Senator KNOX. Where do you find that, Mr. Baruch, in the treaty; what page and section?

Senator SWANSON. It is on page 351, subparagraph "e." Now, I understand that if Germany has any claims against the United States they must sue in our courts?

Mr. BARUCH. A German citizen; yes.

Senator SWANSON. Now, if a citizen of the United States has a claim against a German in Germany, Germany has agreed to create a mixed commission to ascertain that indebtedness.

Mr. BARUCH. Yes, sir.

Senator WILLIAMS. Senator Knox, what you are inquiring for is subparagraph "e" on page 351.

Mr. BARUCH. Does that answer your question, Senator?
Senator KNOX. Yes; thank you.

Senator FALL. May I ask you a question? Why do you think that is a better proposition for the people of the United States to go to this mixed arbitration tribunal rather than to a clearing house?

Mr. BARUCH. I can answer that question more concisely by just reading three paragraphs here from this print which I had hoped to place in the hands of each member. It is an explanation of each one of the economic clauses, and giving under the head of each one the reasons for the clause as it is.

Senator FALL. I will withdraw the question until we have those data.

Mr. BARUCH. You will find it quite clearly explained there.

Senator POMERENE. Those are the explanations made by our representatives, of the text?

Mr. BARUCH. They were explanations made by our representatives, giving our understanding of the clauses.

Senator WILLIAMS. Made by the subcommittees to the group?
Mr. BARUCH. Yes.

Senator POMERENE. In other words, they were reservations to the treaty?

Mr. BARUCH. No.

Senator MOSES. These explanations were made by the groups which you have described as composed of various gentlemen gathered in subsidiary bodies, who were dealing with the economic clauses of the treaty in the first instance? They represent your own arguments? Mr. BARUCH. Yes, sir.

Senator MOSES. And after being put in this printed form they were put in the hands of the five commissioners or plenipotentiaries, for their information?

Mr. BARUCH. All the economic commissions, of the five countries, came together, and then when we had agreed we reported to the commission of four, and they accepted it; and then it was put in the hands of our drafting commission. Does that answer your question? Senator MOSES. Yes; except that it seems as if there was some intermediate step left out as to how our plenipotentiaries got into possession of it.

Mr. BARUCH. They were advised.

Senator MOSES. In writing?

Mr. BARUCH. The minutes of each meeting were sent to them. Senator POMERENE. Were these explanatory notes incorporated in your minutes which you submitted to the commission?

Mr. BARUCH. So far as I know this is the only commission that made its report in this way. We got this up for our own particular benefit, so that we could digest the subject. You will notice that the treaty is a very large volume, and we got this up as a ready reference more for our own selves than for anything else.

Senator WILLIAMS. It is the explanation of your conduct-explains the result you arrived at. Suppose you just read that to the committee.

Mr. BARUCH (reading):

Article A and Regulation X provide for a system under which clearing offices are created, one between each allied State and Germany, for the settlement of debts. In order to make the plan workable, it is provided that:

(a) Each State shall guarantee the payment of all debts owing by its nationals to nationals of the enemy State, except in cases of the insolvency of the debtor, before the war;

(b) The proceeds of the sale of private enemy property in each State shall be used by the said State to pay the debts of its own nationals;

(c) Debtors and creditors in States formerly enemy are forbidden to settle their debts with each other or to communicate with each other regarding them.

This plan may be desirable for Great Britain, but is extremely undesirable, if not actually impossible, for the United States. It is accordingly recommended that it be not accepted by the United States.

1. Our Government should not accept the burden of guaranteeing the private debts owed by its citizens. This would be an obligation of unknown and probably very great proportions.

2. The treaty should not compel the United States to use the private property of Germans in our country for the payment of debts owed by other Germans to our citizens. To do so might amount to confiscation.

Senator FALL. If we do not guarantee the debts due to our own nationals as other nations propose to do, and do not use the excess of the proceeds of sales of alien property for the discharge of such debts, we are the only nation that will leave our citizens entirely unprotected, except as to their recourse against the nationals of the other country through other tribunals.

Mr. BARUCH. Congress has the power to do what it wishes.

