INTERALLIED DEBTS
“Your money lend and lose a friend” is an adage that the former
comrades in arms have been ruefully recalling ever since the stirring
days of the World War, when they were borrowing and spending with no
thought of the day of reckoning. We kept no books in which were charged
up to one another’s account the expenditure in human lives. We gave
our own lives and our son’s lives, and expected nothing in return. The
appalling loss of life and the human wreckage were cheerfully accepted;
for that was traditionally the expected sacrifice of war. Each member
of the coalition contributed without stint, for service on all the
fronts, all the fighting men it could muster; and if there was ever any
haggling about quotas, the public knew nothing about it.
But when it came to money and material wealth there were no free-will
offerings, no pooling of resources. Although money and credits
furnished the sinews of war and were used as weapons to crush the
common enemy, books were kept down to the smallest outlay. The Allied
powers did not forget to charge up every item against one another;
and while the soldiers were fighting on the fields of battle, the
accountants were buried in vouchers and ledgers, working night and
day to record the biggest expenditures the world had ever seen. When
the armistice came, there were outstanding bills. It was taken for
granted that accounts would be settled. On the books friends were to
all intents and purposes on the same footing as enemies. Whether it was
the individual in account with his own Government, or one Government in
account with another, it was assumed that amounts owing would be paid
with interest.
All the warring nations had internal obligations to meet. In the period
of reconstruction as well as during the actual war years, successive
loans had been floated, partly by pyramiding, at increasing rates of
interest. In every country the national debt had grown beyond belief.
Most of it was owed at home, but millions of people had patriotically
invested their own savings and reserve funds and the capital essential
to their business enterprises. Governments had to meet the interest
charges, and, because they needed to borrow still more money, their
people had to be assured that all that had been advanced would be
paid back. In many of the countries staggering under the load of
unprecedented internal obligations, budget deficits confronted the
Governments, and new loans had to be floated to keep abreast of current
expenses. And yet there were added burdens, for reconstruction, for
demobilization, and for liabilities of all kinds, most important of
which were pensions and interest on war loans. As if these seemingly
insurmountable obstacles to balancing budgets were not enough, the
vanquished nations had reparations to pay, and the victors owed
stupendous sums to one another. With the exception of the United
States and the British Empire, gold reserves were depleted, further
credit abroad was shut off, and paper money was progressively issued,
in defiance of economic laws, until inflation drove down European
exchanges to the lowest levels in the record of international finance.
In four years French money dropped to one-third of par, Belgian between
one-third and one-fourth, Italian one-fourth, Czechoslovak one-eighth,
Jugoslav one-twelfth, and Rumania one-fifteenth. Greek, Bulgarian and
Turkish money kept well above Rumanian. Poland, on the other hand,
shared with Russia, Austria, and (after the invasion of the Ruhr)
Germany the problem of keeping the paper money from becoming altogether
valueless. Hungary and the Baltic Republics (except Finland) gave up
the struggle of supporting their money in international exchanges in
the early part of 1923.
For a time the English-speaking peoples looked upon the decreasing
values of Continental European moneys with indifference or amusement.
Trade with the Continent, which could not pay pounds sterling or dollar
prices, fell off and threatened us with a crisis of over-production.
This was a danger to which we quickly adjusted ourselves, with
the consoling thought that the business would have had to be done
on credit anyway. Who could afford to sell on credit to countries
already virtually bankrupt and with a constantly falling currency? The
English-speaking peoples had the rest of the world to trade with, and
it seemed that there was nothing to do but to wait until some of the
countries affected by chaotic financial conditions became bankrupt and
repudiated their worthless paper money, as revolutionary France had
repudiated the _assignats_ and the American Southern States had seen
their Confederate dollars become worthless. The more stable European
countries could in time conquer the problem of inflation and rebalance
their budgets.
Were it not for the two intimately related problems of reparations and
interallied debts, Great Britain and the United States would probably
not have become involved in the political and financial implications
of the European financial situation. But all these countries owed Great
Britain and the United States large sums, representing either advances
made during the war or sums due on reparations account. This being the
case, it was impossible to expect the Continental European countries
to settle their accounts with one another until some agreement had
been reached with Great Britain and the United States in regard to
the accounts of all the Continental European countries with the
creditor nations. The problem of international debts was still further
complicated by two facts: that Great Britain owed nearly as much to the
United States as was owing to her from her European debtors; and that
the United States, while demanding preferred settlement for her bill
against Germany for the expenses of the army of occupation, had failed
to ratify the Treaty of Versailles and had made a separate peace with
Germany.
