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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.10

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.

M Memorandum to the President, February 21, 1920, printed in Senate Document No. 86, 67th Cong. 2d sen., 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 not devastated, should relinquish her claim against Germany for the benefit of the devastated countries. Then we could count as a contribution to a common cause that which was spent for munitions and for fighting purposes in this country by England. But England, besides paying the balance due on the loan, should repay us, as a contribution to the common cause, that which we spent in her country for munitions and for shipping.

I do not make these remarks in a spirit of narrow criticism. Nor am I unmindful of the great sacrifices that the English people made so nobly and unstintingly in the World War. But I do believe that those behind the Balfour note should give full consideration to all of the facts involved in the case, and not make it appear that the United States is ungenerous in her position. We were ready and willing to have gone to the bitter end despite what the cost might have been to us. We made no bargain then for our continuance in the struggle, and we want no one to set a value upon our contribution.

In my opinion, it is useless to consider either the German reparation or the readjustment of the interallied debts by themselves, because they are but two symptoms of a disease that lies deeper. These problems should be treated as a whole so as to leave all peoples in the various countries free to go back to work under conditions that will cause them to look forward with hope and not backward with hate.21

The adoption in the Act of February 9, 1922 of the prohibition against cancellation of Allied indebtedness to the United States will make it impossible for the debt commission created by the Act to consider proposals for cancellation. Any further appeals to the United States for cancellation must therefore be based upon the hope of having the Act of February 9 amended in that respect. A glance at the cost to the American taxpayer involved in such an amendment will show the improbability of the success of any agitation in favor of the amendment. The portion of the war loans raised in the United States which was applied to meet in part America's cost of the war is roughly one-half of the total loans, which aggregated in round numbers $20,000,000,000, the other half having been loaned to the Allies. For the service of the loans the Victory Liberty Loan Act established a sinking fund on July 1, 1920 and the law permanently appropriates for each fiscal year until the debt is discharged an amount equal to the sum of "2£ per centum of the aggregate amount of such bonds and notes outstanding on July 1, 1920, less an amount equal to the par amount of any obligations of foreign Governments held by the United States on July 1, 1920," plus "the interest which would have been payable during the fiscal year for which the appropriation is made on the bonds and notes purchased, redeemed, or paid out of the sinking fund during such year or in previous years." w

It will be noted that the indebtedness incurred by the United States to make the foreign loans is not cared for by the sinking fund, as Congress

» Congressional Record, September 13, 1922, Vol. 62, No. 231, p. 13539.
a 40 TJ. 8. Statutes at Large, p. 1312.

contemplated that foreign repayments would provide for that part of the debt.*

The Treasury Department calculates that the cumulative sinking fund will retire the funded war debt of the United States, less the amount representing the foreign obligations held by the United States on July 1, 1920, in about twenty-five years.*4 It has been further calculated that the amounts required to meet the sinking fund and interest charges on the half of the debt applied to American war expenses will average an aggregate payment of $685,000,000 annually for a period of twenty-five years." As the Act of February 9, 1922 places a limitation of a similar period of twenty-five years for the repayment of the foreign debt, and as the principal and interest charges are substantially the same in both cases, it will be seen that the cancellation of the Allied debts to America will involve the payment by American taxpayers of an additional $685,000,000 annually for a period of twenty-five years. Concretely, that is the proposition with which any American administration will be faced which undertakes to bring about an amendment of the Act of February 9, 1922, so as to authorize the cancellation of the Allied indebtedness to the United States.

George A. Finch.

* See Section 3 of the First Liberty Loan Act, April 24, 1917, 40 U. S. Statutes at Large, p. 35; Section 3, Second Liberty Loan Act, September 24, 1917, ibid., p. 288; and Section 7, Victory Liberty Loan Act, ibid., p. 1312.

** Annual Report of the Secretary of the Treasury, 1920, p. 114.

"A paper read at a dinner of the Council of Foreign Relations in New York City, February 8, 1921 by Dr. C. E. McGuire.

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