The Real War-Debt Hoax


The Real War-Debt Hoax


The Real War-Debt Hoax


THE WORLD watches anxiously while the Government of the United States remains in a state of suspended animation imposed by a constitution that it has long outgrown. The international economic structure is weakening dangerously at many points, but the only legislative body with power to control the situation refuses to act, because it disagrees politically with its present chief executive and prefers to wait until the new president takes office. Although such a catastrophe as we now face is not inclined to regard the fine points of political expediency, this blaze of financial instability which has swept the world must proceed unchecked until the ceremony of inauguration ends the four months tragedy of a government incapable of action in one of the most critical periods of the world’s history.

This delay became inevitable with the refusal of Congress to accept President Hoover’s urgent appeal for an immediate reconsideration of the war debt settlements. But will there be any effective action when President Roosevelt and the new Congress take office? That is the question uppermost in the minds of those throughout the world who seek some outlet from the maze of exchange difficulties into which international commerce is now plunged by the overhanging uncertainty of the settlement of these inter-governmental obligations.

The American Ambassador to Great Britain, Andrew W. Mellon, was not particularly encouraging when he gave a statement in London on January 12, 1933, in which he explained with surprising frankness that on account of the administrative impasse which will continue until March 4, nothing could be done about war debts for the present, as Secretary of State Henry L. Stimson “is not in a position to give me any definite instructions.” Referring to the steps which might be taken by the new administration, he then went on to say, “On the whole, however, I am unable to ascertain any apparent change in the attitude of Congress toward European debtors.”

Canada is vitally interested in the outcome, although it will not directly affect us. We are the only nation of importance, other than the United States, which came through the Great War with no external war debts. All-round reduction or cancellation will merely have the effect. therefore, of reducing or wiping out the small percentage of German reparations to which we are entitled. We are deeply interested, however, because if it is true that cancellation or a very substantial reduction is necessary to revive trade between nations and restore the volume of foreign business upon which we are so dependent for prosperity, then we are naturally anxious that it should be done without delay.

There are other reasons for our interest in this question. As a British nation on the North American continent, we are the immediate link between the United States and the British Empire. Bound by loyalty, affection and commerce to that larger political group beyond the seas, w'e also have business and other interests that bring us in daily contact with the American people. Canadians are fortunately placed to act as interpreters and extend the possibility of friendship between the English-speaking peoples of the world.

But, fully realizing our opportunity and responsibility, there is no reason why we should ignore misstatements which reflect on Great Britain or lead to a misunderstanding of the greatest economic problem the world nowfaces.

Good Intentions Misrepresented

AT THE very time when men of good will, on both sides ^ of the Atlantic, were seeking in every way possible to find some solution of the difficulties raised by the December payment of interest, the Saturday Evening Post of December 10 published an article by Samuel Crowther under the title, “The Latest War-Debt Hoax,” which is not only misleading and inaccurate, but employs appeals to prejudice that are particularly dangerous at a time like this. Mr. Crowther tells us that “The powers lately associated with us in the prosecution of the Great War have stopped appealing to us to be good fellows and forget all about the money we loaned to them. Also, they have stopped abusing us because we would not be the kind of good fellows they wanted us to be. They have entirely changed their strategy. They have quit the appeal to our charity and turned to our greed.”

This is a fair illustration of the tenor of the article. There are two reasons why Mr. Crowther’s ill-natured discussion of the problem should not pass unnoticed. In the first place, it must be remembered that the Saturday Evening Post reaches a reading public of several million people, and it undoubtedly has a very considerable influence on public opinion in the United States. In the second place, it is significant that this article is written to precisely the same editorial formula that was clearly laid down by the Saturday Evening Post for its special writers six years ago, when evidence of a strong opinion in the United States in favor of a reconsideration of the war debts settlement began to manifest itself.

