation should be effected, the officers familiar with
the American transactions.
It should be noted here that this was a wide departure from
international precedent. Ordinarily, financial claims between nations
are settled by the slow and cumbersome processes of diplomatic
interchange, or else by arbitration. To have allowed the war claims to
go into this channel would possibly have meant the end of the amity
between the Allies and the United States. Our liquidation agencies
proposed direct dealing through business plenipotentiaries, with
restrictions even less exacting than would be drawn by two private
corporations.
In Paris Mr. Cuthell found representatives of Italy prepared to discuss
the American claims against Italy. Soon after the conferences started,
however, President Wilson made public at the Peace Conference his
attitude toward the Italian occupation of the Adriatic port of Fiume;
and the Italian delegation, including those ready to negotiate a
business settlement with us, withdrew from Paris.
Mr. Cuthell thereupon went to London to negotiate with the British.
The British Government appointed and empowered a special commission,
headed by Lord Inverforth, then the British Minister of Munitions, and
including several eminent representatives of the British Government,
among them Mr. W. T. Layton, a man of unusual ability and the one who
took the actual lead for the British in the subsequent negotiations,
to deal with the American claims. Meanwhile Mr. Cuthell’s principal
assistants had arrived from the United States, bringing with them the
now formulated statements analyzing the British war business in America
and setting forth what our negotiators regarded as the proper charges
for the British to pay in settlement. These assistants were Mr. Ralph
W. Gwinn, who was to present the Liberty engine case; Mr. Miller D.
Steever, in charge of the airplane lumber claim; and Mr. F. C. Weems,
who had prepared the smokeless powder and cotton linters cases. The
conferences began immediately, and such was the progress made that
within ten days a complete agreement was reached, and the British war
business in the United States was definitely terminated. The so-called
Cuthell-Inverforth Agreement, which embodied the terms of settlement,
was dated May 10, 1919.
The agreement, reached so speedily and with such complete mutual
accord, terminated a vast business within the United States. From the
United States as dealer, Great Britain had procured smokeless powder,
picric acid, airplane lumber, and Liberty engines. As a partner of
the United States, Great Britain participated in the pool of cotton
linters which cornered the entire American supply for the benefit of
the powder mills. England was also a partner with us in the project
to build a chain of chemical factories in America to produce acetone,
used in making dope for airplane wings. These factories never came
into production, and the project was closed out with a loss of over
$6,000,000, half of which loss the British were bound to share. We
participated with England in the purchase of Australasian wool. The
terms under which the wool contract was closed out were noted in a
previous chapter of this volume.
The celerity with which these complicated war transactions were
terminated was a distinct triumph in international negotiation. The
British, when they entered the conferences, probably had no idea
that they were to be rushed through to any such speedy conclusion.
The conferences, in fact, began as if they were to drag along for an
extended time. On the first day Mr. Gwinn gave a careful and clear
exposition of the Liberty engine case, setting forth in detail just
what we had done and to what extent the British ought to participate
in the costs. Although, whenever any of his figures were challenged,
the American delegation proceeded then and there to make adjustments
apparently to the satisfaction of the British commissioners, yet when
Mr. Gwinn had concluded, the Americans were unable to gain from the
British any expression of opinion as to whether the total would be
accepted, at least tentatively, as the British obligation. It was
evident that the British expected to prepare and, later on, press an
argument against the American statement. If this procedure were to be
followed throughout the negotiations, it would be many weeks before the
conferees could reach any final agreement.
This outcome of the first day’s negotiation was a disappointment to the
Americans, but they determined to try again next day. The next morning
Mr. Steever took up the airplane lumber case, and talked for nearly
four hours. He went into a description of the picturesque phases of the
northwestern lumbering enterprise--the felling of the spruce trees,
the steel cables on which the great trunks slid down the mountain
sides, the railroads built into hitherto inaccessible wildernesses. But
punctuating his rhetoric were the hard figures of costs, expenditures,
losses, deliveries, and values. The British had shared in this whole
enterprise in the Pacific Northwest, the development of which had never
reached the stage of turning out the airplane lumber at low prices.
As Mr. Steever talked he invited interruption and objection, and the
British delegates availed themselves of the invitation. The various
objections were resolved as the case was unfolded. At the conclusion
Mr. Cuthell asked for any further objections to the statement. But
the British had exhausted their challenges during the presentation
of the claim. The only objection raised was to British participation
in the cost of certain dry kilns in which the export airplane lumber
was not treated. This item was promptly subtracted from the claim’s
total, and then Mr. Cuthell briefly urged that the column’s footing be
accepted tentatively as the British obligation. If not to the surprise
of the Americans, certainly to their extreme gratification, the British
commission agreed.
That was the real victory, for it set the precedent for the entire
settlement. Each day the Americans presented a new case; and each
evening when the American representatives left the Hotel Metropole in
London, where the conferences were held, a tentative agreement in that
case had been reached. Finally all the claims were settled tentatively,
except the Liberty engine claim. Once more the Americans pressed to
have the original statement accepted, and it was. It was understood,
however, that all figures were to be subject to verification by a
British audit of the books of the War Department in Washington.
