found himself able to accept this view-but he pointed out that it was impossible for France to agree to accept nothing less than it was entitled to under the treaty, unless its debts to its allies and associates in the war were treated in the same way.

This declaration appeared to the British Government eminently fair. But after careful consideration they came to the conclusion that it was impossible to remit any part of what was owed to them by France except as part and parcel of all around settlement of interallied indebtedness. I need not go into the reasons which led to this conclusion, which must be clear to you. But the principal reason was that British public opinion would never support a one-sided arrangement at its sole expense, and that if such a one-sided arrangement were made it could not fail to estrange and eventually embitter the relations between the American and British people, with calamitous results to the future of the world.17

It will be observed that Mr. Lloyd George, keen to detect one-sidedness in the Millerand proposal as affecting Great Britain, apparently was unable to see any one-sidedness in his own proposal to President Wilson as it affected the United States. Not so, however, with President Wilson, for in October, 1920 he sent an answer to the British Prime Minister which ought to have set at rest once and for all the agitation of the subject. Mr. Wilson replied:

It is highly improbable that either the Congress or popular opinion in this country will ever permit a cancellation of any part of the debt of the British Government to the United States in order to induce the British Government to remit, in whole or in part, the debt to Great Britain of France or any other of the allied Governments or that it would consent to a cancellation or reduction in the debts of any of the allied Governments as an inducement toward a practical settlement of the reparation claims. As a matter of fact, such a settlement, in our judgment, would in itself increase the ultimate financial strength of the Allies.

You will recall that suggestions looking to the cancellation or exchange of the indebtedness of Great Britain to the United States were made to me when I was in Paris. Like suggestions were again made by the chancellor of the exchequer in the early part of the present year. The United States Government by its duly authorized representatives has promptly and clearly stated its unwillingness to accept such suggestions each time they have been made and has pointed out in detail the considerations which caused its decision. The view of the United States Government has not changed, and it is not prepared to consent to the remission of any part of the debt of Great Britain to the United States. Any arrangements the British Government may make with regard to the debt owed to it by France or by the other allied Governments should be made in the light of the position now and heretofore taken by the United States, and the United States in making any arrangements with other allied Governments regarding their indebtedness to the United States (and none are now contemplated beyond the funding of indebtedness and the postponement of the payment of interest)

17 Senate Document No. 86, 67th Cong., 2d sess., p. 83.

will do so with the confident expectation of the payment in due course of the debt owed the United States by Great Britain. It is felt that the funding of these demand obligations of the British Government will do more to strengthen the friendly relations between America and Great Britain than would any other course of dealing with the same.

The United States Government entirely agrees with the British Government that the fixing of Germany's reparation obligation is a cardinal necessity for the renewal of the economic life of Europe and would prove to be most helpful in the interests of peace throughout the world; however, it fails to perceive the logic in a suggestion in effect either that the United States shall pay part of Germany's reparation obligation or that it shall make a gratuity to the allied Governments to induce them to fix such obligation at an amount within Germany's capacity to pay. This Government has endeavored heretofore in a most friendly spirit to make it clear that it can not consent to connect the reparation question with that of intergovernmental indebtedness.18

It was in the light of the record above set forth that the Act of Congress of February 9, 1922 was adopted. Hearings were held by the Senate and House Committees before the bill was reported out favorably. Treasury officials were the chief witnesses and they produced voluminous records from the Treasury Department covering the discussions between the governments from the beginning. No voice was raised either in the Senate or in the House of Representatives in favor of the cancellation in whole or in part of the Allied indebtedness to the United States. The debate on the bill was directed principally to amendments to make sure that the Act would not place in the hands of the Executive, authority to transfer the German reparation debt to the United States by the acceptance of German bonds in exchange for Allied indebtedness,1 and to leave no loop-hole in the law under which the Executive might entertain suggestions for the cancellation of the Allied debt.

Immediately upon the publication of the Balfour note, Mr. Mellon, the present Secretary of the United States Treasury, issued a statement in which he quoted the following from a memorandum handed to the British Ambassador in June, 1920:

It has been at all times the view of the United States Treasury that questions regarding the indebtedness of the Government of the United Kingdom of Great Britain and Ireland to the United States Government and the funding of such indebtedness had no relation either to questions arising concerning the war loans of the United States and of the United Kingdom to other governments or to questions regarding the reparation payments of the Central Empires of Europe. These views

18 Congressional Record, July 18, 1921, Vol. 61, Part 4, pp. 3951-52.

19 See the agreement made with Belgium on June 16, 1919 by the British and French Premiers and President Wilson, in which they undertake to recommend to their respective governmental agencies the acceptance of German reparation bonds in satisfaction of the sums borrowed by Belgium from the Allied Governments, printed in the SUPPLEMENT to this JOURNAL, p. 190.

were expressed to the representatives of the British Treasury constantly during the period when the United States Government was making loans to the Government of the United Kingdom and since that time in Washington, in Paris and in London.

At the same time Mr. Mellon denied Lord Balfour's statement that the United States Government virtually insisted upon a guarantee by the British Government of amounts advanced to the other Allies. "Instead of insisting upon a guarantee or any transaction of that nature", says Secretary Mellon's statement, "the United States Government took the position that it would make advances to each government to cover the purchases made by that government and would not require any government to give obligations for advances made to cover the purchases of any other government. Thus the advances to the British Government, evidenced by its obligations, were made to cover its own purchases, and advances were made to the other Allies to cover their purchases".