There have been other articles in the Saturday Evening Post during the past year on the same subject. Two of these are particularly worthy of comment. “Trading in our War Debts” appeared in the issue of November 5 under the name of Henry French Hollis, who is a former United States senator, while on March 19, Garet Garrett, gave his yearly misinterpretation under the title, “Book of the Debts.” Except in the extent of his inaccuracies, Garet Garrett’s articles have not varied much since he opened the Saturday Evening Post’s campaign of misrepresentation in 1927 with “The League of Debtors.”

There are interesting similarities in the three articles which illustrate the danger of well-organized propaganda of this type. Each suggests that there has been no sincere attempt to make payment. Garet Garrett informs the people of the United States that “All the principal debtor governments, from the beginning, their reluctant settlement notwithstanding. have had but one thought about their obligations to the American Treasury. That has been how not to pay them, and yet how not to repudiate them.” Mr. Hollis suggests that the United States is being asked to “write off gratis the total of our debt, to sponge without payment the slate above our empty till.” Samuel Crowther says that “there is plenty of evidence of unwillingness to pay.”

These statements could only leave the impression in the mind of a person who is not fully acquainted with the facts that no serious effort has been made to pay. This is as unfair as it is untrue. Great Britain, which bled itself white both physically and financially in the Great War, particularly during the time that the United States was also a combatant, has already paid on account of war debts the colossal sum of $2,007,348,300. But this, of course, is one of those minor incidents of the problem that the writers in the Saturday Evening Post choose to ignore.

already paid on account of Continued on page 36

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The Macmillan Report

"■yO ILLUSTRATE the nature and extent I of the inaccuracies in these articles it will be sufficient to deal with that which appeared in December, but before doing so, one statement of Garet Garrett’s should be quoted to illustrate the type of deliberate misstatement that is doing so much to confuse the public of the United States on this important issue. He says, “Everything the Allies got in this country, they borrowed; for everything we got in the Allies’ countries, we paid cash. Never through all the tumult about war debts has this detail of truth been mentioned by the Allied governments to us, nor by any of them to their own people.”

This is not surprising because it is not true. Mr. Baldwin, in his statement at Washington to the World War Foreign Debt Commission, said, “Out of seven billion dollars worth of goods bought after the United States came into the War, we paid for three billion dollars, leaving four billion dollars which were supplied on credit.” Mr. Baldwin’s figures were not questioned by Mr. Mellon nor any other member of the Commission. Garet Garrett apparently has a habit of treating a few billion dollars as a matter of no importance.

Mr. Crowther, in arguing strenuously against any suggestion of reduction of the war debts, says, “It is true that the world is ! suffering for the lack of a stable money to ; trade in—since so many countries went off ! the gold standard—but that this is due to I payments on the war debts is not sustained by the facts.” In support of this contention,

I he tells us that “The Macmillan Committee I of Great Britain, in its distinguished report, squarely puts the onus of falling prices upon the policies pursued by the central banks.” This is an interesting example of the sort of half-truth that has been employed with great effect in many articles on the subject. The following extract from the Macmillan Report is interesting in the light of the above statement.

Paragraph 153. “Thus there has arisen in many countries a great stress on gold reserves. That pressure inevitably takes the form of a contraction of credit to prevent the undue depletion of gold reserves, with the result, if the strain is continued, of a diminution in business and investment activity and a fall in prices. It is to the instability of post-war international finance that the pressure must be largely attributed. Among the causes of that instability, the following are the most important:

“(a) the burden of war debts.”

It is perfectly true that the Macmillan Committee mentions the policy pursued by the central banks as one of the causes, but it places the burden of war debts at the top of the list.

This quotation from the Macmillan Report also answers another statement of Mr. Crowther’s to the effect that “No responsible body of experts anywhere has found that war debts and reparations have been a major cause in the fall of prices and the wrecking of money systems.”

Perhaps he will accept the above statement from what he terms a “distinguished report.” Perhaps he might also be interested in the opinion of the late Calvin Coolidge. "Whatever else may be involved, two lessons seem obvious from the present condition of ourselves and the rest of the world. The immediate crisis has arisen from trying to make a good many governments, of which Germany is the particular example, assume larger financial burdens than their

people can bear. The result was general economic disturbance.”