On the tenth day the Americans brought to the Metropole a tentative
written agreement, embodying all the sub-settlements agreed upon. Mr.
Cuthell then pointed out the considerable cost of a British audit of
our books, the possibilities of friction arising over the presence of
British auditors in our War Department over an extended period, and
the likelihood, since all the American estimates were conservative,
that the audit would not in any event greatly change the amount of the
British obligation and might even increase it; and he suggested that it
would be good policy for the British to accept the tentative figure as
final and let it go at that. Lord Inverforth promptly agreed. That was
cricket, as the English say.
The agreement fixed the cash liability of the British Government
for its unpaid American war bills and its obligations arising
from the termination of its American contracts and engagements at
$35,464,823.10. Of this the Liberty engine item was the largest
item--approximately $14,000,000. The British paid over $13,000,000
to satisfy all claims of the United States arising from the British
purchases of airplane spruce, fir, and cedar. Its powder contracts
accounted for nearly $4,700,000 of the settlement sum, wood distillates
(principally acetone) for about $2,900,000, and its 2-per-cent share in
the linters pool for the rest.
Practically all the settlements made by the Cuthell Board were carried
as offsets to the American liabilities under the general foreign
liquidation accomplished by the United States Liquidation Commission;
but the British preferred to make their settlements separate
transactions. Accordingly, on August 2, 1919, a representative of the
British Treasury delivered to the War Department a check in payment
of the British obligation under the terms of the Cuthell-Inverforth
Agreement. This, however, was not a complete termination for Great
Britain. That Government admitted full liability under numerous other,
but small, claims which the War Department had not yet had time to
prepare in detail. As invoices were subsequently presented to the
British Government, these claims were promptly paid. The minor cases
came to approximately $7,000,000.
Progress almost equally swift was made by the Cuthell Board in securing
a settlement of the American claims against France. At first there was
no official French agency empowered to make such a settlement. Mr.
Cuthell and his assistants proceeded immediately to Paris after making
the British agreement and importuned the French Government to designate
a representative competent to conclude a settlement. There they were
joined by Messrs. Charles B. Shelton, William Fisher, John H. Ray,
Jr., and Harry A. Fisher, who brought with them from Washington the
formulated statements of various American claims against the French.
After several days’ delay Premier Clemenceau appointed the French
Liquidation Commission, headed by M. Édouard de Billy, who had been
with the French High Commission in Washington during the war and was
therefore familiar with the French contracts in the United States.
To France the War Department had sold picric acid, cotton linters,
smokeless powder, airplane lumber, and Liberty engines. The French
liability in these cases was finally fixed at $95,968,561.87, and a
formal agreement admitting the liability was signed on May 29, 1919.
There were other considerable claims against France, the statements of
which had not yet been prepared. Later (September 9, 1919) Mr. Cuthell
came to an agreement with M. Casenave, minister plenipotentiary of
France in the United States, whereby the French admitted an additional
liability of $64,910,352.92. Of this sum, $38,000,000 represented ocean
freight charges upon war supplies bought by France in the United States
and carried to France in American army cargo transports.
Two additional settlements with France, one terminating the French
contract with J. G. White & Company for raw materials for airplane
manufacture and the other terminating the French contract with the
General Vehicle Company for the production of Gnome rotary airplane
engines, increased the French liability by $2,117,785.34. These
settlements were made in France by Mr. Monte Appel, chief assistant to
Mr. Cuthell. The total liability arising from the American war business
of France was therefore $162,996,700.13. This sum went into the
general settlement agreement made with the French by the United States
Liquidation Commission.
Soon after the French settlement was a fact, the Italian Government
appointed a commission to treat with the Cuthell Board. The Italian
agreement, dated August 13, 1919, admitted an obligation on the part
of Italy in the sum of $5,200,000, representing Italian war purchases
of picric acid, smokeless powder, airplane lumber, linters, and
trinitrotoluol, this agreement not including an admitted obligation of
approximately $395,000 for Liberty engines, clothing, and other small
items not yet invoiced. Against this obligation Italy presented a claim
for $4,053,073 for the overseas transportation of American troops on
Italian ships. The Italian Government paid the difference, namely,
$1,146,927 to the War Department on September 26, 1919, and also paid
the minor claims as they were presented.
Minor claims against the governments of Belgium, Brazil, Canada, Cuba,
and Czecho-Slovakia, to the total of $4,709,330.89, were presented by
the Cuthell Board and paid by the governments concerned.
* * * * *
While the Cuthell Board was engaged in rendering the bills to the
Allies for supplies purchased by them in America and collecting the
money on those bills,--and here let it be said that the collections
were greater in aggregate amount than the total sum involved in all
the claims for or against the United States prosecuted or resisted by
the nation’s official diplomacy from the beginning of our national
existence up to the outbreak of the war in Europe; international
transactions which included the Louisiana Purchase, the purchase of
Alaska, and the purchase of the Canal Zone,--all the while that Mr.
Cuthell and his associates were collecting money for Uncle Sam, the
United States Liquidation Commission was busy adjusting the fit of the
shoe on the old gentleman’s other foot. In other words, the Commission
was paying the war bills owed by the United States to the Allies. This
was a business equally great and even more important.
