THE LIBRARY
OF
THE UNIVERSITY
OF CALIFORNIA
LOS ANGELES
£
0k. +«•*£*
\
OUR ELEVEN BILLION DOLLARS
1
OUR ELEVEN BILLION
DOLLARS
Europe's Debt to the United States
BY
ROBERT MOUNTSIER
1922
THOMAS SELTZER
New York
Copyright, 1922, by
THOMAS SELTZER, Inc.
All rights reserved
Printed in the United States of America
FOREWORD
"Our Eleven Billion Dollars" has grown out of
the writer's frequent business trips in Europe.
In this presentation of the European economic
and political situation, with special reference to
the billions owed to the United States by Europe,
the facts and figures are based largely upon official
documents. But the whole truth is not to be
obtained from such sources; the authority for
many statements is based on personal experience
in Europe and the experience of other Americans
holding important business or official positions
abroad.
Robert Mountsier.
New York City,
April 10, 1922.
1C95872
CONTENTS
PAGE
I Eleven Billion Dollars Worth of Europe 1
II Europe, Dr., to U. S. A. & Co., Cr.—
$16,000,000,000 13
III Billions for Refunding, But Not One Cent
for Cancellation 23
IV Increasing Debts and Unbalanced Budgets 38
V Europe's Paper, America's Gold ... 52
VI Foreign Trade and Foreign Exchange . . 66
VII Ge rman Reparat ions and Preparations . . 87
VIII European Plans to Revive World Trade .107
IX The First International Bank — an
American Plan for Restoring Europe .117
X Wanted: A World Economic Conference
in Washington 130
STATISTICS
PAGE
1. Obligations of European Governments to the
United States for Advances Made under the
Liberty Bond Acts 16
2. Obligations of European Governments to the
United States for Surplus War Supplies and
Foodstuffs 17
3. Totals of War and Post-war Debts Owed to the
United States Government by European Gov-
ernments 19
4. Statement of European Government, Municipal
and Corporate Loans Placed in the United
States 20
5. Post-war Budgets of the Principal Countries of
the World 40, 41
6. National Debts of the Principal Countries of
the World 44, 45
7. Effect of the War on the Public Debt of the
United States 49
8. Growth of the United States' Gold Power . . 59
9. United States' Post-war Imports and Exports
of Gold 60
10. Gold Reserves and Paper Currency Issues of
Principal Countries 62
11. Rise and Fall in Annual Foreign Trade Balance
of the United States between 1912 and 1921 66
12. Foreign Commerce of the United States for
1920 and 1921 68
13. Index of Value and Volume of the United
States' Foreign Trade from 1913 to 1921. . 72
14. Index Numbers of Value and Volume of Ex-
ports during 1919, 1920 and 1921, Based on
Average Monthly Figures for 1913 ... 74
STATISTICS
PAGE
15. Index Numbers of Value and Volume of Im-
ports during 1919, 1920 and 1921, Based on
Average Monthly Figures for 1913 . . . 75
16. Foreign Trade of the Principal Belligerent and
Neutral Countries 80
17. Depreciated Values of European Monetary-
Units in Terms of the American Dollar . . 81
18. Index Numbers of "Wholesale Prices from 1913
to 1922 84
19. Index Numbers of Food Prices in the United
States during Three "War and Post-^var
Periods 86
20. Increases in German Currency and Decreases
in Exchange Value of the Mark .... 92
$11,000,000,000 WORTH OF EUROPE
Seventeen European governments or so-called
governments owe the government of the United
States $11,000,000,000 and more. The whole coun-
try has heard repeatedly of the large amounts
loaned by the United States government during
the war and after, but as yet the majority of
American people know little of the truth about this
enormous debt. As much of the truth as can be
put into this book is here for every man to read.
The facts and figures given are of direct personal
concern to merchant and manufacturer, banker
and financier, capitalist and workman, indeed to
anybody owning a Liberty bond or paying a tax,
either directly or indirectly.
The $11,000,000,000 and more that many Amer-
icans, Congressmen included, expect Europe to
pay us in the next twenty-five years, are not com-
ing back to the United States. This is a fact that
it is far better to face to-day than five or twenty-
five years from now. No amount of camouflage
can change this part of the truth; those billions
and other billions that will accumulate are abroad
to stay, no matter whether Europe and America
have peace or war.
And the reasons.
2 OUR ELEVEN BILLION DOLLARS
Europe cannot now pay her debts, and she will
be unable to pay them within the next twenty-
five years. Furthermore, though it may seem
paradoxical, the people of the United States can-
not afford to have billion after billion paid into
the country. Even now, with more than $3,500,-
000,000 of gold in this country, we have more gold
than we know what to do with. It is better for
us as well as for Europe that this flood of gold
from across the Atlantic should cease. The Con-
gressman who demands that Europe pay us at
once in hard cash evidently does not know that
the world's supply of gold money is consider-
ably less than Europe's total debt to us, and that
if the United States held all the gold in the world
it would mean poverty for the American people
even though every man, woman and child in this
country had their pockets filled with $20 gold
pieces.
Europe might be able ultimately to pay us
$11,000,000,000, plus accrued interest, in goods,
but we can no more afford importations on such
a vast scale than continued payments of large
sums of gold. Commodities shipped to this coun-
try in an attempt to settle Europe's debts would
jam every dock on the Atlantic and Pacific
coasts and would glut our markets and cause gen-
eral business stagnation, with factories closed
throughout the country and workmen by the mil-
lion thrown out of employment.
If it is not evident now, it will in time be gen-
$11,000,000,000 "WORTH OF EUROPE 3
erally realized by the American people that we
cannot collect directly the billions owed us by
Europe, nor can we, for the sake of Europe as
well as for this country, cancel these debts under
present conditions. Since this huge sum cannot
be paid in gold, currency or goods, since we
have more gold, currency and goods than we
ourselves need, there remains but one solution of
a problem that is keeping financiers and govern-
ment treasury officials throughout the world
awake at night.
This solution requires the American people to
invest $11,000,000,000 and other billions in Eu-
rope — all these expatriated dollars to work for us
instead of helping keep many Americans out of
work, as at present.
Even though the United States is unable to
absorb the billions of the principal from Europe,
it might absorb the interest. However, it will
soon become evident that even the interest for
many years should be invested abroad. At pres-
ent, interest on the debts owed by Europe to the
United States government is accruing at the rate
of about $1,400,000 a day. While you are reading
this page Europe 's debt to the United States has
increased over $1,000.
Under the present loans to the governments of
Europe and the so-called governments, to use a
phrase that is popular with the United States
Treasury, we are legally entitled to $11,000,-
000,000 worth of Europe, but just what part of
4 OUR ELEVEN BILLION DOLLARS
the European countries and their assets has not
yet been determined. That we should collect our
$11,000,000,000 worth by conquest or annexation
has never entered anybody's head, not even that
of the most belligerent senator. But having an
important interest in Europe in these billions of
government loans and the billions owed to Amer-
ican manufacturers, bankers and investors, it is
well to know just where we stand, and that is pri-
marily a matter of where Europe stands.
Not one of the European governments owing
us money is actually solvent at the present time.
In some ways Europe has gone from bad at the
Peace Conference to worse in the hands of poli-
ticians who have been manipulating national and
international affairs toward further war and
ruin. Europe is suffering from bad politics and
bad economics. Economic warfare has been
waged violently in Europe since the Armistice,
and unless Europe reforms, this economic war
is preliminary to another great war, the founda-
tions of which were laid by the Treaty of Ver-
sailles.
New countries, established on alleged racial
lines in defiance of economic and geographic
boundaries, have been vying with older govern-
ments in making laws that ignore and violate the
inexorable laws of economics. They have subsi-
dized foods and unemployment, erected tariff
walls and attempted to build up export trade
while legislating against importing. They have
$11,000,000,000 WORTH OF EUROPE H
tried to stabilize exchange and to replace gold
with paper. While failing to balance budgets
they have established and supported unnatural
industries and have spent money on armaments
in preparation for the next war.
No student of history can be among the pessi-
mists who think Europe is permanently ruined.
Although humanity is in a pretty bad way, partly
because of what the war did not do for it, the
world will come back to a new sort of normality —
it will never be a normality of pre-war condi-
tions — as always in the past after a widely devas-
tating war. And this return will be made de-
spite the $350,000,000,000 loss suffered by the
world through Europe's War, a name far nearer
the truth than the term World War. Three cen-
turies ago Europe had the Thirty Years ' War, but
blacker conditions than exist to-day did not pre-
vent Europe's return to periods of peace so pros-
perous as to make it possible to indulge in further
costly wars. The Napoleonic wars laid waste Eu-
rope, leaving England with a debt sixteen times
as great as at the beginning, but in a far shorter
period than that covered by these wars England
became the leading power in western Europe, her
influence greatly enhanced by gold and credit.
To-day Great Britain's debt is ten times what it
was before the recent war.
After the war of 1870 the pessimists said that
France would be ruined by the payment of the
huge indemnity demanded by Prussia, that the
6 OUR ELEVEN BILLION DOLLARS
payment of the indemnity in full was absolutely
impossible. But in those days there was only a
Bismarck to see that the French paid ; to-day the
outcome is less certain since there are a Keynes,
a Wells and a Lloyd George to see that the
French are not paid in full by the Germans.
No country to-day has a more discouraging
outlook than had the United States after the Bevo-
lutionary War when the new nation had been
formed from thirteen impoverished colonies.
For us that is ancient history, but living to-day
are Americans who have forgotten that after the
Civil War they handled an American dollar that
was worth little more than the French franc of
1921 and that not until fourteen years after Lee
surrendered to Grant did the United States re-
sume gold payments.
And yet the constant bombardment of the prop-
aganda that Europe is ruined if Germany is
compelled to pay the reparation sums imposed
by the Allies. Note, however, that this prophetic
propaganda ignores the payment by France, fol-
lowing her defeat in 1871, of an unprecedented
indemnity without whining, without attempts at
evasion.
Since 1919 certain improvements have been
brought about in the European situation through
Europe's own efforts. Food conditions are better,
with the exception of Russia, and the fuel prob-
lem is of the past. The revolutionary spirit is no
longer threatening, and the workers are more
$11,000,000,000 WORTH OF EUROPE 7
kindly disposed toward greater productive ef-
forts. Transportation has improved, and industry
is being reorganized with a view to greater effi-
ciency and increased production. All this with
the result that a marked advance in the standard
of living has taken place in central and western
Europe since 1919.
Nevertheless, from the American point of view,
indeed from any practical business standpoint,
what is Europe? At the opening of the Genoa
conference a bad commercial and financial risk;
everywhere over-inflation the rule, with govern-
ment after government still printing unsecured
paper money. Indeed, it would appear that
nothing but printing presses could keep up with
Europe's expenditures, what with government
waste and the cost of armaments.