He could hardly be expected to agree with the following statement in the British war debt note of December 1 last:

“The causes of the depression may be manifold, but it has been generally recognized that war debts and reparations have been one of the major causes, and that a settlement of these debts, which will relieve world anxieties under this head, is an indispensable condition of a revival of general prosperity.”

Reparations and War Debts

BUT ONE would have thought that the Special Advisory Committee of the Bank for International Settlements, composed of representatives of the United States, Great Britain. France, Germany, Italy, Belgium and Japan, which met at Basle on December 7, .1931, would have been accepted even by Mr. Crowther as a “responsible body of experts.” In their report, the Committee stated :

“In the circumstances, the German problem (payment of reparations)— which is largely responsible for the growing financial paralysis of the world —calls for concerted action which the governments alone can take. But the problem has assumed a world-wide range. We can recall no previous parallel in time of peace to the dislocation that is taking place and may well involve a profound change in the economic relations of nations to one another. Action is most urgently needed in a much wider field than that of Germany alone . . . The adjustment of all inter-governmental debts (reparations and other war debts) to the existing troubled situation of the world— and this adjustment should take place without delay if new disasters are to be avoided—is the only lasting step capable of re-establishing confidence, which is the very condition of economic stability and real peace.”

Mr. Crowther reiterates the assertion that has been repeated ad nauseam by the Saturday Evening Post that there is no direct relation between the payment of reparations and war debts—a thesis which has been more widely accepted in the United States than most of those propounded by Mr. Crowther. He tells us that “The absolute linking of reparation payments among these nations to debt payments to us is not obvious. The relation and the cancelling of the inter-Allied debts is a purely European question, and is largely an affair of bookkeeping, almost a clearing-house transaction.”

There is a familiar ring to this statement. Perhaps Mr. Crowther read these words of the editor of The Saturday Evening Post: “Reparations are in no sense our affair. They are purely a business between Germany and the several allied nations.”

Let us adopt the answer to this proposition given by Dr. Nicholas Murray Butler, the President of Columbia University.

“For various reasons, but chiefly due to the prevailing depression, these nations are not now financially able to pay the United States the amounts due, unless they in turn receive financial payments from Germany on account of reparations. It is, therefore, a purely legalistic and technical proposition for us to take when we say that there is no relationship between reparation payments and inter-governmental war debts . . . Our Government, in insisting upon a merely legalistic statement of this situation, has persistently closed its eyes to the facts. It is high time that its eyes were opened.”

Continued on page 38

Continued from page 36

But in any event, whether the argument is legalistic and technical or not, the United States can no longer deny the direct relation between reparation payments and war debts payments, because the Hoover moratorium of 1931 directly connected the two types of inter-governmental obligations, and made the application of the moratorium conditional upon the postponement of reparation payments.

If the Lausanne agreement which postponed German payments is to stand and Germany to be saved from chaos, it is difficult to understand how war debt payments which were predicated on the expectation of reparations can possibly be paid.

Misrepresentation of the facts about j war debts is by no means confined to the Saturday Evening Post. The practice appears to be endemic with certain publications and individuals in the United States.

Ten Eyck’s Suggestion

NO SUMMARY, however brief, of the past year’s flood of misstatements about I the war debts would be complete without the I name of the Reverend Charles E. Coughlin,

; of Detroit, whose opinions on temporal ¡affairs reach a far-flung audience over the I radio every Sunday. His so-called sermons are printed and issued in pamphlet form under the imprimatur of the Rt. Rev. M. J. Gallagher, bishop of Detroit. This official recognition unfortunately conveys the impression of religious sanction for what can only in the most moderate terms be described as blatant and inaccurate propaganda.