There was some question whether the President, with all his war powers,
could legally empower boards and commissions to conclude international
settlements involving the passing of money, since such power resided
only in the State Department, the acts of which had to be ratified by
Congress before they were binding upon the United States. The Cuthell
Board and the United States Liquidation Commission were actually
created in January and February, 1919; but to remove any doubt as to
the binding force of their settlements, Congress, on March 2, 1919,
passed an act empowering the Secretary of War to settle, through any
agency he might set up, all international war claims in which the War
Department was involved.
The Secretary of War appointed Mr. Edwin B. Parker chairman of the
United States Liquidation Commission. As members he appointed Brigadier
General Charles G. Dawes, Mr. Homer H. Johnson, and Hon. Henry F.
Hollis. During the active part of the war Judge Parker had held the
important post of priorities commissioner of the War Industries Board.
General Dawes, in private life a Chicago banker, had been General
Purchasing Agent of the A. E. F. In 1920 he sprang into national
prominence when, as a witness before a congressional investigating
committee, in vigorous and unconventional style he defended the
material transactions of the A. E. F. and denounced those critics who,
in searching for waste and lavish expenditure, evidently overlooked the
fact that the prime purpose of the A. E. F. was to defeat a dangerous
enemy on the field of battle. His striking utterances on that occasion
did more than reams of printed propaganda to reconcile the American
public to the inevitable wastes of the war. President Harding soon
afterwards appointed “Hell and Maria” Dawes, as he had come to be
known, federal budget commissioner, thus placing him in charge of the
most important attempt at economy in national expenditures which the
United States had ever made. Mr. Johnson was an able and well-known
lawyer of Cleveland. Mr. Hollis was a former United States senator from
New Hampshire.
When the Liquidation Commission reached France and organized for work
about March 1, 1919, it found the ground well prepared for it. Mr.
Edward R. Stettinius, the well-known New York financier, had been sent
to France in July, 1918, as a special representative of the Secretary
of War to act as a sort of surveyor-general over the war industry
resulting from the foreign orders placed by the American Expeditionary
Forces. Mr. Stettinius found that a considerable part of the munitions
being procured abroad was being produced and delivered under informal
and more or less vague agreements and understandings. Before the
armistice Mr. Stettinius had done his best to reduce some of the more
important of these understandings to the form of written, definite
contracts. Promptly after the armistice he took steps to cancel all
further production for the Americans and then began the negotiations
leading to the settlements. Mr. Stettinius resigned in January, 1919,
and the United States Liquidation Commission inherited these various
negotiations in the stages at which Mr. Stettinius left them.
Although, as we have said, the characteristic note of our industrial
demobilization abroad was outright cancellation of contracts and the
payment of indemnities, the policy was not maintained consistently.
There were several important exceptions, and one of these was the
method adopted in terminating the British manufacture of artillery
and shell for the A. E. F. The numerous orders, contracts, and
agreements placed and made by the A. E. F. for the delivery of British
artillery and ammunition were consolidated, on October 19, 1918, by Mr.
Stettinius in conference with Mr. Winston Churchill, then the British
Minister of Munitions, into a single formal agreement. In terminating
this contract after the armistice Mr. Stettinius assumed that it would
be better to accept completed guns and ammunition, even though these
might be surplus above the future requirements of the Army, than to
pay heavy cancellation indemnities and receive nothing in return.
Artillery does not deteriorate rapidly, either materially or in design.
The negotiations opened by Mr. Stettinius with the British Government
looking to this end were picked up by the Liquidation Commission,
which, in March, 1919, reached an agreement with the British that, in
lieu of paying any cancellation damages, the United States would accept
a limited quantity of _matériel_ completed after the armistice under
the American contract.
America accordingly accepted the post-armistice delivery of 498
British-made guns, ranging in model from 60-pounders to 8-inch
howitzers, and 420,000 rounds of ammunition for them. For this
_matériel_ the American Government paid £6,637,598.
A most interesting negotiation conducted by the Liquidation Commission
for the United States was that which wound up the tripartite
international project for the construction of 36-ton tanks, better
known as the Anglo-American Mark VIII tanks. France was originally a
party to this transaction only to the extent of agreeing to provide a
site for the assembling plant in France. England and the United States
were equal partners in the enterprise, England supplying hulls and
guns and America the power and traction. The French, however, were to
be permitted to buy tanks at the partnership price; but the French
at first did not ask for any, asserting that their own light tank
production was sufficient for them.
The plant was built at Châteauroux, Neuvy-Pailloux. About the time the
project was getting well under way, heavier tanks began to demonstrate
their effectiveness in the field; and then France insisted that,
because her armies held the most front-line mileage, the most of the
Anglo-American tanks to be built at the Châteauroux plant should be
allotted to her. Reluctantly the British agreed that the first 1,200
tanks should be divided equally between France and the United States
and that France should receive all of the next 300.
Then the war ended. About 24,000,000 francs had been invested at
Châteauroux. The British had spent £3,000,000 in the manufacture
of components and the Americans a like sum, expressed in dollars.
France had not put in a centime; yet she had expected to receive
nine-sixteenths of the first year’s output. The question was, what
share of the heavy loss should France stand? The French arrangement
with the Tank Commission was tantamount to a contract, with the
British-American partnership standing in the light of contractor.