Certain European politicians continue to ignore
the fact that submarines, no matter what their
number, do not float loans and capital ships can-
not create capital. Europe's problem is to replace
fixed capital destroyed by the war, not to destroy
more capital by putting a large portion of what
she has left into navies and armies. The solution
of this problem lies in increased production, which
can be accomplished best with the aid of American
capital plus economy and hard work on Europe 's
part. Too many European peoples have lost their
old habits of hard work and thrift. There has
been extensive loafing on the job in certain quar-
ters of Europe since the Armistice, not only on
8 OUR ELEVEN BILLION DOLLARS
the part of workers, many of whom have delib-
erately reduced production, but also on the part
of capitalists and government officials, who fre-
quently have waited for problems to solve them-
selves or for the United States to do their work
for them.
Having acquired bad habits, Europe finds it
difficult to eliminate instruments of warfare, re-
duce inflation and balance budgets, but her costly
experiences are bringing her to a point where
she understands that a thorough reorganization
is necessary to prevent further military, political
and financial disasters. Only recently has Europe
come to realize that without such reorganization
no financial assistance can be expected from the
United States.
We have heard much talk of the United States '
saving Europe, but two obstacles have been in
the way — the United States does not wish to play
the role of savior, and Europe does not wish to
be saved. Europe has been quite willing to accept
our charity and our credits, but with these re-
duced to a minimum and with a growing knowledge
of the dangers ahead the whole situation is pre-
senting itself in a different light. It is for Europe
to display a willingness to clean house so that
she may have something to show us when asking
for financial assistance that will enable her to
return to a self-supporting and paying basis. The
American public has so far given little indication
that it is willing to meet Europe on this proposi-
$11,000,000,000 ^YORTH OF EUROPE 9
tion, but it appears that the time is not far distant
when a sufficient understanding or acute neces-
sity will bring the American people to aid Europe
in its financial rehabilitation. As yet there is on
this side of the Atlantic no general understanding
of how $11,000,000,000 involve the United States
in Europe's affairs.
For some time the man in the street, no matter
whether Wall Street or Main Street, has been
seeing more and more clearly that we need Eu-
rope and Europe needs us. With the world an
economic as well as a geographic unit the United
States cannot have prosperity until Europe, our
best export customer, has the credit or means with
which to buy our products.
To sum up the situation : As a result of the war
the United States has a greater productive capac-
ity and larger surpluses of manufactured and
agricultural products than ever before. In Eu-
rope exists an immediate need for these surplus
products. But the war and poor political and
economic management have impoverished Europe
to such an extent that she can buy only on long-
term credits. These long-term credits and capital
with which to reestablish her own productiveness
are to be had in quantity only from the United
States. As the leading creditor country of the
world it will be our role to act as Europe 's banker
— when she institutes reforms satisfactory to us —
just as Europe 's capital in the form of huge loans
and investments formerly enabled the United
10 OUR ELEVEN BILLION DOLLARS
States to develop its great resources. Before the
war Great Britain, France and Germany had im-
mense sums invested in the United States and
other countries. These investments for the most
part would have been permanent had it not been
for the war, which compelled the belligerents to
exchange an important part of their holdings
abroad for munitions and foodstuffs.
The situation is now reversed. Instead of a
good percentage of the profits of American indus-
try and enterprise going to Europe in the form
of interest and dividends and commodities, the
United States has accumulated wealth in Europe
and will be acquiring more on the other side of
the Atlantic, thanks in part to the debt of $11,000,-
000,000 and more. With our great industries es-
tablished on a scale to meet foreign demands as
well as home consumption we cannot afford to
ignore Europe and her needs. We must sell our
surplus commodities to a Europe that is econom-
ically sound, and the quickest way to create such
a condition, is to invest, after she has instituted
indispensable reforms, more billions in her indus-
tries — in stocks giving American control.
The Harding Administration has given various
indications that it realizes the necessity of Amer-
ican financial aid to Europe in the matter of re-
funding the European governments' debts, facil-
itating American investments abroad and extend-
ing long-term credits. President Harding has
pointed out that "heroic remedies" are necessary
$11,000,000,000 WORTH OF EUROPE 11
to meet the situation. To Congress he has made
known his attitude in the clearest terms : ' * If we
must choose between a people in idleness pressing
for payment of indebtedness or a people resuming
normal ways of employment and carrying credit,
let us choose the latter."
But the Administration awaits the psychologi-
cal moment for the United States to join Europe
in what would amount practically to a close as-
sociation with European nations in a commercial
and financial alliance. One President of the
United States led a horse to water and failed to
make him drink. Doubtless his successor is not
ignorant of the fact that a thirsty horse will lead
to water and drink of its own accord. After get-
ting thirsty enough for prosperity, which largely
depends upon the revival of Europe, the general
public and Congress will accept new financial and
commercial arrangements with Europe. Not only
for us was the Conference on the Limitation of
Armament a great stride toward this end;
Europe also made a forward move in coming to
Washington, and the meeting of the Supreme
Council at Cannes and the so-called Economic and
Financial Conference at Genoa, may be considered
quick, if faltering, steps toward a willingness to
united action in the economic reconstruction of
Europe.
Tn this work the United States will be the domi-
nating power because of the huge debt Europe
owes this country and the sums she must still
12 OUR ELEVEN BILLION DOLLARS
borrow. Some would have us use our billions as
a big stick — $11,000,000,000 and more would in-
deed make a big stick to wield over battered Eu-
rope — but the present Administration may be
counted upon to use it as a pointer of the kind so
well known in the American school room. As the
chief creditor and the principal banker the United
States has a right and also a duty to teach the
lesson that balanced budgets, minus armaments,
minus currency inflation, plus long-time credits,
investments and increased production equal eco-
nomic recovery in both Europe and the United
States.
The short-sighted American who has not kept
pace with the times but is living before the year
1914 and thinking in terms of the Monroe Doctrine
and grocery bills cries, "Stay out of Europe!"
He is the man who refuses to acknowledge that
the complete resumption of the country's business
activity on a normal scale depends largely upon
the progress of financial and industrial recupera-
tion in those countries which consume our surplus
products ; he is the man who cannot see that fail-
ure to give Europe financial aid in the near future
means that the United States will have to decrease
production and consumption even below pre-war
normal, crippling not only itself but the rest of
the world for an indefinite period.
Only those who are blind fail to see that we are
already in Europe, that we are in to the extent of
$11,000,000,000 and more.
II
EUROPE, DR., TO U. S. A. & CO., CR.,
$16,000,000,000
It is now generally known in Europe, but not
so generally admitted, that had the United States
not entered the war Germany would have dictated
the treaty of peace. An important part of this
country's aid consisted in providing the Allies
with foodstuffs and war supplies bought here with
the billions loaned to the Allies when they were at
the ends of their financial ropes. A total of
$10,000,000,000 was made available by Congress
and the American people through the four Liberty
loans for "such foreign governments then en-
gaged in war with the enemies of the United
States," their obligations to bear the same rate
of interest and contain the same terms and con-
ditions as the Liberty Loan Acts.
The form of obligation or promissory note taken
from the foreign government borrowers follows,
the British form being used as the example :
Certificate of Indebtedness
The Government of the United Kingdom of
Great Britain and Ireland, for value received,
promises to pay the United States of America,
or assigns, the sum of on demand,
13
14 OUR ELEVEN BILLION DOLLARS
with the interest from the date hereof, at the rate
of 5 per cent per annum. Such principal sum and
the interest thereon will be paid at the Sub-
Treasury of the United States in New York, or,
at the option of the holder, at the Treasury of the
United States in Washington, in gold coin of the
United States of America of the present standard
of weight and fineness, or, at the option of the
holder, at the Bank of England, London, England,
in pounds sterling at the fixed rate of $4.76 7-16
to the pound sterling, and at any such place of
payment without deduction of any British taxes,
present or future.
This certificate will be converted by the Govern-
ment of the United Kingdom of Great Britain and
Ireland, if requested by the Secretary of the Trea-
sury of the United States of America, at par,
with an adjustment of accrued interest, into an
equal amount of five per cent convertible gold
bonds of the Government of the United Kingdom
of Great Britain and Ireland conforming to the
provisions of acts of Congress known respectively
as second Liberty bond act, third Liberty bond
act and fourth Liberty bond act. If bonds of the
United States issued under authority of said acts
shall be converted into other bonds of the United
States bearing a higher rate of interest than four
and one-half per cent per annum, a proportionate
part of the obligations of the Government of the
United Kingdom of Great Britain and Ireland
of this series acquired by the United States under
EUROPE, DR., TO U. S. A. & CO., CR. 15
authority of said acts shall, at the request of said
Secretary of the Treasury, be converted into obli-
gations of said Government of the United King-
dom of Great Britain and Ireland bearing interest
at a rate exceeding that previously borne by this
obligation by the same amount as the interest rate
of the bonds of the United States issued upon such
conversion exceeds the interest rate of four and
one-half per cent but not less than the highest rate
of interest borne by such bonds of the United
States.
For the Government of the United
Kingdom of Great Britain and Ireland.
Dated this day of , 19. .
The loans made under the Liberty Loan Acts
to nine European governments, with the amounts
paid on the principal and interest and the amounts
of interest accrued and unpaid up to November
15, 1921, are given in Table 1 (see page 16).
Of the credits established for European gov-
ernments there remained on November 30, 1921,
$39,309,463.41, on which no advances had then
been made. In addition to this sum $289,474,-
689.44 is left as an unused balance from the
$10,000,000,000 originally provided by Congress.
Other obligations accepted from foreign gov-
ernments are for surplus war materials remaining
in Europe after the war and for foodstuffs for
European relief through the American Relief
Administration and the United States Grain Cor-
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18 OUR ELEVEN BILLION DOLLARS
poration. These obligations, with the interest paid
and the interest accrued and unpaid, up to
November 15, 1921, are detailed in Table 2 (see
page 17).
Table 3 (see page 19) gives the totals of the
original obligations and the total debts owed on
November 15, 1921, by eighteen European govern-
ments and so-called governments to the United
States, with the total amounts paid on account of
principal and interest and the total amounts of
unpaid interest.
The total sum of $11,313,860,127.27 owed by
these eighteen European governments is now the
most important factor, not only of the United
States government's credits but also in the field
of international credit, and it will continue so for
many years to come.
Nor is this $11,313,860,127.27 all that Europe
owes us. Private loans, investments and com-
mercial transactions must be added.
The government, state, municipal and corporate
loans placed in the United States by Europe and
outstanding on June 1, 1921, amounted to $1,101,-
826,200. Table 4 (see page 20) shows this indebt-
edness in detail, the figures being based on com-
pilations made by the Guaranty Trust Company of
New York, from the most accurate and complete
information available. But this tabulation does
not include subscriptions in the United States to
foreign loans, since the amounts of such subscrip-
tions are not available, nor does it include most
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EUROPE, DR., TO U. S. A. & CO., CR, 21
of the foreign currency issues placed in this
country nor issues partly sold here and partly in
other countries.
To this total of $1,101,826,200 for such private
loans and to the $11,313,860,127 of United States
Government loans must be added the European
investments of American corporations and indi-
viduals and the commercial obligations held by
Americans against Europe for manufactured and
raw materials sold since the war. Exact figures
for these two classes of debts cannot be given, but
conservative estimates place them at not less than
$3,500,000,000.
Total owed by Europe to United States — about
$16,000,000,000.