His listeners were told for instance:

“We gave the flower of our youth, we sacrificed our honor, we jettisoned the advice of Washington who almost with his dying lips begged us to refrain from foreign entanglements, and to climax it all we subscribed fourteen billion dollars as if it were not more than fourteen hundred cents for the purpose of perpetuating a war of hatred and greed and avarice among the nations of Europe. We not only condoned their sins, but we bestowed prizes upon them for having committed them . . .

“Generous hearted America cancelling fourteen billion dollars of actual war debts to alleviate the tax burdens of Europe and imposing upon the shoulders of our own fellow citizens the burden of bearing the yoke through years to come.

“When speaking of war debts, remember that for all practical purposes there are now no such things as war debts owed to us by the European nations. Our Government long since has cancelled them.”

It should not be necessary to point out that there is not even the slightest color of truth in this statement. Great Britain, which owes more than half of the total war debts as funded, borrowed on account of war purchases $4,074,800,000. Of this, $3,796.000,000 was advanced up to November, 1918, and $278,800.000 after that date for payment of contracts made before the Armistice. Under the settlement by the World War Foreign Debt Commission, Great Britain was obliged to repay the whole amount of these loans with interest at three per cent for the first ten years and at 3.5 per cent for the remaining fifty-two years of the principal payments. It should be mentioned that, in funding the debt, interest was added to the date of settlement, December 15, 1922, at 4.25 per cent. Thus no part of the British war debt has been cancelled.

In an entirely different category, but also contributing substantially to the mental confusion which is so seriously retarding a proper consideration of the question, are statements made, probably without bad faith, by prominent public men, who do not take the trouble to understand the problem before expressing their views.

We had, for instance, the suggestion by Peter G. Ten Eyck, President of the New York State Waterways Association, that Great Britain should cede to the United States that part of Canada lying south of the St. Lawrence River as part payment of her war debt to the United States. As Canada owes no part of the British war debt, either directly or indirectly, and as Canada also, apparently unknown to Mr. Ten Eyck, boasts national sovereignty, it is hard to understand how anyone of any intelligence could make such a suggestion seriously. Yet it is to be hoped that a man of Mr. Ten Eyck’s standing is not joking about a problem with such grave implications.

The Rights of Inhabitants

THEN we have the suggestion made from time to time that Great Britain should pay her debt by ceding the possessions in the West Indies and South America. This proposal is supported, for example, by William Gibbs McAdoo in his recently published autobiography, Crowded Years. In discussing war debts, and opposing the suggestion of cancellation or reduction, Mr. McAdoo, who, it will be remembered, played the classic rôle of Pooh-Bah in the government of his father-in-law, the late President Wilson, tells us that, “America’s power, thrown into the scale at the critical moment, won the war for the Allies. It was won with our men and our money. This is not a boast; it is not a reflection on the gallant armies of the Allies; it is a mere statement of fact. I know that it has been, and is, disputed, but it is nevertheless true.’’ After this modest summary of American participation, he goes on to explain that these were ordinary inter-governmental debts, acknowledged by promissory notes, and should be dealt with on a strict commercial basis. He says:

“In my judgment, cancellation is an academic question. The great body of public opinion in the United States is opposed to it. I doubt that our people will ever consent to any plan which includes an outright cancellation of these loans. They are keenly aware of the fact that Great Britain, France, Germany, and the rest of them did not ask our advice before they began the war. If they had consulted us, we would have advised them not to fight. But . they did not want advice; on the contrary, all of them rejected our offers of mediation, not only at the beginning of the war, but later on—even as late as 1916. The war grew out of purely European conditions, and was provoked iargely by military tension. It was not our war at first. We were forced into it finally against our will through Germany’s systematic policy of trampling on our international rights. Moreover, we entered the war as an independent power. We never joined the Allies; we co-operated with them, but our military co-operation was simply for the sake of convenience and efficiency. Their aims were different from ours. They wanted territory and indemnities, while our object was to protect our rights against the militaristic empire of Germany.”