Senator FALL. You mean to say that although you recommend to the contrary, Congress could go ahead and pass laws providing for the distribution of the proceeds of the sale of property in the hands of the Alien Property Custodian?

Mr. BARUCH. I said that those were the views as expressed by myself. That is still my present view, and I will be glad to state my reasons.

Might not Mr. Palmer make a statement in reference to this?

Senator SWANSON. Suppose you finish the reading of your own

statement.

Mr. BARUCH (reading):

Moreover, Congress has expressly reserved to itself the power to decide what shall become of the enemy property in the United States. On the other hand, there seems no objection to the United States retaining the enemy property, for the present, as a hostage or pledge to secure American rights, and then deciding in its own way what is the fair and proper course. To accept the clearing-house system would commit the United States to a course which, it is firmly believed, Congress will not wish to follow. 3. To forbid our citizens from adjusting their debts and accounts with former enemies privately would be a wholly unnecessary and unjustifiable interference with private affairs. It would be a most serious obstacle in the resumption of business and commercial relations. Our financial houses and business firms had many complicated accounts, and transactions which were suspended by war. These houses, and especially the bankers, must speedily adjust their financial accounts. Otherwise commerce can not be properly resumed. The clearing-house plan would compel all such adjustments and all payments to be made through governmental agencies.

As regards other countries than the United States, the adoption of the clearing-house plan by some of them would be extremely detrimental to their own interests, and might be ruinous to a nation whose balance of private debts was largely in favor of Germany.

The principle is already accepted-Article A, clause "e"-that any allied State may exclude itself from the operation of the clearing-house plan.

Now, may Mr. Palmer make that statement?

The CHAIRMAN. Certainly.

Senator FALL. Before he makes that statement, let me ask this: How are we going to facilitate the resumption of business between these individuals when we leave it up in the air and wait for Congress? Mr. BARUCH. These individuals can privately proceed, just as they are doing now.

Senator FALL. This will, then, facilitate rather than retard the settlement of these private affairs although, as you say, Congress yet has the power to step in and settle it.

Senator FALL. Do you desire to make that statement now, Mr. Palmer?

STATEMENT OF MR. BRADLEY W. PALMER.

Mr. PALMER. The entire subject is very complicated, difficult to approach and to understand, and in order to answer the questions I think it would be desirable to read the explanatory statements made by the American delegates to each of the sections, which are interlocked. I did not intend to make a statement now, because I wished to go into the subject fully and in detail. What I did wish to call the committee's attention to at the outset is that the rights and interests of the American nationals are fully protected; are protected more than any other nation, or at least as much as any other nation. There is no distinction between the two. It is a complicated and difficult situation, and the clearing house system is merely a method of procedure. The British Government and the French Government devised that plan during the progress of the war to meet a situation and condition that did not exist in the United States, arising from this state of facts. The war struck England and France suddenly, in the midst of all their involved transactions with the enemy, and it threw their business affairs into chaos. Never was there such a condition as that before. I do not know the exact details, because they are very confidential, but I understand that it was necessary for the British Government to step in and put its guarantee back of a great many different classes of private obligations, such as acceptances. Otherwise, the great commercial houses of Great Bitain and of London would have gone down as the result of that. The difference with us was that before we entered the war, war conditions had been going on for two and a half years, and our business men had accommodated themselves to war-like conditions, so that when we entered the war the same condition did not exist and was not threatened, and it was not necessary that our Government should interfere in private commercial transactions. The result was that England and France studied what they should do to take care of their citizens after the war was over, and they evolved a clearing system. The object of that system was to enable their merchants to adjust their relations promptly after the war. Some time during 1917, I think, the

British Government here in Washington explained their system and their theory to us-to the 1epresen.atives; to different governmental officials. We gave it a cursory examination, because we struck right away what we considered a fundamental obstacle, the proposition of the Government guaranteeing the private obligations owed by its citizens, and we never could get over that.

Senator WILLIAMS. You also struck the obstacle of forbidding a man's settling his own debts to the Germans?

Mr. PALMER. That was a minor obstacle, although it was important. We never could get over that, and we had many discussions or talks about that in Washington prior to the termination of the war.