Estimate our credits in foreign countries out-
side of Europe at $2,000,000,000, and it is seen that
in seven years the United States, which in 1914
was a debtor country, has risen to the position
of the world's leading creditor nation, with
$18,000,000,000 of all kinds of investments abroad.
This is some two billions less than the balance
which Great Britain had abroad in 1914, after
centuries of trading and investing in all parts of
the world. When the war broke out Great Britain
possessed foreign credits amounting to more than
£4,000,000,000— more than $20,000,000,000 at par
of exchange. Of this amount the British had to
use about one-fourth during the war to meet
foreign obligations, chiefly for American products.
To-day Great Britain, at the same time our chief
22 OUR ELEVEN BILLION DOLLARS
debtor and her continental allies' creditor, is in
a difficult financial situation, but she is not trying
to collect the $9,000,000,000 of war debts due her
from her former allies, if only for the reason that
she knows they cannot be collected, at least not
in actual cash.
For the sake of prosperity in the United States
the day can come none too quickly when the Amer-
ican people will have advanced from creditors
who want "payment in 30 days" to keen investors
in foreign industries, who will say to those
$16,000,000,000 and more, "Stay in Europe and
work for us; we don't want you here, we can't
afford to have you come back home."
Ill
BILLIONS FOR REFUNDING, BUT NOT
ONE CENT FOR CANCELLATION
The European countries owing us $11,000,000,-
000 and more are only too willing to settle their
debts — by cancellation. Such an easy method of
ending all these complicated and burdensome
transactions of the war appeals to the debtors in
Europe, but it finds little support among the
American people, who, still paying for the war,
feel they have heard too much on the subject from
European sources.
This propaganda of cancellation, born shortly
after the Armistice, has led an interesting career.
The first cancellation proposal to reach Washing-
ton through official channels was contained in a
cablegram of December 4, 1918, sent to Secretary
of the Treasury McAdoo through the American
Embassy in London. Here is a part of this cable-
gram: "Chancellor of the Exchequer revived
suggestions made before of possibility of cancella-
tion of all loans made by one associated govern-
ment to any other for the conduct of the war. I
stated that so far as I know such an idea had never
for a moment been entertained by you, and the
subject was dropped. Similar suggestions in
23
24 OUR ELEVEN BILLION DOLLARS
unofficial but important quarters are not infre-
quent in London and Paris.
" Second. Keynes has suggested in several con-
versations the theory that future aid to Allies
should now be taken over by us so that as nearly
as possible our loans to Allies should equal those
of the British. This thought appears also in letter
from the Chancellor to me, received to-day, re-
ferring to Italian situation in which statement is
made that the Chancellor called attention of
Stringher to fact that the aggregate of British
government loans to Italy were double those of
the United States and that their further action
toward Italy must be determined by Italian ar-
rangements with us."
Further suggestions, emanating from English
sources, kept the cancellation ball rolling. Austen
Chamberlain, Chancellor of the Exchequer,
played with the ball a number of times, but it
was President Wilson himself who kicked it right
into the Treasury Department, which prepared
for him a memorandum beginning, "Your recent
message through the British Embassy, in which
among other matters you advocate a general can-
cellation of intergovernmental war debts, has
been received, ' ' and ending after detailed consid-
eration of the subject with the following:
"A proposal that the United States should can-
cel its debts against the allied governments would
simply result, in effect, in the cancellation by one
of the principal creditors of its claims in order
BILLIONS FOR REFUNDING 25
that the claims of the other creditors might re-
main intact, and would transfer from the peoples
of the debtor governments to the shoulders of
the people of the United States the taxes necessary
to liquidate the outstanding obligations of the
United States government representing the loans
made by it to the allied governments. The United
States government in little over two years raised
for war purposes through taxes and loans approx-
imately $37,000,000,000, out of which were made
to the allied governments the loans to assist them
in winning the war. The United States govern-
ment has neither received nor sought substantial
material benefits from the war or under the terms
of the treaty of peace. On the other hand, the
Allies, although having suffered greatly in loss of
lives and property, have under the terms of the
treaty and otherwise acquired accessions of ter-
ritories, properties, raw materials and other ad-
vantages, including their claims against Germany
for vast indemnities. It would seem that if full
account were taken of these there would be no
incentive, desire or reason to call upon the United
States for further contributions."
The British cancellation proposals continued
under discussion in cables, letters and informal
conversations until in October, 1920, Secretary
of the Treasury Houston wrote that the Treasury
Department refused to consider cancellation as
a form of settlement of the debts, this after the
British Prime Minister, Lloyd George, had sent
26 OUR ELEVEN BILLION DOLLARS
the following to President Wilson on August 5,
1920 : "I come now to another question I wish to
write you about, and that is the knotty problem of
interallied indebtedness. Indeed, I promised Mr.
Rathbone [an assistant secretary of the Treasury
who was abroad the winter of 1919-1920 negoti-
ating the matter] long ago that I would write to
you about it, but I have had to put it off for one
reason and another till now.
"The British and French governments have
been discussing, during the last four months, the
question of giving fixity and definiteness to Ger-
many's reparation obligations. The British gov-
ernment has stood steadily by the view that it was
vital that Germany's liabilities should be fixed at
a figure which it was within the reasonable capac-
ity of Germany to pay, and that this figure should
be fixed without delay because the reconstruction
of Central Europe could not begin nor could the
Allies themselves raise money on the strength of
Germany 's obligation to pay them reparation un-
til her liabilities had been exactly defined. After
great difficulty with his own people, M. Millerand
found himself able to accept this view, but he
pointed out that it was impossible for France to
agree to accept anything 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 gov-
ernment eminently fair. But after careful con-
BILLIONS FOR REFUNDING 27
sideration 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 ar-
rang jment were made it could not fail to estrange
and eventually embitter the relations between the
American and British people, with calamitous re-
sults to the future of the world. You will remem-
ber that Great Britain borrowed from the United
States about half as much as its total loans to the
Allies, and that after America's entry into the
war, it lent to the Allies almost exactly the same
amount as it borrowed from the United States of
America. Accordingly the British government has
informed the French government that it will agree
to any equitable arrangement for the reduction
or cancellation of interallied indebtedness, but
that such an arrangement must be one which ap-
plies all around.
4 'As you know, the representatives of the Allies
and of Germany are meeting at Geneva in a week
or two to commence discussion on the subject of
reparation. I recognize that in the midst of a
Presidential election and with Congress not in
session, it is impossible for the United States to
deal with this question in a practical manner, but
28 OUR ELEVEN BILLION DOLLARS
the question is one of such importance to the fu-
ture of Europe, and indeed to the relations be-
tween the allied and associated powers, that I
should very much welcome any advice which you
might feel yourself able to give me as to the best
method of securing that the whole problem could
be considered and settled by the United States
government in concert with its associates at the
earliest possible moment that the political situ-
ation in America makes it possible.
' ' There is one other point which I would like to
add. When the British government decided that
it could not deal with the question of the debts
owed to it by its Allies except as part and parcel
of an all-around arrangement of interallied debts,
the Chancellor of the Exchequer told Mr. Bath-
bone that he could not proceed any further with
the negotiations which they had been conducting
together with regard to the postponement of the
payment of interest on the funding of Great Brit-
ain's debts to America. I should like to make it
plain that this is due to no reluctance on the part
of Great Britain to fund its debt, but solely to the
fact that it cannot bind itself to any arrangement
which would prejudice the working of any inter-
allied arrangement which may be reached in the
future. If some method can be found for funding
the British debt which does not prejudice the
larger question, the British government would
be glad to fall in with it."
So much for Lloyd George and his opinion on
BILLIONS FOR REFUNDING 29
refunding and cancellation, which differs radi-
cally from the official American point of view.
Before the Senate Committee on Finance, Secre-
tary of the Treasury Mellon has given his assur-
ance that cancellation is not his idea of the man-
ner in which Europe's debts to the United States
should be settled :
The Chairman (Senator Penrose). Mr. Mellon,
there is no intention on the part of the present
Administration to cancel or forgive any part of
this indebtedness of foreign nations, is there?
Secretary Mellon. No.
The Chairman. That has been bruited abroad,
though so far as conditions are at present it is
absolutely without foundation.
Secretary Mellon. The examination of all
these memoranda in the cases shows that there has
not anything been done nor has any suggestion
been made on the part of the Treasury in that di-
rection. They have all along taken the position
that these are obligations owing to this country,
and valid obligations that must be eventually paid.
To this denial of Secretary Mellon 's was added
a statement from the White House that our Gov-
ernment did not intend to cancel the debts owed
by the governments of Europe.
But the propaganda of cancellation continues,
not only on the part of the debtors but even with
the aid of a few Americans. Among those in this
country urging cancellation are Justice John H.
30 OUR ELEVEN BILLION DOLLARS
Clarke, of the Supreme Court; Professor Edwin
Seligman, of Columbia University, and Otto H.
Kahn, of Kuhn, Loeb & Co. They consider that
our war loans should be regarded as a part of
America's contribution to the war.
Nevertheless, these obligations of $11,000,000,-
000 and more constitute a just debt, both legally
and morally. Nothing in the original loans or in
our association with the Allies affords any basis
for the claim that the debts should be considered
as an American contribution to the war and there-
fore cancelled. When the loans were provided for
by Congress and later negotiated with representa-
tives of the allied governments the sums involved
were not looked upon as gifts, but as dollars — not
pounds, francs or lire — borrowed by the United
States government, which, while loaning these
dollars to European governments, promptly paid
France, Italy and Great Britain for all services
and supplies.
Assume, for the moment, that Europe's entire
$11,000,000,000 indebtedness to our government is
wiped out to-morrow by an act of Congress. "Would
the cancelling of the debts assure the economic
recovery of Europe? Would currency become
stabilized? Would our export trade and industrial
situation improve ?
If Europe cast aside her worn-out economic
and political machinery, created new institutions
to fit the needs of new conditions, cancellation
would help her economic recovery and hasten the
BILLIONS FOR REFUNDING 31
process of stabilization. But thorough reform in
Europe would eliminate the need for cancellation.
So long as Europe remains what she is, so long as
she fails to effect economic and political reforms,
wiping this immense debt off her slate would not
increase production and fixed capital, would not
put workers into factories and on the land under
more favorable living conditions, would not re-
lieve the masses of their burdens of taxation.
Cancellation would not mean better food, better
clothing, better homes, better working hours for
any but politicians, speculators and holders of
large sums of money. For Europe of to-day the
cancelling of inter-governmental debts would
mean freedom to continue wasteful methods and
to spend larger sums on preparations for war.
In particular, cancellation would mean more for
Great Britain than for any other country, and in
this unrevealed fact may lie the reason that Lon-
don has fostered the cancellation idea and has
persistently kept it before the world. If the inter-
governmental debts were all cancelled, the United
States would lose $11,000,000,000 and more,
whereas Great Britain, the only other important
creditor nation, would lose only about $5,000,000,-
000, since she owes approximately $4,000,000,000
to us, while other governments owe her about
$9,000,000,000. Our foreign credits would be re-
duced by this cancellation process from $18,000,-
000,000 to $7,000,000,000, and Great Britain's loans
and investments abroad would stand at about
32 OUR ELEVEN BILLION DOLLARS
$15,000,000,000. By cancellation Great Britain
would displace the United States as the world's
chief creditor nation.