It was evident, then, that the French were morally bound to pay
cancellation charges--to stand part of the loss, in other words. The
British and American negotiators at London thought it would be about
right if France would pay back the 24,000,000 francs expended by the
British and Americans at Châteauroux, and the British and Americans
would throw in the tank plant itself as an inducement.
Then the question arose, how would this 24,000,000 francs be
divided? Both England and America had lost heavily in the big-tank
enterprise--each had, in fact, agreed to let these losses balance
each other; neither was to bill the other for anything in the
settlement--and here seemed to be the chance to get some of the money
back. Naturally, the Americans assumed that the French reimbursement
would be divided equally, since both America and England had
contributed equally to the cost of the Châteauroux plant. But no, the
British contended; since they had surrendered their share of the first
year’s production of tanks, the lion’s share of the reimbursement
should go to them. There was logic in this, but, without deciding the
point, both sides repaired to Paris to present their joint tank claim
to the French; and then it appeared that the British and Americans had
been dividing some French chickens before they were hatched. Through
M. Louis Loucheur, the Minister of Munitions, the French Government
metaphorically lifted its eyebrows in surprise that its associates
could present such a claim. To be sure, the French expected to take
the Anglo-American heavy tanks, but so did the Americans and British
expect to receive light tanks from the French industry. These were
merely understandings, not formal contracts; and the French, to do
their share, had made large expenditures in developing the light-tank
manufacture for the benefit of all. Needless to say, the French
Government had lost heavily in terminating its tank industry. These
national losses should set off each other....
The British and American representatives retired to ponder this
rejoinder. It seemed to have merit; yet the fact remained that somehow
or other France was evidently going to emerge from the tank discussion
with the Châteauroux plant in her possession. The delegates returned
and argued with such force that the French Government agreed to pay
20,000,000 francs in settlement, taking over the Châteauroux plant.[14]
Since the salvage value of this plant was estimated at 5,000,000
francs, the sum of 15,000,000 francs was considered as the indemnity
paid by France. England then asked for five-sixths of the total
payment, but the American argument scaled this down to 70 per cent.
America thus received 6,000,000 francs out of the settlement.
The bargaining Yankees, however, were yet to have the final word in the
tank deal. With the settlement complete, sealed and delivered, the
British had on their hands 105 sets of tank parts with only junk value,
although it had cost the British £5,000 a set to manufacture them. The
Americans offered £1,000 a set for these parts, and the British snapped
at the offer. This fine bargain enabled us later, at low cost, to
assemble these parts with the American-built components and thus place
in the war reserves 100 of the largest and most formidable tanks ever
built.
Another, a minor, tank transaction should be noted. The British Army
had supplied, during the action, sixty-four tanks of various sorts
to the 301st Tank Battalion of the A. E. F. Fifty of these, some of
them more or less damaged, had been returned to the British after
the armistice, and the remaining fourteen were shipped to the United
States. For the purchase of the fourteen and for the war use of the
other fifty, the Liquidation Commission agreed to pay the British
Government the sum of £189,233 2s 11d.
Outside the claims for payment for materials actually delivered, the
British pressed upon the Liquidation Commission collateral claims of
several sorts. One of these was for interest upon money invested by
the British in stocks of goods destined for American consumption.
Our people protested successfully against paying interest upon such
investments, but admitted the point that we should pay interest
after the goods had been delivered and we had been billed, allowing
a reasonable interest-free period for vouchering and checking.
Investigation showed that both armies had been dilatory in paying their
bills to each other, and that the average time of delaying payment
had been five months and a quarter. The British bills against America
exceeded the American bills against England by some £51,000,000. One
month and a half was allowed as a reasonable interest-free period after
billing. Accordingly the commission agreed to pay 5-per-cent interest
on the British billing excess, a sum which amounted to £797,854 11s 2d,
and this America paid.[15]
It was impossible for the Liquidation Commission to make a lump
settlement of all the minor bills, accounts, and claims of Great
Britain against America, because of the difficulties in securing full
statements of the indebtedness. It was roughly estimated, however, that
these claims would aggregate £10,000,000.
One obscure and involved problem for the Commission to solve related
to the so-called British “hidden losses” on steel products sold to the
United States during the war. The British treatment and control of its
war prices differed radically in method from ours. The War Industries
Board, it will be remembered, fixed prices high enough to stimulate
production and then held the industries to those prices, no matter to
whom they sold. The British plan was an opposite one. With steel, for
instance, the British Government simply monopolized the raw materials
and sold them to the producers at prices that represented a loss to
the Government. In effect, it was a subsidy. To the British public it
made no difference whether it paid this subsidy or an equal amount
in the increased cost of artillery, ammunition, and other munitions
made of steel. But when it came to a settlement between England and
the United States, the British Government insisted that the United
States was not fairly entitled to the “manufacturers’ issues” price for
the raw steel that went into the British-made munitions supplied to
America. The British, therefore, after the main settlements, presented
a supplementary claim to compensate for the hidden loss, and this claim
amounted approximately to £3,770,000.