Then, when the peace treaty was proposed, this plan was suggested as a portion of the peace treaty, and the American delegate on the committee happened to be informed of that because of these discussions we had had in Washington, and the American delegate said right away, "Is it essential that the Government should guarantee the private obligations?" And that was an essential part of the plan. It could not be worked out without that. Neither could it be worked out without forbidding communications between merchants in both countries. Neither could it be worked out without the obligation to take a German's property, or the proceeds of his property, and use it to pay another man's debt in that country.

The American delegate did not think it was necessary for the United States to get into any such position as that, and therefore, with full explanation, and with the full concurrence of the other powers, we devised another system which enabled us to grant our nationals the same protection, and in my judgment a very much better protection, without involving the Government in the interference in private affairs.

That is a general statement. Before leaving that subject I would like to make one other statement.

Senator HITCHCOCK. Will you not state, just here, what is the protection that the American creditor of a German debtor gets? Mr. PALMER. An American creditor

Senator HITCHCOCK. Of a German debtor.

Mr. PALMER (continuing). Having a claim against a German? Senator HITCHсоск. Yes; a prewar claim?

Mr. PALMER. A right; yes. In the first place, privately he has the right to go to a new tribunal in case of a dispute as to debt. The Government has a right to use any of the property or resources of the enemy property in this country to pay that debt, if the Government so chooses. Now, there is the clear distinction. The right is not given to an American citizen to come to this Government and demand that his debt shall be paid by the Government, either out of its own funds or out of the proceeds of enemy property which the Alien Property Custodian has taken. That is not a right which is given to a private American citizen. The Government has the right to do that if it wishes to do so. In other words, the Government stands in the position where it can protect its nationals by the use of these funds, or not, as it sees fit. There are many reasons why it is desirable to leave that matter in that position. We do not know what the condition of affairs is in Germany. We do not know what has been done to our property. We do not know whether the Germans will restore our property. We do not know whether

the German merchants will pay their debts in a fair way or whether obstacles will be put in the way of resuming and obtaining perperty rights and rights of contract by our nationals. If commercial relations are resumed in the ordinary way, and no obstacles are put in the way, perhaps the United States Government will say that that is the best thing to do, to let the commercial relations resume their regular course without interference or guaranty. But all the time under the treaty it has the right and power to protect its nationals as fully as it likes.

Senator HITCHCOCK. Can the American Government use the assets of German nationals in this country for the payment of debts due to Americans, without at the same time guaranteeing the payment of debts of Germans or claims that Germans have against Americans! Mr. PALMER. Yes; if Congress so desires.

Senator KNOX. As I understand you, then, the American creditor practically has no rights.

Mr. PALMER. The American creditor is restored to the same rights that he had, regardless of the war.

Senator FALL. Without the treaty?

Mr. PALMER. Without the treaty. And, in addition to that, his Government has the right to protect him fully, further, by applying the property and credits in this country to the payment of his damages or debts.

Senator KNOX. You mean the proceeds of alien property in this country?

Mr. PALMER. Yes.

Senator KNOX. And such alien property as may be disposed of from this time on?

Mr. PALMER. Yes.

Senator KNOX. But then, pending the action by Congress in appropriating those proceeds, the American creditor has nothing, as I understand you; no provision is made for him under this treaty? Mr. PALMER. Well, Mr. Senator, his rights are not impaired at all. He is restored to his same position that he had, regardless of the war, and the United States Government has not guaranteed to pay his debt, of course. The United States Government has not imposed upon Germany the obligation to pay his debt. He is restored to his same claim against the same creditor in the same way as if there had been no war.

He also has the additional protection of being allowed, if he likes, to go to a new arbitral tribunal.

Senator FALL. That is only when there is no dispute?

Mr. PALMER. As to the amount, no. Further than that, if the debt is not paid the United States Government has the right to compensate him and pay him out of these proceeds.

Senator SWANSON. That is what I was going to ask you. This treaty provides that the Government can use the property of any Germans in the hands of the Alien Property Custodian to pay such

debts?

Mr. PALMER. Yes.

Senator SWANSON. That is in the treaty itself?

Mr. PALMER. Yes.

Senator KNOX. But in the meantime the American citizen simply has the embarrassment of having a foreign debt or against whom there is no forum in which he can enforce his claim? He can have the