As matters now stand, the United States' in-
vestment in the war totals $45,000,000,000, the
only items on the credit side being some German
shipping and the famous eleven billions. The
gross cost of the war to Great Britain is put at
about $52,000,000,000, against which may be cred-
ited a certain amount of German shipping, an
uncertain amount of German reparation money,
$9,000,000,000 owed to her by other governments,
and Mesopotamia, German East Africa, German
West Africa, Togoland and a number of Pacific
islands. About $55,000,000,000 is the estimated
gross cost of the war to France. Against this sum
France can credit Alsace-Lorraine, Germany's
rights in equatorial Africa, the Saar Basin mines,
coal, live stock and paid and unpaid reparation
sums. Italy's war cost is estimated at less than
$20,000,000,000, against which are to be credited
about 12,000 square miles of Austro-Hungarian
territory, large shipments of coal and an unsettled
reparation amount.
At the Peace Conference we asked for no terri-
tory, only for the German shipping seized in our
harbors and for world-wide peace, and despite the
invaluable services rendered by the United States
in the war we have had little consideration from
the Allies except when they have thought their
purses would benefit. This selfish side of Europe
BILLIONS FOR REFUNDING 33
the American people know only too well, and Con-
gress, representing the American people, gave it
full consideration in preparing the bill which
provides for the refunding of the debts owed the
United States government by eighteen govern-
ments and so-called governments of Europe.
Supported by President Harding, Secretary
Mellon asked Congress to pass a bill authorizing
the Secretary of the Treasury "from time to time
to refund or convert, and to extend the time of
payment of the principal or the interest, or both,
of any obligation of any foreign government now
owing to the United States of America, or any
obligation of any foreign government hereafter
received by the United States of America (includ-
ing obligations held by the United States Grain
Corporation), arising out of the European War,
into bonds or other obligations of such, or of any
other, foreign government, and from time to time
to receive bonds of any foreign government in
substitution for those now or hereafter held by
the United States of America, in such form and of
such terms, conditions, date or dates of maturity,
and rate or rates of interest, and with such secur-
ity, if any, as shall be deemed for the best interests
of the United States of America, and to adjust and
settle any and all claims, not now represented by
bonds or obligations, which the United States of
America now has or hereafter may have against
any foreign government and to accept securities
therefor."
34 OUR ELEVEN BILLION DOLLARS
The Senate Committee on Finance was unwill-
ing to report a bill giving so free a hand to the
Secretary of the Treasury. The hearings held on
the bill in June and July, 1921, and its consider-
ation by Congress early in 1922 brought out strong
opposition on the part of various senators against
any suggestion of cancellation, against acceptance
of bonds of other than the debtor nations, espec-
ially German bonds, and against any provisions
other than a specified minimum rate of interest
and a definite limit upon the period over which
the debts might be refunded.
As passed by the Senate and the House of Rep-
resentatives and signed by President Harding on
February 9, 1922, although he objected to the
changes made in the original bill, the "act to
create a commission authorized under certain
conditions to refund or convert obligations of
foreign governments held by the United States of
America, and for other purposes," is as follows:
Be it enacted by the Senate and House of Rep-
resentatives of the United States of America in
Congress assembled, That a World War Foreign
Debt Commission is hereby created consisting of
five members, one of whom shall be the Secretary
of the Treasury, who shall serve as chairman,
and four of whom shall be appointed by the Presi-
dent, by and with the advice and consent of the
Senate.
Sec. 2. That, subject to the approval of the
BILLIONS FOR REFUNDING 35
President, the commission created by section 1
is hereby authorized to refund or convert, and to
extend the time of payment of the principal or the
interest, or both, of any obligation of any foreign
Government now held by the United States of
America, or any obligation of any foreign Gov-
ernment hereafter received by the United States
of America (including obligations held by the
United States Grain Corporation, the War De-
partment, the Navy Department, or the American
Relief Administration), arising out of the World
War, into bonds or other obligations of such for-
eign Government in substitution for the bonds or
other obligations of such Government now or here-
after held by the United States of America, in
such form and of such terms, conditions, date or
dates of maturity, and rate or rates of interest,
and with such security, if any, as shall be deemed
for the best interests of the United States of
America: Provided, That nothing contained in
this Act shall be construed to authorize or em-
power the commission to extend the time of ma-
turity of any such bonds or other obligations due
the United States of America by any foreign Gov-
ernment beyond June 15, 1947, or to fix the rate
of interest at less than 4% P er centum per annum :
Provided further, That when the bond or other ob-
ligation of any such Government has been re-
funded or converted as herein provided, the au-
thority of the commission over such refunded or
converted bond or other obligation shall cease.
36 OUR ELEVEN BILLION DOLLARS
Sec. 3. That this Act shall not be construed to
authorize the exchange of bonds or other obliga-
tions of any foreign Government for those of any
other foreign Government, or cancellation of any
part of such indebtedness except through payment
thereof.
Sec. 4. That the authority granted by this Act
shall cease and determine at the end of three years
from the date of the passage of this Act.
Sec. 5. That the annual report of this commis-
sion shall be included in the Annual Report of the
Secretary of the Treasury on the state of the
finances, but said commission shall immediately
transmit to the Congress copies of any refunding
agreements entered into, with the approval of the
President, by each foreign Government upon the
completion of the authority granted under this
Act.
This refunding act contains no provision for
the payment of accrued interest or of future inter-
est at any stated periods. The World War For-
eign Debt Commission authorized by the act had
as its original members Secretary of the Treasury
Mellon, Secretary of State Hughes, Secretary of
Commerce Hoover, Senator Reed Smoot of
Utah, and Representative Theodore Burton of
Ohio.
The answer of the British treasury to the
enactment of the refunding bill was the presenta-
tion of a plan in March, 1922, to wipe out all
BILLIONS FOR REFUNDING 37
intergovernmental war debts and credit the
amount to the account of German reparations.
This reduction of German reparation payments,
according to the Chancellor of the Exchequer,
Sir Robert Home, was dependent upon the United
States' cancellation of Europe's $11,000,000,000
debt. In other words, Lloyd George had revived
the scheme to involve the United States in the
payment of an important part of the German
reparation sums demanded by the Allies.
The passing of the refunding bill by Congress
and the establishment of the commission to carry
out its provisions should have served to make
known to Europe, if she had any doubts on the
subject, that the great majority of the American
people are willing to provide billions for refund-
ing, but not one cent for cancellation.
rv
INCREASING DEBTS AND UNBALANCED
BUDGETS
With the enactment of the refunding bill the
United States asked the eighteen debtor countries
of Europe to recognize their debts to this govern-
ment, end all talk of cancellation and get down to
business. And settling down to business on the
part of the continental debtors involves their in-
ternal debts as well as the large sums owed to the
chief creditor nations, England and the United
States. Juggling budgets instead of balancing
them does not conceal their latent bankruptcy,
does not attract the American investor.
Of the European belligerents and the new coun-
tries born at Versailles not one actually made
both ends meet last year. Their balance sheets
show gaps of varying sizes between income and
gross expenditure. Enormous deficits produced
by the war have kept expenditures at an abnormal
level, but the fiscal systems of European state
finance leave much to be desired, especially by
a creditor or a possible investor. On top of heavy
current expenditures are piled interest on war
debts — none required as yet on our loans — pen-
sions, subsidies for food, coal, unemployment,
38
DEBTS AND BUDGETS 39
housing and railroads, and appropriations for
armaments. Expenditures for war, past and fu-
ture, represent a great proportion of the burden
of taxation. In some of the countries past-war
taxes plus next-war taxes, that is, current military
expenditures, constitute a crushing burden.
Even some of the neutral countries of Europe
are having serious financial troubles. Their bud-
get difficulties are due, for the most part, to the
growth of government expenses caused by the
rise of prices and the granting of subsidies, al-
though in the case of Holland and Switzerland
heavy expenditure was directly caused by the
war. The neutrals have solved their problem by
increased taxation, with the exception of Holland,
Spain and Switzerland, which borrowed large
sums. However, the European neutrals all added
to their gold reserves during the war, opened
credits for the belligerents and repatriated con-
siderable amounts of national securities held
abroad.
The general financial situation of neutrals and
belligerents is represented in Table 5 (see pages
40 and 41), compiled largely from the reports
of the International Financial Conference at Brus-
sels. This table gives the net budgets of each
country, unless otherwise noted, the revenue
figures, including receipts from all sources except
loans, and the expenditure figures, covering all
items of both ordinary and extraordinary budgets
except in case of provision for amortization.
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42 OUR ELEVEN BILLION DOLLARS
With the amazing figures of Table 5 before
it the Brussels conference pointed out that
the first duty of public finance is for a govern-
ment to pay its way, otherwise there is no founda-
tion for its own economic life or for receiving as-
sistance from others. The resolutions of the con-
ference on public finance called upon the govern-
ments to reduce government expenditure, to bring
outlay within the limits of revenue by rigidly re-
ducing all armament costs and by abandoning all
uneconomical and artificial measures, such as the
artificial cheapening of foodstuffs, coal and other
commodities, the payment of unemployment doles,
and the maintenance of railroad fares, postal rates
and other government services involving deficits.
The resolutions emphasized the fact that the re-
duction of prices and the restoration of prosper-
ity are dependent on the increase of production,
one of the most serious obstacles to this increase
being the continued excess of government expendi-
ture over revenue as represented in the budget
deficits, which involve further inflation of credit,
further depreciation in the purchasing power of
domestic currency, increased instability of foreign
exchange and further rises in prices and in the
cost of living.
The total internal debt of the European bellig-
erents, converted into dollars at par, amounts to
over $150,000,000,000, compared with approxi-
mately $17,000,000,000 in 1913: Even when full
allowance is made for the return of depreciated
DEBTS AND BUDGETS 43
currencies toward their normal value, the post-
war debt represents a tremendous burden in pro-
portion to the total national income of the bellig-
erent countries. However, in the opinion of the
Brussels conference "the external debt, amount-
ing to about $11,000,000,000 due to the United
States and to £1,750,000,000 due to the United
Kingdom, presents an even more difficult problem,
because in nearly every case it is payable in a
currency which is less depreciated than that of the
country concerned."
The effect of the war on government indebted-
ness and the results of post-war profligacy appear
in Table 6 (see pages 44 and 45), based upon statis-
tics assembled by O. P. Austin, of the National
City Bank of New York. These figures, in dollars
at pre-war value, taken with the totals for the
remaining countries of the world, give an increas-
ing total of world indebtedness, from $43,000,-
000,000 in 1913 to $205,000,000,000 in 1918, the
last year of the war; $295,000,000,000 in 1919, the
first year of peace, and an estimated total of
$400,000,000,000 for 1921, three years after the
Armistice.
That the economic situation of the world is se-
rious may be seen even by the man who runs and
reads. Europe's affairs approach nearest to the
critical point, a situation that may be charged to
the victorious Allies, unconquered Germany and
Bolshevist Russia, which have provided the world
with three disgraceful pages in history through
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46 OUR ELEVEN BILLION DOLLARS
violations of economic and moral laws, violations
which have demoralized domestic and foreign
business and brought suffering to millions.