From the foregoing it appears that the proposal that America should cancel the Allied debts owing to her originated before the policy with reference to the German reparation was adopted and that the reparation clauses were inserted in the treaty with the explicit knowledge that the United States was not disposed to consider the subject of the cancellation of the debts. The subsequent attempt to entangle the question of the revision of the German reparation clauses with the payment of the inter-Allied debt should be viewed in the light of those facts. If the Allies deliberately persisted in their impracticable reparation policy with the hope of later substituting American responsibility for German irresponsibility, President Wilson's categorical refusal to entertain Premier Lloyd George's subsequent proposal to that effect should have disillusioned them.

The so-called partnership arrangement between the Allied and Associated Powers in the matter of liability for the costs of the war is completely negatived, so far as the United States is concerned, by the terms of the laws which authorized the loans and by the repeated statements to the contrary of the Treasury officials who lent the money and were cognizant of the conditions of the respective loans. As between the principal Allies themselves, the existence of a series of separate debts owing from one to another makes it difficult to accept the thesis now advanced that these loans were considered as joint contributions to a common cause. If so, why the carrying of these separate interest-bearing accounts of each so-called partner instead of lumping the alleged partnership contributions in one common fund to be used for common purposes?

The economic effects of the outstanding inter-Allied debts may be open to question, but surely their cancellation ought to be considered only as a last resort. The persistent urging and agitation of that drastic course before other remedies for the economic situation suggested by the creditor government have been tried is, to say the least, premature and out of place.

It is worth while to note that two of the principal representatives of the United States on the Commission on Reparation of the Peace Conference have since expressed themselves in opposition to the proposal to cancel the Allied debts to the United States. These gentlemen are Mr. Bernard M. Baruch, Chairman of the United States War Industries Board during the war, and Mr. Norman H. Davis, American Commissioner of Finance during the war. Both spent months in Europe studying the reparation problem. When, later, Mr. Davis, as Under-Secretary of State, transmitted to President Wilson the request of the British Chancellor of the Exchequer for the consideration of the question of cancellation, he accompanied it with a brief memorandum containing the following comment:

Just as the people of Europe were misled into believing German reparations would supply the deficit in budgets, they are being misled into believing a cancellation of the external governmental debts will later solve their other difficulties. While the Allies have never bluntly so stated, their policy seems to be to make Germany indemnify them for having started the war and to make us indemnify them for not having entered the war sooner.2 20

Mr. Baruch has deemed it appropriate to give public expression to his views in regard to the so-called Balfour note of August 1, 1922, in a letter addressed to Senator William E. Borah, under date of September 12, 1922, as follows:

That note is the presentation of the opinion of a certain school in England that contends that the German reparation can not be reduced unless all interallied indebtedness is canceled or reduced, and that the interallied indebtedness should be canceled on the ground that the war was a common cause, and that each country gave what it could in men and treasure.

The Balfour note listed among the claims that England had, and which it would reduce or cancel if America canceled the indebtedness of the Allies to her, a claim of £1,300,000,000 for German reparation.

If the purpose of the note was to secure America's coming in on the same basis as England it might have been well to have eliminated entirely England's claims against Germany, which are based almost entirely upon pensions and separation allowances, because America has put in no such claim.

The moving cause, as I understand it, for our not demanding a share of the German reparation was in order to permit the devastated countries-France, Belgium, Italy, and others-to have what the Germans could pay.

So far as the allied debts are concerned, there are several ways of looking at them.

There are those who say they should be canceled because they can not be paid, and there are those who, like Mr. Balfour, say they should be canceled because they were incurred in a common cause.

20 Memorandum to the President, February 21, 1920, printed in Senate Document No. 86, 67th Cong. 2d sess., p. 77.

The first of these apparently considers the matter from a purely commercial standpoint. What do the advocates of cancellation mean when they say that the Allies can not pay? Do they mean that these countries can not pay all or that they can not pay a part? Surely all of the great countries who are now our debtors can pay something if given time. And I am sure that countries like England, if we insist, can and will pay all, no matter what the cost may be. From a business standpoint it is going to be exceedingly difficult to convince the American people, who, after all, are the final arbiters in this matter, that if Germany can pay $10,000,000,000, which all thoughtful people think she can pay if given time and opportunity, the Allies can not pay the amounts due us. Money is not the only method of payment. It is through the exchange of things that nations will pay one another as most individuals pay one another. But the nations of the world can not make things with which to pay unless they get down to work. Now, as to the Balfour point of view:

Whatever may be the opinions of others, including myself, on the subject, the American people, as a whole, decided that the war was not theirs until we entered it; and the international community of interest and purpose must be viewed as dating from our entrance into the war. Then we must consider what portion of our advances was truly for common objectives.

The records of the Allied Purchasing Commission and the Treasury Department will show for what the various sums of money borrowed by England or any other nation were spent. Whereas it might be convincingly contended that the money spent for purchase of munitions (because we had not enough soldiers ready to use them, and because England and the other Allies were able to use them to better advantage in the quicker winning of the war), could be called a contribution to a common cause, yet the same decision could not be arrived at regarding certain other important expenditures.

Surely money that was spent for things that went into the making of shipping which became a permanent part of the mercantile fleet of England, or money that was used for the purchase of such material as went for commercial purposes or to bolster exchange-in most instances this was to facilitate purchases in other countries or to pay for loans or materials obtained previously to our entering the war, if there were such, can by no conceivable reasons be considered a contribution to a common cause, and therefore should not be canceled.

The same applies in instances where food was bought for England's civilian population, not for her soldiers, and was paid for by that population. It must be remembered that the English Government did not give but sold to its people the food bought in this country.

On the other hand, in practically every instance where purchases were made in England by us after we entered the war they were paid for in cash and not by means of a loan by England to America. Again, America paid England for ferrying our soldiers to Europe.

Surely the expenditures mentioned above should be considered a contribution by the English in a common cause and should be set off against any amount by which England proposes that her gross debt to us should be reduced.

If this subject is treated on the basis suggested in the Balfour note, equity and justice would demand that England, whose territory was