In principle, the Commission was willing to admit the force of the
British contention. It asked the British, however, to prepare a more
definite statement, showing (1) the average British governmental loss
on all steel supplied to manufacturers for the year preceding the
armistice, (2) the amount of such steel that went into products sold to
America, and, finally, (3) the hidden loss on all steel furnished to
America as thus estimated. When the revised statement was presented,
it was found to contain items of hidden loss which America could not
possibly allow. The British war subsidies went all through their war
industry. For instance, in order to stimulate production, the British
Government had paid subsidies to the makers of silica brick, used in
building steel furnaces. The British asked us to stand a part of this
subsidy, inasmuch as some of the shell supplied to us had been produced
from furnaces built of subsidized brick. The Commission retorted by
asking why Great Britain did not also ask us to share the subsidy on
the bread the British steel workers had eaten while they were working
on the American artillery and shell orders. In other words, we were
willing to pay hidden losses so long as they were not too remotely
connected with the American contracts. The Commission also raised the
shrewd question, why, since the British were asking us to pay for
hidden losses, they did not admit us to the benefits of their “hidden
profits”--_viz._, the profit taxes collected from the British steel
manufacturers.
In the autumn of 1920 General G. W. Burr, the Director of Purchase,
Storage, and Traffic after the armistice and a member of the War
Department Claims Board, went to England to close up all the
outstanding claims existing between the United States and Great
Britain as a result of the war. The outcome of his negotiations was
the Burr-Niemeyer Agreement, which tied up all loose ends and brought
about a final termination of the war business between the two nations.
All pending claims were brought into one lump-sum settlement, under
the terms of which the United States paid to Great Britain the sum of
£2,946,511 2s 8d. This sum settled all the miscellaneous and minor
claims noted above; settled, too, the debt owed by the United States
to the British for the maintenance of our Siberian Expedition; and
settled all other claims, including the hidden-loss claim and a British
claim for reimbursement for various “overhead” inspection and storage
charges. The settlement figure was much under what the British had
originally claimed. In this settlement the hidden-loss and “overhead”
claims were paired in a single item which accounted for approximately
£1,500,000 of the total paid by the United States. The Burr-Niemeyer
Agreement was dated November 23, 1920.
One general claim set up by the British Government against the United
States the Liquidation Commission rejected. After we had paid to Great
Britain the bill rendered for the transportation of our troops and
supplies in England, the British Government rendered a supplementary
bill for the same services. During the war Great Britain gave
guaranties of income to the British railways, and in settling with
the railroads the British Government granted to them an increase in
military passenger rates, an increase which was retroactive to April
1, 1919. The British asked us to pay our share of the retroactive
increase. This was refused on the ground that by the same token we
could hold the British to their share of the loss sustained by the
American Government in its operation of the American railroads by the
United States Railroad Administration, since our roads had hauled great
quantities of British supplies. To open up closed settlements because
of retroactive agreements would open up a Pandora’s box of troubles for
both nations.
Thus the international bargaining went on, back and forth, give and
take, broad principles of settlement prevailing rather than the minute
and individual merits of particular items, both sides accepting
estimates and unaudited totals and each relying upon the good faith
of the other. Thus this tremendously involved and intricate business
was closed up with dispatch and amiability. As a rule the A. E. F. in
its purchases had dealt with governments, with which such liquidation
methods could be adopted; but there were a few relatively small
contracts made directly with private individuals in England, France,
Italy, Portugal, Spain, and Switzerland. These contracts were canceled
outright in the full knowledge that we should have to pay indemnities.
In the settlement of such contracts the United States Liquidation
Commission acted for the A. E. F. much as the War Department Claims
Board did for the producing bureaus at home--as a supervisory body,
approving the settlements made by the various services of the A. E. F.
and paying off the contractors. In all, indemnities were paid for
the cancellation of some 450 contracts in Europe. In making these
settlements, the United States benefited greatly by the depreciated
rates of exchange against the currencies of several of these nations,
since all indemnities were paid by the United States in the currency of
the countries in which the claims arose. Expressed in dollars at par,
it cost the United States $3,568,653.23 to cancel the miscellaneous
European contracts, but the reduced exchange rates effected a
considerable saving under that figure.
It is much easier to detect the failings and peculiarities of aliens
than it is to recognize our own shortcomings; and if in these pages
we have exulted somewhat over the successes of our delegates in
checkmating the designs of our European associates, this is not to
be taken as any boast that we ourselves were too disinterested and
altruistic to overlook the main chance for ourselves. The truth is
that, although all the belligerents were in the field primarily to
win a victory of arms, not one of them entirely lost contact with the
counting room. This was clearly shown in the American arrangements for
the supply of French artillery.
The numerical expansion of the A. E. F. in the spring and summer
of 1918 resulted in a greatly increased demand by the A. E. F. for
French artillery and ammunition. America supplied schedules of the raw
materials which she could furnish, and the French made estimates of the
numbers of guns they could deliver monthly to the A. E. F. But this was
all understanding and mutual agreement--no formal contract was drawn.