Picture this bungling, debt-ridden Europe, with
her foolish, frenzied, fantastic finances, her peo-
ples suffering from underconsumption, with fac-
tories working at part capacity or not at all,
money inflated, credits frozen, loans unliquidated,
budgets unbalanced.
Great Britain — suffering from diminished for-
eign trade, unemployment and the heaviest taxa-
tion in Europe, but fortunate in having in the
English and Scotch the most honest and capable
business men in Europe.
France — burdened with a debt of about 300,000,-
000,000 francs, suffering from the fear of future
German aggression, and with good reason, but
using bad judgment in seeking safety and in-
creased power through the same methods of Eu-
ropean diplomacy that brought on the last war,
losing friends and gaining little.
Belgium — a small country with a big debt, more
or less forgotten because it is demanding little
and going quietly about its business, or as much
as the country has been able to regain.
Italy — here to-day, but where she will be to-
morrow nobody knows, rolling up a public debt
of 110,000,000,000 lire and trying to put her finan-
cial house in order, without any apparent inten-
tion of providing for the payment of her debt to
the United States.
DEBTS AND BUDGETS 47
Germany — a country financially crippled but
industrially and mentally active, whose leaders
know just what they are doing and why they are
doing it, even less to be trusted than the Kaiser's
Germany, which destroyed the "scrap of paper,"
the Lusitania, Rheims Cathedral, Belgian and
French homes and industries.
Austria — a war wreck, weak and hungry, left
prostrate by the Big Four, a victim of the worst
profiteers of Europe, overburdened with money,
paper money.
Hungary — another case of total disability, bru-
tally dismembered at the Peace Conference, and
robbed by the Allies, Bolshevists and Rumanians
of all but her nationalism.
The Balkan States — as Balkanic as ever, but
their rivalries, grievances and needs now over-
shadowed by Balkanized Central Europe.
The new States — all of them, including Czecho-
slovakia, Jugo-Slavia, Poland, the Baltic States,
not to forget the Irish Free State, suffering from
the internal pains of party politics, from the
egoism common to all small nations upon achiev-
ing their "rights," and from lack of economic
knowledge and experience.
And we, the people of the United States, what
is our situation?
"We have not been innocent of economic sins
committed during and since the war, of inflation,
of private and government waste, of excess of ex-
penditures over receipts, of business stupidities
48 OUR ELEVEN BILLION DOLLARS
surpassing belief. But we have reformed to a
large extent, business has improved, although it
is far from its new post-war normal, and basic
financial conditions are better than in 1921.
We are better off than any European country,
but this does not mean that the economic situation
of the United States is satisfactory. Europe,
looking at us, sees only a nation of overwhelming
wealth, our $3,657,000,000 of gold exaggerated into
a much larger sum, our manufactured products
and raw materials not to be desired as much as
fine gold.
Europe estimates our wealth in terms of gold,
but wealth is measured in value of goods rather
than in metal. Our wealth increased during the
period from 1914 to 1917, but in terms of goods
it actually decreased after our entrance into the
war, even though our towns and lands were not
devastated by the enemy. Our products and ship-
ping were destroyed at sea ; our railroads deteri-
orated ; our leading industries were diverted from
peace-time commodities to war supplies ; inflation
and wasteful expenditure have cost public and
government dearly; and the country has not yet
seen the end of the costly readjustment of busi-
ness. All this has meant the loss of wealth; be-
sides, we owe ourselves almost twenty-four times
the government debt of 1914, this new and enor-
mous debt to be liquidated only by taxing our in-
comes, properties and products. The great in-
crease in our public debt as a result of the war is
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50 OUK ELEVEN BILLION DOLLARS
shown in Table 7 (see page 49), with figures given
for the outstanding debt on July 1 of each year.
The public debt of the United States on Decem-
ber 31, 1921, with a classification differing from
that given in the tabulation on page 49 follows :
pre-war debt, $883,784,050; Liberty bonds,
$15,207,389,400; Victory bonds, $3,548,289,500;
notes, series B-1924, $390,706,100; war savings
certificates of indebtedness, $2,195,595,000; trea-
sury notes, series A-1924, $311,191,600; treasury
notes, series B-1924, $390,706,100; war savings
securities, $651,844,374; matured debt, $11,867,-
140; debt bearing no interest, $238,317,187. The
total gross debt amounted to $23,438,984,351,
showing a net decrease of $538,819,109 from the
public debt of December 31, 1920.
That the financial situation of the United States
government is no worse is due to notable econo-
mies and reforms effected under the present Ad-
ministration. Important reductions in govern-
ment expenditure and in taxation have been insti-
tuted, and the new Federal budget is preparing
the way for additional decreases in disbursements.
For the fiscal year 1920-21, ended June 30,
receipts were $5,624,000,000 and expenditures
$5,538,000,000. For the year ending June 30, 1922,
income is expected to amount to $3,943,500,000
and outlay $3,968,000,000. The Director of the
Budget, General Charles G. Dawes, anticipated
that during the year 1922-23 government receipts
would be $3,338,000,000 and expenditures $3,506,-
DEBTS AND BUDGETS 51
000,000, the deficiency to be met by the release of
$100,000,000 tied up in the Navy Department, and
by additional economies in government operation.
These figures show that the expenditures of the
United States government have fallen $1,570,-
000,000 from 1921 to 1922, and that from 1921 to
1923 the total reduction should amount to
$2,032,000,000—no small burden removed from the
people of the United States.
V
EUROPE'S PAPER, AMERICA'S GOLD
The public debts of Europe, increased to huge
proportions by the war, are being financed pri-
marily by the printing press, although this method
increases the expenses of government and public
during peace as well as during war. Behind the
guns and shells of the World War were printing
presses and paper ; the guns have long since ceased
firing, but the presses are still operating, in some
cases at full capacity. Their outpourings of incon-
vertible paper serve only to enlarge the vicious
circle of inflation, increasing debts, growing treas-
ury deficits, decreased exchange values, rises in
prices of commodities and services.
Trying to meet budget deficits by printing more
currency always has and always will result in
further depreciation, since revenues never in-
crease rapidly enough to overtake the depreci-
ation and permit the issuing of paper to be halted.
Let inflation continue long enough and it brings
about the disorganization of trade and industry
and the demoralization of the people.
Until budgets are balanced no government can
stop inflation, which Professor Gustav Cassel
describes as the combined result of an artificial
creation of purchasing power in order to finance
52
EUROPE'S PAPER, AMERICA'S GOLD 53
government expenditure beyond the real capacity
of the country, and of the falsification of the
money market by an abnormally low rate of in-
terest, in both cases with the assistance of an
arbitrary supply of legal tender. Inflation adds
nothing to the real value on which the currency's
buying power is based, but depreciates the cur-
rency, reducing the actual purchasing power of
each and every unit. In other words, inflation ad-
vances prices.
Once budgets are balanced and inflation stopped
governments are confronted with the problem of
deflation, the ticklish process of contracting paper
issues and so decreasing the means of payment in
relation to the nation's business. The most diffi-
cult problem connected with inflation is to bring
it to a stop once it is started, while the chief task
with deflation is to stop it at the right point.
Unless it is to be an operation costly both to
the government and to the public, deflation has to
be carried out by slow degrees and with extreme
caution. Various countries, including our own,
have had costly experiences with the contraction
of paper issues. It would seem that we should
have learned our lesson from the deflation scheme
which threatened financial and commercial dis-
aster for the country after the Civil War. Infla-
tion brought us the false prosperity of 1919-20,
deflation added to the depression of 1920-21,
bringing new troubles and little relief from the
high cost of living. And now we are suffering
54 OUR ELEVEN BILLION DOLLARS
from an unusual form of inflation — too much
gold.
After bitter experiences it is becoming evident
to the business man that inflation and deflation
are twin evils instead of being antidotes one of the
other, a point which Professor Irving Fisher has
been preaching in this country, fearing that the
danger ahead for us is re-inflation as a reaction
against the recent rapid deflation, a false remedy
for our war inflation. This secondary period of
inflation will come, he thinks, as a result of an
upward move in the price level, and afterward the
usual deflation process, unless the double object
lesson of the past two years serves to provide a
way of escape.
Most of our debtors in Europe, still issuing
money instead of withdrawing it from circulation,
are occupied with the troubles of inflation rather
than with those of deflation. They are face to
face with the fact that their public debts can be
reduced only through payment or through repudi-
ation. With regard to the $11,000,000,000 owed
the United States government, Congress has
made known through the refunding bill that it
expects payment, but there are individuals, com-
panies and banks in this country that may look
forward to heavy losses through repudiation
by various European governments of their paper
obligations. Already several of the minor gov-
ernments have indulged in repudiation by con-
verting a part of their paper currency at a dis-
EUKOPE'S PAPER, AMERICA'S GOLD 55
count — conversion they call it, but it is nothing
more nor less than partial repudiation.
The attempts to repudiate huge sums involving
creditor nations as well as the nationals of the
debtor nations will not all succeed, but repudia-
tion on an extensive scale will come. In those
European countries where inflation has reached
almost unbelievable proportions, as in Austria,
Poland and Eussia, it is impossible that the value
of their out-standing paper will ever be brought
back to par. This is a fact, an unpleasant one for
many investors and gamblers in exchange, that is
not generally recognized. Realization of the truth
of this statement lies in the application of common
sense to figures showing the volume of paper
money outstanding in Europe.
Dismembered Austria's paper is estimated at
over 200,000,000,000 kronen, or crowns, which
would be more than $50,000,000,000 at pre-war par,
and her deficit for the fiscal year 1920-21 is esti-
mated at 400,000,000,000 crowns, although the
official figure is 165,000,000,000. Poland, upon its
rebirth in 1919, established a new national cur-
rency, Polish marks of a par value of 23.8 cents,
starting with 3,000,000,000 of them. In two years
this amount increased twenty times. Before the
end of 1921 the out-standing currency amounted
to more than 130,000,000,000 Polish marks, quoted
at about one three-hundredth of a cent, or some-
what less than one eight-hundredth of the par
value. Poland's 1921 budget estimates revenues
56 OUR ELEVEN BILLION DOLLARS
at 135,000,000,000 Polish marks and gives expendi-
tures at 209,000,000,000, due largely to military
costs. If Poland could bring her currency ulti-
mately to par value, payment in the future of her
present debt would be at many hundred times its
value in 1922. In Russia at the beginning of the
war the entire sum of paper rubles outstanding
was 1,630,000,000. At the end of 1917 they
amounted to 27,300,000,000, at the end of 1919 to
225,000,000,000, and in December, 1921, to 1,168,-
000,000,000. In October, 1921, Bolshevik currency
was reported to total 5,750,000,000,000. With
prices in Moscow at that time 48,600 times higher
than in 1914, the monetary circulation was insuffi-
cient—it was estimated that 48,600,000,000,000
rubles were needed, although the estimated
amount in circulation was almost six trillions !