The American Government was unwilling to accept the thesis set forth
in the Balfour note of August 1, 1922, that Great Britain’s debt to
the United States should be considered in connection with the debts of
Continental Europe to Great Britain. It was unwilling, also, to defer
the payment of the Rhine occupation bill until the general question
of German reparations had been satisfactorily solved. Adopting the
attitude that “business is business,” the American Government not only
concluded a refunding agreement with Great Britain, independent of
European financial problems, and sent a Treasury official to France to
press the claim for America’s share in the German payments for military
occupation, but also announced its expectation that other debtors
should follow Great Britain’s example.
Of the Continental European nations Finland alone has arranged to repay
her obligation to the United States. The United States holds sufficient
German assets to cover reparations, and a German-American commission
met in Washington, in March, 1923, to adjudicate the claims of American
citizens against the German Government. No progress has been made in
the matter of claims against other enemy countries. France, Italy, and
the smaller European countries, except Finland, have made no move to
pay the interest and amortize the principal of the loans advanced by
the United States.
What has happened, however, as we have already seen, is that our
European debtors have announced the policy of making reimbursement
to the United States dependent upon the collection of reparations
from Germany and the other vanquished nations. The argument by which
they support this policy is easy to grasp. They say: “We cannot pay
the United States and Great Britain unless we receive the reparations
granted us by the treaties of the Paris settlement. If we modify or
waive our claims, as embodied in the Paris treaties, we must look to
the United States and Great Britain to cancel our debts to them.” For
several years this has been the answer of the French press to American
and British criticism of France’s reparations policy; on May 11, 1923,
it was stated officially in Mussolini’s reply to the German offer to
settle reparations on the basis of 30,000,000,000 gold marks.
American public opinion, while sympathetic to France and Belgium in
the Ruhr occupation, feels that debts should be paid all around, and
is unwilling to accept as valid the contention of contingent payments
or to realize that our European friends have the right to expect us to
let up on them if they let up on Germany. Europeans ask: “Why should
the conquerors pay, while the conquered go scot-free? Are we not the
victims? Were they not the aggressors? It is incredible to expect us to
forgive our enemies when you are unwilling to forgive your friends?”
The Americans retort, “Why should we pay the German reparations, for
this is what your proposal amounts to?”
The principal interallied debts are as follows:
1. France owes Great Britain and the United States $7,000,000,000.
2. Italy owes Great Britain and the United States 4,500,000,000.
3. Belgium owes Great Britain and the United States 900,000,000.
4. Great Britain owes the United States 4,750,000,000.
5. Russia owes France 4,000,000,000.
6. Russia owes Great Britain and the United States 500,000,000.
7. The smaller states owe Great Britain, the United
States, and France more than 3,500,000,000.
According to the ratio finally decided at the Spa Conference, France,
Great Britain, and Italy are to receive respectively 52, 26, and 10 per
cent of whatever reparations Germany finally pays, while Belgium is a
preferred creditor of Germany, and Italy has a lien on the major part
of Austrian and Hungarian reparations.
The figures are only approximate, for they do not take into account
compounded interest; and there is some doubt as to the propriety of
including the Russian obligations to France, most of which date from
before the war and are owing French nationals and not the French
Government. Roughly speaking, the United States is the largest
creditor, with $11,000,000,000 owing her, while Great Britain follows
a close second, with $10,000,000,000 on her books against Continental
European countries. Great Britain stands to be the heaviest loser;
for the payment of none of her loans is assured, while more than 40
per cent of the American advances is represented by the loan to Great
Britain, arrangements for the paying of which with interest have
already been concluded.
When we consider the short time that the United States was in the war,
its cost was staggering. And we must remember that the United States
lent no money out of surplus, but that her ability to grant the huge
credits to her associates in the World War was due to the successive
Liberty loans and the Victory loan, which are internal obligations the
interest and amortization charges of which are being carried in our
national budget. On the other hand, the money did not actually leave
the country, but was spent by the borrowing Governments for goods and
food-stuffs manufactured and raised in the United States. The repayment
of Great Britain’s debt does not work great hardship either on the
British or ourselves; for Great Britain and her Dominions are large
holders of American securities and have extensive investments in Mexico
and Central and South America. The Continental European belligerents
sold most of their North and South American securities during the war.
The repayment of $6,500,000,000 to the United States would have to
come largely through an excess of exports over imports from the United
States.[28]
The transfer of surpluses of wealth from one country to another is an
economic problem of both reparations and interallied debts that has not
yet been solved. In the midst of all our discussion of the insistence
upon the settlement of reparations and interallied indebtedness, where
is the economist who has shown us how this can be done without the
willingness of French markets to absorb German goods and American
markets to absorb European goods?