When Mr. Stettinius reached Paris in the summer of 1918, he immediately
began to press to get this agreement down in black and white, so that
America might know exactly what her obligations were. At that time,
of course, there was no thought that the war would end within the
year. About the 1st of November, however, it became evident that an
armistice was drawing near, and immediately the Americans grew lukewarm
on the subject of a formal contract. The reason was evident. Under the
terms of a formal contract, America’s termination obligations would
be questions of fact; with the affair left as an unwritten agreement,
our obligations would be questions of equity, to be negotiated, and we
were likely to emerge from such negotiations in better case financially
than we should be if held by the set and rigid conditions of a formal
contract.
Nevertheless, the United States did not seek to evade its just
obligations under the French ordnance agreement. France had spent
large sums of money in expanding the industry to take care of the
expected American consumption, and the money so spent was a proper
charge against the United States in any settlement. Immediately after
the armistice Mr. Stettinius ordered production stopped on our orders;
but this the French, for domestic, social, and economic reasons, were
unable to do; and at first they were inclined to insist that we should
accept and pay for a large quantity of artillery produced during a
gradual termination of the industry. Mr. Stettinius successfully
maintained the position that this post-armistice production was
undertaken purely in pursuance of an internal policy of the French
Government and that by no stretch of logic could it be entered as
a proper war charge against the United States. Mr. Stettinius then
went on to conduct the settlement negotiations, and these were about
complete when the Liquidation Commission arrived to inherit the
transaction and to draw the final settlement contract.
As in the settlement of the British artillery contract, the American
negotiators accepted guns and ammunition produced after the armistice
by the French; and they did it in complete consistency with the
position and policy defined in the preceding paragraph. The armistice
found great numbers of French guns in process of manufacture for the
A. E. F. The United States was obligated to accept and pay for this
unfinished material. After the inventory of it had been taken, the
Liquidation Commission suggested that in lieu of the unfinished parts
the United States accept their value in full completions and that
the production of all other guns be canceled without charge to the
United States. This alternative, allowing, as it did, a measure of
post-armistice production in the French mills, the French Government
quickly accepted and, in carrying out the terms of the subsequent
settlement contract, delivered to the United States 944 75-millimeter
gun units, 700 155-millimeter howitzer units, and 198 155-millimeter
gun units, all with limbers and with additional parts as spares. For
these the United States paid 117,501,887.45 francs.
The French agreed to a similar plan in canceling the construction of
airplanes and engines for the United States. This construction had been
undertaken under a formal contract, signed by General Pershing. The
contract contained no cancellation clause, but the French Government
had provided for cancellation in its subcontracts with the French
producers. Under the terms of the contract large numbers of airplane
cellules (airplanes without engines), engines, and other aëronautical
supplies were in production on the day of the armistice. In lieu of
unfinished parts, the French agreed to deliver their equivalent (in
value) in finished equipment. Under a preliminary agreement the United
States acknowledged a cancellation debt of 167,667,761 francs. Of
this, about 23,000,000 francs represented cancellation charges and the
rest money to be paid for completed materials, the schedule of which
included 3,568 cellules and 3,979 engines. This preliminary agreement,
however, was modified later by the French Liberty engine settlement
negotiated by the Cuthell Board. Under this settlement France agreed
to accept and pay for Liberty engines still to be delivered, to the
value of $19,530,000, and in addition to pay nearly $2,000,000 in
cancellation indemnities.
This, then, was the situation. We were bound to accept and pay for a
large number of French airplanes and engines which we did not need.
The French were bound to accept and pay for a large number of Liberty
engines which they did not need. We could, however, use some of the
French planes and engines, and the French wanted 500 Liberty engines.
Therefore we agreed to deliver the 500 engines and to accept French
materials up to their value, and then to offset the excess number of
Liberties provided for in the engine settlement agreement against the
excess of French air materials named in the French aircraft settlement
contract. This left a surplus of Liberty engines with the A. E. F., but
these were delivered to the British to fulfill our obligations under
the British Liberty engine settlement; and a few of the engines were
sold to Poland.
The settlement with France for our use of her railroads during the
war was so complicated that it would not be profitable to go into the
details here. The intricacy of the problem was due to the fact that,
while 2,000,000 Americans in France had used the French railroads
for every transportation need,--and our forces fought farther from
their expeditionary bases than did any other army in France,--we,
in turn, had supplied to the French railroads locomotives, cars,
crews, repairing, coal, track construction, and many other items. The
Liquidation Commission itself did not attempt to go into these details,
but turned the whole transaction over to a special section headed by
Colonel F. A. Delano, the Deputy Director General of Transportation for
the A. E. F., who had formerly been president of the Wabash Railroad
and a member of the Federal Reserve Board. The upshot of the settlement
was that we acknowledged a debt to France of 434,985,399.73 francs
after all our claims had been set off against the French claim.
The United States Liquidation Commission agreed to pay to the French
Government the sum of 3,000,000 francs for port dues assessed against
our vessels for their use of French ports during the war.
When these and other subsidiary questions of settlement had been
decided and the proper credits established by agreement in each
instance, the United States Liquidation Commission took up the task of
a general blanket settlement of the business relations between France
and the United States during the war. This was a long and involved
work; but, since the major items in the settlement had already been
determined, there was little difficulty in securing an agreement.