These figures show the utter hopelessness of
any expectation that Austria, Poland and Russia
will attempt to restore their currencies to pre-
war values. Even under the most favorable cir-
cumstances they would find it no easy matter to
pay their debts in present gold value. Imagine
Russia's trying to pay her debt multiplied by
1,000. And then there is Germany, but her infla-
tion is another story to be considered in the next
chapter. Figures showing the increase in notes
issued by belligerent and neutral countries over
the period of the war appear in Table 10 (see
page 62A).
The most depreciated of the world's currencies
EUROPE'S PAPER, AMERICA'S GOLD 57
manage to exist because nothing better has come
to take their place. With civilized man money is
a habit, even when it is practically worthless. He
finds barter inconvenient and expensive. Pianos
for potatoes, tobacco in exchange for chickens, a
clock as payment for a day's work have disad-
vantages not even possessed by bundles of depre-
ciated currency necessary in bulk in certain coun-
tries to buy food, clothing and other needments.
Reducing the nominal redemption value of the
most depreciated currencies is one of the impor-
tant subjects for an international conference, and
the problem should be dealt with soon. The sooner
it is settled the sooner will trade, finance and in-
dustry tend to become stabilized. It is said that
the allied financiers who held a meeting in Paris
preliminary to the Cannes conference recom-
mended that an international currency be adopted
for all central and eastern Europe to take the place
of marks, crowns, rubles and other units, their
new gold value to bear the relation of 100 to the
American dollar.
Establishment of new redemption values will
mean new par values for at least half a dozen
European monetary units. Those holders of the
currencies affected who are losers will have to
bear this partial repudiation, the holders who
gain will do the grinning. But introducing this
reform will not keep the currencies stabilized at
the new reduced par values. The countries con-
cerned must keep their budgets balanced and se-
58 OUR ELEVEN BILLION DOLLARS
cure an equilibrium between exports and imports
so that national debits and credits balance each
other. "No international currency, no attempt
to stabilize the value of gold, will be a substitute
for that simple, if difficult and often painful, duty
of paying our way," said Lord Cullen, of the
British delegation, at the International Financial
Conference, and to these words he added, as the
only remedy for the exchange situation, "hard
work and economy," which constitute Lord
Chalmers' prescription for getting public finance
back on a solid foundation.
Sound currency at new or old values and a
sound economic situation in Europe involve the
re-establishment of the gold standard in the prin-
cipal European countries, that is, gold and paper
must be interchangeable.
If the gold standard needed to be vindicated,
this war and the post-war period have together
provided the vindication. Yet in the face of this,
the year 1922 opened on Ford's scheme of "fliv-
ver dollars," approved by Thomas Edison, to
finance a part of the Muscle Shoals project, and
another fiat money revival, this by Senator Ladd
and his lone group crying in the wilderness of
North Dakota for "honest money." As if two
such demands that gold be dethroned as the sound
money king were not enough, there was the spec-
tacle of a learned economist chasing to the rain-
bow 's end in Germany for the pot of gold — syn-
thetic gold, which is to end gold as a monetary
EUROPE'S PAPER, AMERICA'S GOLD 59
standard and strike America prostrate on a heap
of metal that was worth $3,656,989,000 on Janu-
ary 1, 1922.
"With this accumulation of gold the United
States has broken the world's gold records. It
is by far the greatest sum of gold possessed to-day
by any one country, indeed the greatest mass of
the metal ever accumulated by a nation in the his-
tory of the world. Eepresenting almost a half of
the world's monetary gold, it has come to us
chiefly from Europe during the past seven years,
enlarging our supply of monetary gold, which be-
fore the war was $1,900,000,000. The increase in
the country's gold since 1912 is shown in the fol-
lowing table:
TABLE 8
GROWTH OF THE UNITED STATES' GOLD POWER
Stock of
Per
Year
Imports of
Exports of
Net gold in
monetary
cent
gold (a)
gold (a)
Treasury (a)
gold in
of
U. S. (6)
1913
1913
869,194,025
$77,762,622
$258,363,327
$1,924,000,000
100
1914
66,538,659
112,038,529
252,962,971
1,816,000,000
94
1915
171,568,755
146,224,148
247,746,370
2,312,000,000
120
1916
494,009,301
90,249,548
238,093,644
2,865,000,000
149
1917
977,176,026
291,921,225
214,941,127
3,040,000,000
158
1918
124,413,483
190,852,224
248,241,288
3,081,000,000
160
1919
62,363,733
116,575,535
364,575,414
2,788,000,000
145
1920
150,540,200
466,592,006
402,900,726
2,785,000,000
148
1921
644,480,218
133,537,902
415,994,196
3,657,000,000
188
(a) At the end of each fiscal year, June 30th.
(6) At the end of the year.
Most of the gold acquired by this country since
1914 represents the payment of private debts
contracted during the war and since. The set-
tlement of many such obligations last year re-
60
OUR ELEVEN BILLION DOLLARS
suited in an unprecedented gold movement, the
greatest the world has ever seen, millions upon
millions of gold flowing into this country until
the record-breaking sum of $691,267,448 for 1921
was reached on the last day of the year. During
the same twelve months the United States ex-
ported $23,680,000, the smallest amount shipped
from the country in any year since 1898.
The imports and exports by months for 1921,
along with our other imports and exports of gold
since the war, appear in the following table:
TABLE 9
UNITED STATES' POST-WAR IMPORTS AND EXPORTS OF GOLD
Month
1919
1920
1921
Imports
$2,113,217
3,944,839
10,481,197
6,691,795
1,079,525
26,134,460
1,846,495
2,490,489
1,471,628
4,969,595
2,396,770
12,914,036
$12,017,551
4,473,360
16,985,222
48,522,212
15,687,859
26,764,983
19,817,758
15,377,794
39,110,008
116,762,001
56,889,037
38,193,669
$33,633,967
42,626,913
March
87,271,775
80,662,202
58,171,386
June
July
August
October
November
December
43,576,476
64,247,479
84,901,554
66,085,253
47,106,839
51,298,626
31,684,978
Total
$76,534,046
$417,068,273
$691,267,448
$94,977,065
$667,587,405
Exports
$3,396,098
3,110,153
3,803,229
1,770,057
1,956,135
82,972,840
54,673,227
45,189,318
29,050,466
44,148,990
51,857,796
46,256,939
$47,816,873
42,873,376
47,049,586
44,622,477
7,561,583
5,319,875
21,872,783
24,986,182
17,229,090
25,931,239
19,869,757
17,058,287
$2,724,980
1,036,005
709,668
383,787
1,062,521
773,603
July
3,734,929
671,652
2,448,741
7,576,472
November
607,437
1,950,248
Total
$368,185,248
$322,091,208
$23,680,043
$291,651,202
EUROPE'S PAPER, AMERICA'S GOLD 61
If this sensational gold movement were allowed
to continue, with governments and individuals
abroad paying their debts to the United States in
gold and with Americans refusing to take up for-
eign investments, this country would in time be
burdened with a monopoly of the world's gold
and be faced with the possibility of a universal
abandonment of the gold standard. However, it
is not conceivable that the debtor nations will in
the future send us any such extraordinary quan-
tities of gold as within the last few years or that
the United States will permit them to continue
gold shipments which disorganize our economic
institutions as well as their own.
It is true that gold helps the dollar to reign
supreme throughout the world and provides the
nation's business with security, but while our sup-
ply of gold has been increasing our foreign trade
has been diminishing. The inflow of the precious
yellow metal has been a factor in preventing the
outflow of commodities, and with idle gold we
have idle workers. The person who expresses
only satisfaction over our gold billions forgets
that all the gold in the world cannot create a de-
mand for commodities and services, that money
does not create the capital with which business is
carried on, that gold and the paper which repre-
sent it are simply a convenience of exchange used
in business transactions and in the creation of
capital.
A portion of our new gold reserves constitutes
62 OUR ELEVEN BILLION DOLLARS
dead assets, and it will remain so until the world's
economic situation improves sufficiently for us to
invest abroad this excess, which is now piled up
accumulating storage charges. Economists and
bankers in general consider that our surplus gold
will serve the country best if devoted to helping
restore Europe to a sound economic state. Yet
if loaned for rehabilitation of European monetary
systems and industries, it will have to be invested
not by the government and the banks which hold
it but by the owners, who constitute the investing
public.
Following consideration of the fact that the
country is overstocked with gold beyond its cur-
rency needs and that the surplus earns no in-
terest and serves no useful purpose, the United
States Section of the Inter- American High Com-
mission, of which Herbert Hoover, Secretary of
Commerce, is chairman, has made this statement :
' ' The United States feels it to be to its own inter-
est that this gold should be utilized in foreign
channels, and also that it be redistributed. From
an economic point of view the method of utiliza-
tion is by the investment of capital abroad. The
method of redistribution should be through loans
for reproductive enterprise and by specific gold
loans to countries which are in a position to un-
dertake the reorganization of their currencies on
a gold basis."
Discussing our gold reserves and our trade
W. P. G. Harding, governor of the Federal
.•TRIES
1921
Bell
-0,099
91 19
470
<2,090
205
7.286
(7,561
.
000,000
000,000
,000,000
000,000
000.000
000,000
000,000
000,000
,000.000
1,620
400
721
8,936
2,132
.000,000
oa ii
,000,000
000,000
000,000
N"c\
130,000,000
420,000,000
1 1 3,000,000
740,000,000
104,000,000
Cot
513,000,000
582,000,000 i
75,000,000
■ 10,000,000
10,000,000 !
532,000,000
25,000,000
4,051,000,000
55,000,000
Brii
260,000.000
00,000
301 000,000
36,00
000.000
Gold
$1,000,000
l.lXKJ.OOO
52,000,000
7,000,000
2S0,0OO,00O
8, 000,000
090,000.000
260,000,000
20S.000.000
101,000,000
l.").000.000
5,000,000
(100,000
81, ooo.ooo
764,000,666
61,000,000
241,000,OOtl
39.000,000
4S7.000.000
7 ."..000,000
453,000,000
24.000,000
42,000,000
25,000.000
5,000,000 1
540,000,000
87,000,000
30.0011 0006
3, 057,000,000
57,000,000
1 12,000,0006
190,000,000
1 0.1 )( 10,000
40,000,000
Notes
<- 184 000,000
$19,100,
4,500,
1,180,
615,
2,260,
272
7,160,
24.300,
362,
4.110
880,
36,414
667
2,384
8,936
2,115
000,000
000.000
000,000
000,000
000.000
000,000
000,000
000,000
000,000
000,000
000,000
000,000
000,000
000,000
000,000
000.000
129,000,000
41 1\( 100,000
101,000,000
Vt7,000,000
100,000,000
578,000.000
.-,..1.000,0006
00,000,000
16,000,000
10,000 000 i
:,i 1,000,000
e
34,000,0006
3,637,000,000
56,000,000
277,000,0006
447,000,000
150,000,000
39,000,000
$123,445,000,000
7
.1 Hungarian Bank.
ont.n RESERVES IND PAPER CI RRENC1 [BSUES OF PRINCIPAL COUNTRIES
1914
1918
,919
1021
Gold
Cold
Note,
Gold
Note,
Gold
Note*
H-IIik'n 't' t-omitneji of Europe:
H.'utum ." ' ".