However little it may appeal to us on first sight as a business
proposition to cancel French and Italian debts in return for the
sweeping modification by these two nations of indemnity demands upon
Germany, we may yet come to see that such a course would be not only
a magnificent contribution to world peace but also good business for
ourselves. Is it not the alternative to a low tariff and dumping?
Will it not lead to the economic rehabilitation of Europe, to which
reparations and interallied debts are now the barriers? For our
farmers and manufacturers alike, is not the restoration of Europe’s
purchasing power a benefit worth a sacrifice of loans that either are
bad debts or can be repaid only to our detriment?
Interallied indebtedness has also its psychological side. “Your
money lend and lose a friend” is a true saying. The attitude of the
American people on interallied indebtedness is a serious obstacle
to Franco-American and Italo-American friendship. We cannot exact
payment of the sums owing us without creating dislike, antagonism, and
resentment. This may be a sad fact, but it is none the less true.
In conclusion, there are two points upon which Americans have the right
to insist, and it would be foolish to cancel interallied indebtedness
without insisting upon them.
The material advantages the United States gained from the World War
were far less than those gained by the other victorious participants.
Putting aside as hypothetical the argument that Germany, had she won,
would have attacked us next (for it is an argument that does not take
into proper consideration the importance of sea-power), we can say
to our European comrades in arms, including Great Britain, that they
ought to take into account not only the intangible rewards of victory,
such as crippling a powerful adversary and competitor, but also the
spoils--reparations already made, in which we did not share; shipping;
territory annexed; and the division of rich German colonies and a
portion of the Ottoman Empire. It is idle to say that these are not
worth while and are liabilities rather than assets. If they are of no
value, what shall we think of British and French statesmen who insisted
on having them and who have been willing to spend blood and treasure,
and to risk the friendships cemented in the war, in order to possess
and enjoy them?
Even when the idea of reparations was enlarged to cover pensions,
the United States did not lay claim to a share. This was in itself a
generous contribution to our European associates. Nor did we ask for a
sphere of influence in Turkey or a share in the German colonies. Our
attitude was one of complete disinterestedness and of an unselfishness
unparalleled in the history of peace-making by victorious coalitions.
If we are now asked to make an additional contribution, should we not
insist first of all upon a _quid pro quo_ for our money in the form
of definite understanding about the open door in Africa and Asia,
especially in the mandated territories? Ought we not also to insist
upon the military and naval neutralization of European possessions on
the American continent and reciprocity in trade agreements between
all these possessions and the countries of North, Central, and South
America?
The second point is one on which we need light badly. Just what are
the holdings of citizens of debtor nations and of debtor governments
in the United States and other parts of America? Our debtors are
pleading poverty and the impossibility of paying reasonable interest,
much less of amortizing, what they borrowed from us. Just what truth
is there in this plea, which has the tacit indorsement of some of our
largest banks? Speaking at Toledo on October 16, 1922, Secretary Hoover
declared:
The settlement of international balances between America and Europe
contains factors that are in their volume unique in international
commerce. For instance, the annual expenditure of American tourists
abroad, the remittances of emigrants in the United States to their
relatives, the growing volume of investment made by our people in
foreign countries, interest upon investments in the United States
of private citizens of our debtor countries, and other items of
so-called invisible exchange combine to furnish a large supply of
our money to Europe with which they in turn can make payments of
interest on debts or for the purchase of goods from us. In total to
the world these sums amounted to about $1,500,000,000 in the last
fiscal year, which was, indeed, a year of depression, and these
are sums which with peace in the world will grow constantly in the
future. These sums are largely expended directly or indirectly in
our debtor countries.... During that fiscal year the world had
a paying power to us in excess of goods bought from us of about
$750,000,000.
Mr. Henry A. Forster, the New York lawyer, has gathered interesting
statistics from various sources to prove that Great Britain, Germany,
and France receive from investments abroad, many of them in the United
States, incredibly large annual interest. It may be, therefore, that
the United States is not the creditor nation--in the actual sense of
that word--that she is assumed to be; and before we release any of our
debtors abroad (they are debtors to the holders of American Government
securities, and not to our Government out of Treasury surplus), it
would be well for us to find out what are the investment holdings of
these Governments and their citizens in securities of every kind in the
United States, on which interest is being sent abroad. Then there will
be a clearer and fairer conception of the merits of this question on
both sides of the Atlantic.