Surely Mr. McAdoo has not forgotten that after the United States declared war, Great Britain’s contribution to the destruction of the “militaristic empire of Germany” was immeasurably greater in every respect than that of the United States. That is a factor which perhaps should not be lost sight of entirely when it is remembered that these obligations were incurred for the purpose of obtaining supplies necessary for the conduct of a war in which the United States was engaged in a joint enterprise, whether in the isolated rôle of an “independent power” or not.

There is also a vast difference between the ordinary private transfer of land in payment of a debt and the transfer of a territory which carries with it hundreds of thousands of human beings whose life has become a part of that soil. From the dawn of our civilization, parents have not been allowed to sell their children, and it would seem that the people who live in the British possessions in the West Indies and South America might very properly point out that they object to being given as settlement for debt by their parent government.

If this suggestion of Mr. McAdoo’s sound, and it has many supporters in United States, perhaps he will, to be logical, agree that German reparations, which also debts evidenced by a promise to pay, could be settled by transferring, let us all of Germany west of the Rhine to France, the North Sea coast areas to Great Britain, and other smaller areas to Italy and Belgium, while France and Italy in turn might place substantial parts of their soil under British flag. It has interesting possibilities indeed. If one proposition is logical, so the other. Perhaps it could be worked out a variation to the Young Plan.

In the midst of all this confused thinking, deliberate misrepresentation and ill-will, there any wonder that many people in United States completely misunderstand the questions involved? It cannot be often repeated that Great Britain’s suggestion immediately after the war that there should be an all-round cancellation of debts and reparations would not benefit England directly by one cent. Great Britain, in fact, by this all-round cancellaion gives up considerably more than twice as much as the United States. It has, from the very beginning, been suggested only the belief that it would be good business would ultimately be necessary to restore stable international financial relationships.

Let it be recalled to the credit of British statesmanship that Lloyd George, representing Great Britain at the Conference called in January, 1921, to fix the reparation payments under the Treaty of Versailles, appreciated the situation in words that as applicable today as they were then. must, of course, be admitted that Great Britain had some previous experience in sort of financial problem in the past.

Payments in Gold Impossible

DURING the Napoleonic Wars, Great Britain occupied exactly the same rôle relation to the European powers associated with her in the war, as the United States during the last war. When the war ended 1815, England was owed a sum quite commensurate with the amount now owed to United States, having regard to the extent international commerce at that time. Voluntarily, and because of a willingness to the realities of the situation, England celled these debts: and, if any parallel can drawn, it may be interesting to recall shortly afterward Great Britain began period of her greatest prosperity. Perhaps this experience in the past may have guided British statesmen in their views. At rate we find that in 1921 Lloyd George said:

“There is nothing worse than to devote your life to chasing exaggerated hopes. I have seen many individuals whose lives have been blighted by a process of that kind, and I should be sorry to see the allied nations making that mistake—not satisfied with what they can reasonably hope to get, devoting their energies and thoughts to pursuing something which is far beyond their reach.

“Now what is the difficulty in exacting the total amount of our claims? It is the difficulty which is realized by all those who have been associated with the finances of these countries, more especially during the last few years. Before the war things went smoothly, and somehow or other we were able to get goods from abroad and pay for them, and nobody asked any questions; nobody bothered much as to how it was done. But when the war forced us to increase enormously our purchases abroad, whilst at the same time we ceased to export abroad in order to pay for our purchases, we began to realize

The difference between paying a debt | inside one’s own country and paying it ! across the frontier is what Great Britain has been trying to make clear ever since the first proposal to the United States for a : general cancellation of war debts on February 4, 1920. At no time has Great Britain asked to be benefitted at the expense of the United States. The proposal has been to cancel approximately $10.000,000,000 of war debts owing to her if the United States will do the same thing. It has at all times been based on the fact that the only way these debts can be paid is for the debtor nations to create trading surpluses with the ! creditor nations. This surplus becomes an exchange credit in the creditor nation which may be applied on account of the debt. It has also been recognized, even by Mr. Crowther, that payments could not be made in gold except to a very limited extent.