Bulgaria
8254,000.000
ublouoiooo
'iVuijiumju
853.000.000
':ji;uii[i\»M
2;049|000,'000
$52,000,000
:.:vll»KMNIII
[30,000,000
TI'MMII.l'.WII
.}!■, HUH!
^IMHluil.MKI
ill
$19,100,000,000
i ranee (*.Y .
■ ■■■ ■
Italy <y) . .
I'MrtuituI
235.000.000
i_>.-,.oon,nori/
' 42loO0iO00
3i;i000!000
594,000,000
'-- ilUJll
_ W.OOOioOO
Nmtral Countries of Europe:
.!.k,:,tak«u><hi
LflOloOOloOO
678,000,000
MMHMlJKhl'
l.llJlj'.iiiMNllHI
Canada
4S,000,000
ikmx»!ooo
Total
S4.fi82.000.000
$7.-..vj.i.ir»n.nno
$7,380,000,000
840,3,10,000,000
$6,759,000,000
855,104,000.000
$8,184,000,000
«"
18,4
14 7
'"
[l2u. Fi|furf.-s i > >r l'.l^'l rorin-cnt the finM Im>Mihiv
lent yenrs exclusive of gold held nbrotid.
, Bank and Hun«i
EUROPE'S PAPER, AMERICA'S GOLD 63
Reserve Board, has said: " There is a lot of talk
about the $3,500,000,000 in gold which we have
in this country. It is said that America is grad-
ually getting a corner on the gold market, that
the gold of the world will soon be held in this
country. The situation is this: Banking to be
secure rests upon security. America, once a debtor
nation, now is a creditor nation. Entirely apart
from the $11,000,000,000, which the Allies owe,
America is a creditor nation on open account,
and the gold we have received represents the
scrappings of the European nations. We cannot
continue to do business forever on the gold stock
of other nations. They have got to increase their
gold supply."
Europe's gold position as a result of the war
and post-war movements of the metal is a long
and involved story, which is best summarized in
Table 10 (see page 62A), based on a tabulation
prepared by the National City Bank of New York.
During the great gold movement of 1921, when
the chief debtor nations of Europe sent us hun-
dreds of millions, they did so without diminish-
ing their gold reserves. England shipped us ap-
proximately $250,000,000 in 1921, yet the central
gold reserves of the Bank of England remained
almost stationary throughout the year at $625,-
000,000. France sent us about $200,000,000, and
during the same period increased her gold re-
serve in the Bank of France from $692,000,000 to
$700,000,000. Although Sweden exported about
64 OUR ELEVEN BILLION DOLLARS
$60,000,000 to us, her gold reserve lost only a few
millions.
How did the debtor nations accomplish this
seemingly impossible feat?
England received about $40,000,000 of gold
from India and over $150,000,000 from South
Africa. The chief source of the continent's gold
was Russia. The countries receiving gold from
the Bolshevists did not pass it directly on to us,
since the United States government had taken the
stand that it would not admit Russian gold be-
cause the Moscow government had no title to it.
Having no such scruples, certain European gov-
ernments put the Russian gold as it came to them
into their treasuries and sent us an equivalent
amount from their own reserves or reminted the
czarist-soviet gold and shipped it to America as,
for example, "made in Sweden."
While managing to preserve their gold reserves
intact through 1921, Great Britain, France, Italy,
Switzerland, Holland and the Scandinavian coun-
tries succeeded during the year in reducing their
total of paper currency about $2,000,000,000 at its
face value. But this decrease was offset by the
large increases in Germany, Austria, Poland,
Hungary and Rumania. Table 10 (see page 62 A)
shows that the face or par value of the outstanding
paper of thirty-six principal countries of the
world amounted toward the end of 1921 to
$123,000,000,000 as against $82,000,000,000 in 1920,
$55,000,000,000 in 1919, $40,000,000,000 in 1918
EUROPE'S PAPER, AMERICA'S GOLD 65
and $7,500,000,000 in 1914. Due to the great in-
crease in paper last year, exceeding many times
the billion dollar increase in the quantity of visi-
ble gold reserve for the same period, the ratio of
total gold to total paper stood at the end of 1921
at a lower point than in any previous year — less
than 7 per cent, as compared with 14.7 per cent
in 1919, 18.4 per cent after the Armistice and 63.3
per cent at the beginning of the war.
And the greatest inflation crimes were com-
mitted by Europe, with her $115,000,000,000 and
more of paper and less than $3,500,000,000 of
gold.
VI
FOREIGN TRADE AND FOREIGN
EXCHANGE
On a private business basis, without taking
into account a dollar of the $11,000,000,000 and
more of governmental debts, Europe owes the
United States a sum exceeding her total gold re-
serves. This commercial debt is due largely to
the balance of trade in our favor, and the credit
side of trade with the countries of Europe will
be ours for an indefinite period. The favor-
able balances for our world commerce from pre-
war peace to post-war peace are as follows:
TABLE 11
RISE AND FALL IN ANNUAL FOREIGN TRADE BALANCE
OF THE UNITED STATES BETWEEN 1912 AND 1921
Year
Exports
Imports
Excess of exports
1912
$2,399,216,000
2,484,018,000
2,113,625,000
3,554,670,000
5,482,641,000
6,233,514,000
6,149,085,000
7,920,425,000
8,228,016,000
4,485,122,000
$1,818,217,000
1,792,596,000
1,798,277,000
1,778,598,000
2,391,635,000
2,952,467,000
3,031,213,000
3,904,364,000
5,278,481,000
2,509,025,000
$580,999,000
1913
691,422,000
1914
324,348,000
1915
1,776,072,000
1916
3,091,006,000
1917
3,281,047,000
1918
3,117,872,000
1919
1920
4,016,061,000
2,949,535,000
1921
1,976,097,000
■ -
Discussing the trade outlook between this coun-
try and Europe, Secretary of Commerce Hoover
66
FOREIGN TRADE, FOREIGN EXCHANGE 67
said at the beginning of the year : "One great dif-
ficulty is the fact that Europe is not able to sell
us any great quantity of goods and must, there-
fore, be carried to a large extent on credit. For
example, during the year just closed we sold to
Europe approximately $2,300,000,000 worth of
goods and bought approximately $760,000,000
worth. Either Europe must find a way of in-
creasing the sale of goods directly or indirectly
to this country or she must continue to be carried
to a large extent on American credit, if her pur-
chases of American products are to remain up to
the present standard."
Table 12 (see page 68) gives an analysis, by the
Department of Commerce, of the United States'
foreign trade for 1920 and 1921, classified by
great groups according to the use or degree of
manufacture.
The extraordinary growth and sharp decline in
our exports and imports shown in Tables 11
and 12 is a matter that comes home to every
American. In these figures lie several hard
facts. The one uppermost in the American
mind is the difference between prosperity and
"bad times," represented by the $3,343,000,000
drop from 1920 to 1921 in our exports and by the
$424,000,000 decline in exports for December,
1921, as compared with December, 1920. Al-
though partly due to the fall in prices, the figures
showing this break in exports should prove to all
American business men, farmers and workers
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FOREIGN TRADE, FOREIGN EXCHANGE 69
that it is an established fact that the United
States, which increased its means of production,
both industrial and agricultural, to abnormal pro-
portions during the war, is coming back to a stage
of production approaching a level nearer that of
1913 than the peak years of the war. The ex-
porting producer has to face this hard fact and act
accordingly, even though Europe and other parts
of the world are still suffering from an under-
consumption that matches our overproduction.
Reviewing our foreign trade for the fiscal year
1920-21 the director of the Bureau of Foreign
Trade and Commerce, Julius Klein, said: "The
decrease of more than $3,000,000,000 in the value
of American foreign trade in the last fiscal year,
as compared with the immediately preceding
year, was clearly the effect of the world-wide
trade depression appearing as an aftermath of
the war. To a great extent lower prices, rather
than diminished quantities, are responsible for
the decrease. In fact, a compilation of exported
commodities, reduced so far as possible to a
weight basis, shows weight increases of 34 per
cent for the groups of raw materials and of 37
per cent for foodstuffs in 1921 over 1920, with a
decrease of four per cent for such partly or
wholly manufactured articles as can be shown in
weight. The final totals, including articles form-
ing 69 per cent of the value of domestic exports
in 1921, indicate a decrease in value of 19 per
cent but an increase in weight of 23 per cent in
70 OUR ELEVEN BILLION DOLLARS
the exports of 1920-21 as compared with the pre-
ceding year, 1919-20.
"Aside from the effect of lower prices, how-
ever, other causes contributed to the lower for-
eign trade totals. It is evident that the United
States no longer enjoys the advantage, possessed
during and after the war, of being practically
the only country able to supply the larger needs
of the world. The European countries are again
raising crops on the former battlefields and no
longer depend on this country for the greater part
of their food supplies, as was the case during and
immediately after the close of the war. Like-
wise, they have satisfied their most pressing needs
for our raw materials, which were required in
unprecedented quantities in 1919 and 1920 for the
re-establishment of their manufacturing indus-
tries. In the world markets for manufactured
goods, as well as raw and partly manufactured
materials, we no longer have the field to our-
selves, but must compete in prices and terms with
other countries.
"The foreign exchange situation, with the dol-
lar at a premium over the currencies of most
other countries, had a depressing effect on our
exports in the last year. With exchange rates of
foreign currencies depreciated to a point which
made our prices in dollars prohibitive, with de-
clining imports, with the impossibility of settling
in gold the balances already due us, with the dif-
ficulty of arranging further credit facilities, with
FOREIGN TRADE, FOREIGN EXCHANGE 71
cancellation of orders, with rejection of goods al-
ready shipped and the dishonoring of drafts, it
was impossible for exports to continue at the rate
of $500,000,000 to $600,000,000 per month, to
which they had grown during and directly after
the war. In fact, an unavoidable drop in our
exports was predicted long before it took place.
Beginning with the early months of 1921 the
monthly totals began to decrease, and during the
last four months of the fiscal year the average
was $350,000,000 per month. Even at this rate,
if continued, our exports would average 75 per
cent above the pre-war totals."
But the figures of the Federal Reserve Board
show that the volume of at least part of the export
trade of the United States for 1921, calculated
on a 1913 basis, was noticeably less than a 75
per cent average. A general idea of the actual
trend in our foreign trade may be had from Table
13 (see page 72), which combines the Federal Re-
serve Board's index figures for the value and
volume of selected exported and imported com-
modities, all on a 1913 basis, with index figures
showing the annual value, in terms of the fluc-
tuating dollar, of exports and imports from 1913
to 1921, along with the index numbers of the
Bureau of Labor Statistics for wholesale prices
of commodities in the United States.