The General Settlement was dated November 25, 1919. It embraced all
transactions between the two nations from April 6, 1917, to August 20,
1919, except (1) France’s purchases of our surplus military property,
(2) the railroad transportation and the port dues settlements noted
above, and (3) France’s claim arising from the overseas transportation
of American troops in French transports. The sum total of the other
claims showed that the United States owed France 1,488,619,027.52
francs and that France owed the United States $177,149,866.86. The rate
of exchange and form of payment were left to future negotiations by
the United States Treasury; but, assuming that francs were worth ten
to the dollar, the net balance in favor of the United States was about
$28,000,000.
We are not yet ready, however, to determine the net financial result
of the international war business relations in which America was a
participant. There was still the money to be realized from the sale of
our surplus military property abroad. It will be remembered that one of
the two functions of the United States Liquidation Commission was to
dispose of the expeditionary property. Out of the sales transactions
arose the largest single credit to the account of the United States on
the international ledger: the proceeds from the bulk sale of A. E. F.
installations and supplies to the French Government.
The arguments sustaining the wisdom of a bulk sale of the expeditionary
property have already been sufficiently rehearsed in this volume.
The first step on our part leading to the negotiations was to take
an inventory of the entire property. The difficulty encountered
then may be deduced from the fact that the French and the British,
whose surpluses were not inordinately greater than ours, never even
attempted such an inventory of their own property. The A. E. F. was a
going concern, continually drawing from the stocks on hand, and its
_personnel_ was shifting and diminishing. Nevertheless, by a strong
force of men, under the direction of Colonel J. H. Graham, Engineer
Corps, in six weeks of day and night work, such an inventory was taken,
the property being divided into eighteen categories, as follows: 1.
Clothing and textiles; 2. Subsistence supplies; 3. Kitchen utensils and
household furnishings; 4. Machinery, metals, tools, and hardware; 5.
Building materials; 6. Forest products; 7. Railway and dock equipment;
8. Transport equipment (trucks, motor cars, motorcycles, wagons, horses
and mules, etc.); 9. Hospital supplies, toilet supplies, and chemicals;
10. Photographic, measuring, and musical instruments; 11. Electrical
equipment; 12. Oils, gasoline, and paints; 13. Ordnance and gas-warfare
equipment; 14. Blasting apparatus and supplies; 15. Printing machinery
and supplies; 16. Office fixtures, stationery, and supplies; 17. Hides
and leather; 18. Aëronautical equipment.
These eighteen categories included only the movable property of the
A. E. F. There were still to be considered the fixed installations--the
barracks, camps, hospitals, warehouses, docks, railroad yards,
buildings of almost every conceivable type. Judge Parker, the chairman
of the Commission, cabled to France, before he sailed for Europe, a
direction that the installations be inventoried and appraised. This
work was first undertaken by Colonel Graham, who later, after he
took charge of the inventory of movables, was succeeded by Brigadier
General Edgar Jadwin, whose subsequent appraisal was known as the
Jadwin Report. It showed the war cost of construction to have
been $165,661,000, the normal cost $81,543,000, and the armistice
value $39,256,000. As a matter of fact, any sum obtainable for the
installations was clear gain, since the salvage value of the structures
would not have paid the cost of dismantling (assuming that this work
would have required the labor of 40,000 men for seven months), the
ground rentals, and the costs of restoring the sites to their original
condition.
[Illustration:
_Photo by Howard E. Coffin_
WRECK OF COAL MINE AT LENS]
[Illustration:
_Photo by Signal Corps_
MOTOR TRANSPORT SALVAGE IN FRANCE]
Then arose the determination of the “utilization value” of the movable
stocks. This was estimated by taking the war cost of production, plus
the cost of freighting the goods to France, and subtracting various
estimated allowances--for natural deterioration, for expected losses
from fire, theft, and other causes, for the saving to the United
States in costs of merchandizing, labor, storage, insurance, interest
on investment, and other overhead expense obviated by a possible
bulk sale, for the fact that the stocks were widely scattered and
had to be collected to be of use. The Commission consolidated these
subtractions into a lump deduction of 25 per cent of the estimated
value. Thus determined, the utilization value of both installations and
movables was set at $562,230,800; and this was the figure carried by
the Commission into the negotiations with the French.
[Illustration:
_From a photograph taken in France_
INTERALLIED PURCHASERS
Left to right: Louis Loucheur, French Minister of Munitions;
Winston Churchill, British Minister of Munitions; David
Lloyd-George, Prime Minister of England; and Bernard M. Baruch,
Chairman of the War Industries Board.
]
The French Government designated M. Paul Morel, the French
Undersecretary of Finance for the Liquidation of War Stocks, to
represent it in the negotiations with the Commission. On April 7,
1919, it was agreed in principle that France would buy the American
_installations_, at any rate, at a price still to be fixed, the French
assuming all charges and claims against the installations. The French
were not so sure about the movables. M. Morel first proposed that the
French Government pick out what it wanted and negotiate a price for
the selection. But this would have skimmed the cream of the American
property and left the A. E. F. with large quantities of unsalable
materials which in all likelihood would eventually have become fuel
for bonfires. This proposal was therefore rejected, and the French
representatives were urged as a duty to buy all the movables in bulk,
since the French people could use practically all the supplies. M.