There is no doubt that the debts were originally incurred with the expectation that they could be repaid. There is no doubt also that they were of immeasurable assistance to the Allies as well as to the United States. No matter what individual opinions may be as to the justice of setting off against these debts the services of the Allies during the time that the United States were at war but unable to take any active part, the fact remains that this has never been suggested by Great Britain. France or Italy. The proposal has at all times been based on the purely economic ground that the existence of these vast intergovernmental debts offers a serious obstacle to the restoration of world trade and that from the point of view of selfinterest the creditors will benefit from cancellation as much as the debtors.

Institute of Economies Report

“THE PRINCIPLE clearly enunciated by I Lloyd George and Lord Balfour more than twelve years ago is repeated in Great Britain’s note to the United States of December 1 last:

“Repayment of these war debts necessitates unnatural transfers which provoke wide-spread economic evil. In so far as they have been paid in the past, their payment was made possible, directly or indirectly, by further foreign lending on the part of the creditor countries, which temporarily conceal but eventually aggravate the difficulties.

“In the long run, international debts can only be paid in the form of goods or services. But as the Basle report of August 18, 1931, truly pointed out. in recent years the world has been endeavoring to pursue two contradictory policies in permitting the development of an international financial system which involves the annual payment of large sums by debtor to creditor countries, while at the same time putting obstacles in the way of the free movement of goods. So long as these obstacles remain, such movements of capital must necessarily throw the world’s financial balance out of equilibrium.”

Mr. Crowther calls this a hoax. The Rev. j Charles E. Coughlin tells us in one of his ! so-called sermons that “international diplomacy is in the act of fabricating new lies.” j The Boston Sunday Advertiser saves time by telling us that those who make this proposal are “welshers.” Others adopt variations of the same theme. But the real war-debt hoax is the utterly false conception of this ¡ paramount economic problem which they are creating in the minds of a great many people in the United States.

Freely admitting that the question of reduction or cancellation of war debts is far from being a simple problem and that there undoubtedly are two sides to the j picture which should be given full consideration, it is surely not too much to hope that future discussion may be based on facts and not on malicious fabrications such as these which have been quoted.

It is encouraging to see the ever increasing number of outstanding American economists and business men who urge an immediate reconsideration of this question by a competent commission similar to the World War Foreign Debt Commission.

There have been many recent publications in the United States clearly presenting the real issues. Most notable of these is the report of the Institute of Economics of the Brookings Institution at Washington under the title, “War Debts and World Prosperity.” The Institute of Economics was founded by the Carnegie Corporation with the provision “that the Institute shall be conducted with the sole object of ascertaining the facts about current economic problems and of interpreting these facts for the people of the United States in the most simple and understandable form . . . without regard to the special interests of any group in the body politic, whether political, social or economic.”

This book is much the most comprehensive analysis of the subject compiled, and it should be read by every member of the incoming Congress. It deals with the whole problem solely from the economic point of view. After an exhaustive and dispassionate presentation of all the facts, it comes to conclusions which should go far toward dispelling the confusion and misunderstanding which have arisen.

It comes to two clear-cut conclusions:

“1. A complete obliteration of all reparation and war debt obligations would promote, rather than retard, world economic prosperity.

“2. The collection of these inter-governmental debts would be economically detrimental, rather than beneficial, to the creditor countries.”

The book then closes with this paragraph which should provide the most effective answer to those who impute bad faith to Great Britain in the proposals she has made for an all-round cancellation of reparations and war debts in the interest of debtors and creditors alike.

“The basic economic implications of the war debt problem are clear. The attempts to collect obligations, resulting not from productive economic developments but from the destructive processes of the war, have only served to impede the restoration of international economic equilibrium and world prosperity. While the obliteration of the war debts would not solve all the manifold difficulties under which the world is laboring, economic analysis leads unmistakably to the conclusion that the restoration and maintenance of world prosperity will be rendered much easier if the disorganizing effects of the war debt payments are eliminated once and for all.”