Morel, after consultation with his principals, eventually agreed to buy
all the stocks at a price to be fixed.
Came the question then of the price. M. Morel’s first bid was
1,500,000,000 francs. Reckoning the value of francs then at ten to the
dollar, that was an offer of $150,000,000, an offer firmly rejected.
This was followed by other offers which our representatives could not
entertain. The negotiations, which had begun early in April, continued
throughout the spring and the fore part of the summer. M. André Tardieu
and other eminent Frenchmen entered the conferences in July. On July 24
a tentative agreement was reached, and its terms were practically those
of the bulk-sale contract, which was dated August 1, 1919.
France paid $400,000,000 for the property, the United States accepting
in payment interest-bearing 10-year French bonds. Not all the property
listed in the original inventory was involved in the sale. America
made certain exceptions: (1) all animals (these were sold separately
for a total of $29,016,506.59); (2) supplies previously sold out of
the surplus stocks to France herself and other buyers to the value of
$77,265,597.83; (3) military equipment returned to the United States,
valued at $15,000,000; (4) supplies needed for the maintenance of the
remnant of the A. E. F., worth $4,000,000; and (5) supplies worth
$10,000,000 turned over to the American Red Cross as a gift. Thus, the
utilization value of the original inventory was scaled down by these
subtractions to approximately $427,000,000, and for this quantity the
French Government paid $400,000,000--a fair return. It should be noted
that in paying this price the French Government also canceled its claim
for the payment of customs duties on the goods, and a conservative
estimate placed the aggregate amount of these unpaid duties at
$150,000,000. An even greater benefit to us was the fact that by the
terms of the settlement France assumed all land claims which might
otherwise have been pressed upon the United States by French nationals
for years to come.
The bulk sale to France was the largest single transaction in the
disposition of the A. E. F. surplus; but there were many other sales,
some of them large. Goods went in these transactions to the governments
of the Allies (France herself, outside the general sale, being a
purchaser to the extent of $95,000,000), to individuals, companies,
and syndicates in western Europe, to relief societies, to coöperative
societies in the Balkans (these, being the economic organization of
whole peoples, were not affected by political changes and sometimes
seemed to have greater stability than the new governments themselves),
to the governments of the so-called “liberated nations,” and to other
purchasers. Although the United States Liquidation Commission made
every effort to keep each transaction on the dollar basis, it was
not always possible to do so, and payments were accepted in pounds
sterling, in francs, in marks, and in other European currency,
sometimes much depreciated. Yet, translating foreign money into
terms of the dollar at average rates of exchange, and adding in the
$400,000,000 received from France, we reach a total of approximately
$800,000,000 received by the United States for the entire quantity
of American military property left in Europe after the return of the
expedition. It is roughly estimated that the property thus sold cost
the United States $1,328,000,000. The salvage return, therefore,
was practically 60 per cent of the cost. The miscellaneous sales
transactions have practically all been closed, and the receipts have
been covered into the Treasury. The French $400,000,000 is represented
by bonds maturing in 1929.
The two blanket transactions with France--the bulk sale of buildings
and supplies and the general settlement of claims--were of great value
to the United States in relieving this nation of the responsibility
of having to deal with individual French claimants. In taking over
all the A. E. F. installations the French Government agreed to hold
the United States harmless from all claims for property damage and
restoration. In the general settlement the French Government assumed
responsibility for all other claims of French nationals against the
United States and agreed to settle with the claimants. If, however, the
claims paid by France exceed 12,000,000 francs, America is bound to pay
the excess up to 6,000,000 francs. Except for this arrangement, the
American Government would have had to maintain in France for years an
organization for dealing with French individuals’ claims.
* * * * *
We are now in position to see in close approximation the financial
result to the United States of the international war business.
On the credit side we have the Cuthell settlements, amounting to
$48,716,080.99 in all--this figure, however, not including the Cuthell
Board’s settlement with the French, the debt of France on her American
war contracts being carried over into the general settlement effected
by the United States Liquidation Commission. We have, as a further
credit, the 6,000,000 francs which were the American share of the
French payment in the liquidation of the Anglo-American heavy tank
project. Finally, the general settlement of the Liquidation Commission
with the French Government brought to the Treasury the further sum
of $28,000,000. To all these credits must be added the $800,000,000
received from the sale of the A. E. F. property. The sum of all the
American credits (counting ten francs as a dollar) is approximately
$877,000,000.
From this credit, however, we must subtract, first, £17,726,685 13s
13d as the American obligation embodied in the termination contracts
made with the British Government by the Liquidation Commission, and
£2,946,511 2s 8d as our debt to England under the Burr-Niemeyer
Agreement. We must subtract also the $3,568,653.23 paid by the A. E. F.
in cancellation charges to individual European contractors. A final
subtraction is the 437,985,399.73 francs paid by the Liquidation
Commission for port dues and for the transportation of the A. E. F. on
French railroads. Translating pounds sterling and francs into dollars
at average exchange rates, the total debit of the United States is
found to have been about $120,000,000. The net balance, therefore,
in favor of the United States as a result of the international war
industrial transactions was the sum, approximately, of $757,000,000.