The actual movements of our post-war foreign
trade are traced month by month through the
years 1919, 1920 and 1921 in Tables 14 and 15
«>
ri CO
a Q
si 9
P
H
9
H
fa
O
w
S
&
o
>
w
p
>
o
42
O
a
S
Wholesale
prices of
goods
imported (c)
Value
of
selected
imports (6)
Volume
of
selected
imports (6)
Value
of
total
imports (a)
009M010H8M
Wholesale
prices
of
com-
modities
in
U. S. (d)
hhhhmhMMh
O
a
K
W
Wholesale
prices of
goods
exported (c)
O Tfl^-H
Value
of
selected
exports (6)
Volume
of
selected
exports (b)
o ^©O
Value
of
total
exports (a)
rt .-h IN <N W C3 CO >-i
ea
111
^c^rHrHi-Hi-lrHCNO)
go o
a,, 2
& 55-rt
Q a> c .-S
M— i fl
g2SP
S °» 0.5
h*;Jk
FOREIGN TRADE, FOREIGN EXCHANGE 73
(see pages 74 and 75), prepared by L. B. Mann,
of the Division of Analysis and Research of the
Federal Reserve Board. To throw light on how
much of the increases in the value of American
foreign trade has been due to increases in prices
and how much reflected the increased volume of
shipments and to determine the relative impor-
tance of changes of prices and changes in vol-
ume of shipments upon the value of American
exports and imports, monthly exports of 29 com-
modities and monthly imports of 27 commodities
were studied. The tables show these two major
groups of commodities divided into three minor
groups — raw materials, producers ' goods and con-
sumers ' goods. For purposes of combination
the volume of shipments of each commodity was
translated into dollars by multiplying by its aver-
age wholesale price in the United States in 1913,
the combined values thus obtained being con-
verted into index numbers by making the average
monthly value in 1913 equal to 100. The value
of exports or imports of each commodity, as
shown by the Department of Commerce figures,
are represented in the tables by a comparable set
of index numbers, the values of the commodities
in each group having been added and their aver-
age monthly values in 1913 taken as a base.
Referring to the index numbers of Table 14
(page 74), Mr. Mann says: "The volume of mer-
chandise exports of these selected commodities
was slightly higher in January, 1919, than in the
74
OUR ELEVEN BILLION DOLLARS
TABLE 14
INDEX NUMBERS OF VALUE AND VOLUME OF EXPORTS DURING
1919, 1920 AND 1921, BASED ON AVERAGE
MONTHLY FIGURES FOR 1913
Year
and
Raw
materials
(12 com-
modities)
Producers'
goods
(10 com-
modities)
Consumers'
goods
(7 com-
modities)
Total
exports
(29 com-
modities)
Value
Volume
Value
Volume
Value
Volume
Value
Volume
1919
January . .
February .
March. . . .
May
July
August . . .
September
October. . .
November
December.
219.6
147.8
152.2
162.5
167.0
251.1
185.2
212.6
174.7
186.4
312.0
289.8
98.2
68.3
67.3
76.0
78.9
114.8
84.0
94.9
82.1
82.1
116.2
104.6
382.4
322.9
350.7
382. r
311.0
520.7
310.7
349.5
368.6
349.7
320.7
258.5
159.0
125.9
139.3
166.9
137.7
247.1
147.9
168.8
166.9
148.1
135.7
113.9
405.0
405.7
481.3
606.9
435.0
761.6
415.8
393.5
340.8
358.3
369.0
350.8
186.4
175.2
202.3
264.9
192.9
315.1
172.7
161.6
142.4
150.6
153.5
143.1
268.1
211.0
230.7
264.6
229.5
369.8
239.2
258.1
222.2
232.4
323.6
298.7
124.7
99.0
106.1
129.3
111.4
174.7
110.9
117.5
104.1
104.4
126.9
114.6
Average .
205.1
88.9
352.6
154.7
453.5
188.5
262.3
118.6
1920
January . .
February .
March. . . .
April
July
August . . .
September
October. . .
November
December .
314.7
232.6
304.0
228.7
208.3
185.1
239.2
235.3
257.6
331.2
269.9
260.7
108.7
81.9
106.0
79.5
73.5
64.9
78.1
78.7
82.5
118.7
111.1
122.4
322.1
305.6
357.4
359.3
352.7
315.3
380.0
334.9
300.4
391.4
306.0
458.5
134.9
122.4
148.8
147.5
150.4
126.4
164.4
135.4
119.7
152.2
121.8
186.0
304.3
342.1
477.5
444.3
509.1
393.8
354.8
253.7
259.7
327.2
309.3
311.8
116.2
136.8
186.0
169.1
205.5
151.5
142.3
94.7
94.0
124.4
111.6
123.3
313.4
259.4
341.2
280.2
277.0
235.3
272.8
247.1
261.6
335.4
280.4
287.0
112.9
98.7
128.9
107.1
111.9
91.1
101.3
87.7
88.6
123.1
112.2
128.4
Average .
255.6
92.2
348.6
142.5
357.3
138.0
282.6
107.7
1921
January. .
February .
March. . . .
June
July
August . . .
September
October . . .
November
199.8
158.9
132.3
117.4
147.4
151.8
153.6
195.4
151.9
183.3
137.3
105.2
91.0
78.2
76.6
97.7
107.9
111.6
142.7
115.7
121.7
95.1
466.1
325.6
244.2
212.1
157.2
135.0
118.6
118.2
129.3
120.7
126.6
187.9
141.0
104.4
102.7
81.8
74.4
68.3
68.1
79.1
83.5
83.7
277.9
219.3
205.5
193.2
169.9
199.7
195.7
227.9
199.4
153.3
146.3
126.0
116.4
122.4
122.5
112.8
135.1
131.8
164.1
147.5
119.2
108.6
236.8
184.2
155.5
139.6
152.5
159.4
158.7
195.1
159.0
172.4
138.1
117.6
101.6
91.1
89.9
100.0
111.3
112.5
140.9
119.9
117.6
97.3
Average .
153.8
103.1
183.2
95.8
194.1
126.1
156.7
107.9
Raw materials: Lumber, wheat, corn, oats, barley, leaf tobacco, cotton,
refined copper, anthracite, bituminous coal, pig iron, crude oil.
Producers' goods: Sole leather, upper leather, steel rails, structural steel,
steel plates, copper wire, acetate of lime, cottonseed oil, fuel oil, gasoline.
Consumers' goods: Wheat flour, cotton cloth, boots and shoes, hams and
shoulders, lard, illuminaing oil, refined sugar.
FOREIGN TRADE, FOREIGN EXCHANGE 75
TABLE 15
INDEX NUMBERS OF VALUE AND VOLUME OF IMPORTS DURING
1919, 1920 AND 1921, BASED ON AVERAGE
MONTHLY FIGURES FOR 1913
Year
and
Raw
materials
(10 com-
modities)
Producers'
goods
(12 com-
modities)
Consumers'
goods
(5 com-
modities)
Total
imports
(27 com-
modities)
Value
Volume
Value
Volume
Value
Volume
Value
Volume
1919
January . .
February .
March. . . .
April
May
June
July
August . . .
September
October. . .
November
December.
144.1
165.6
182.8
228.2
282.0
292.5
311.8
323.8
487.7
390.3
426.2
340.6
88.5
94.9
109.2
125.9
161.4
171.4
171.7
169.9
245.3
196.8
196.1
158.9
207.4
258.9
269.4
305.2
353.0
243.1
281.6
167.1
281.9
285.9
282.5
236.4
143.3
180.2
223.0
237.7
242.8
167.2
209.1
113.8
189.2
201.9
213.9
194.2
120.0
121.6
226.5
175.8
225.2
197.3
320.0
272.6
326.9
254.3
265.0
244.5
95.5
97.9
165.1
137.1
178.1
144.3
204.4
153.0
169.8
137.0
143.5
144.4
162.6
191.3
222.2
246.5
297.3
257.1
302.4
257.6
383.6
327.5
344.6
285.2
109.1
125.6
158.6
167.4
193.0
165.4
190.3
147.3
213.1
188.8
193.8
169.0
Average .
298.0
157.5
264.4
193.0
229.1
147.5
273.2
168.4
1920
January . .
February .
March. . . .
April
May
July
August . . .
September
October. . .
November
December.
452.2
411.4
431.9
375.2
305.9
352.6
275.8
259.8
192.8
151.6
140.8
119.5
206.1
173.2
192.7
173.9
127.5
157.3
121.0
122.3
101.3
89.1
86.3
79.4
395.6
498.5
548.1
482.2
501.0
789.6
819.7
750.1
424.4
298.2
335.8
262.6
244.8
289.4
338.8
262.5
227.2
257.2
256.8
256.3
165.3
131.5
166.4
133.0
272.3
225.3
302.1
337.6
181.5
252.4
288.0
248.5
170.1
167.5
128.7
95.1
152.9
126.9
173.0
193.7
108.1
149.2
168.3
160.0
120.5
120.4
102.4
91.6
398.7
408.8
450.2
407.1
353.8
492.6
475.2
435.4
272.6
207.7
209.2
166.9
211.1
206.9
241.2
208.6
159.6
191.4
176.9
176.0
127.1
109.2
117.3
100.4
Average .
289.1
135.8
508.8
227.4
224.4
166.7
356.5
168.8
1921
January . .
February .
March. . . .
April
June
July
August . . .
September
October. . .
November
99.2
144.1
154.6
179.7
137.1
132.6
135.3
160.3
134.1
120.5
147.2
74.5
118.2
160.7
153.4
98.7
94.5
99.3
116.7
102.8
96.2
115.1
181.6
201.7
249.7
247.7
172.2
137.3
115.7
146.3
103.7
117.5
131.8
130.8
143.5
177.5
177.7
150.2
152.5
126.5
165.0
137.8
173.5
199.5
112.3
117.6
148.9
158.9
140.3
111.7
112.3
117.3
97.6
115.0
149.8
123.9
135.5
178.9
185.1
162.1
130.4
121.4
129.8
99.4
116.5
149.2
131.5
160.1
188.0
200.5
150.4
130.4
124.0
147.3
116.4
118.4
142.1
102.6
130.0
169.7
167.2
127.3
120.9
112.6
136.0
114.6
126.9
150.6
Average.
137.0
113.6
156.7
162.8
129.2
141.4
1 is 1
135.6
Raw materials: Cotton, refined copper, hides and skins, lumber, silk, tin,
flax seed, leaf tobacco, pulp wood, wool.
Producers' goods: Extract of quebracho, glycerine, nitrate of soda, mamlla
hemp, jute, burlap, sisal grass, sulphate of ammonia, india rubber, cane sugar,
news print, wood pulp.
Consumers' goods: Cocoa, coffee, tea, bananas, olive oil.
76 OUR ELEVEN BILLION DOLLARS
average month of 1913, while the total value of
such exports was over two and one-half times as
great. This divergence between the relatives of
volume and value of exported merchandise tended
to become greater until September, 1920. From
October, 1920, to September, 1921, however, the
value and volume series showed a marked ten-
dency to return to their 1913 relationship. Eaw
materials were first affected by this curtailment
in relative values, but consumers' goods and pro-
ducers ' goods very soon followed the same course.
In October, 1921, the value of raw materials once
more showed a relative increase as compared with
the volume, while consumers' goods and produc-
ers' goods registered a similar movement in No-
vember. ' '
In regard to the imports indexed in Table 15
(page 75), the following points are made: "The
volume of the selected group of imports in Janu-
ary, 1919, was only slightly larger than in the
average month of 1913, while their value was over
50 per cent greater. This difference between
relative volume and value of imports for the
group as a whole tended to increase until July,
1920, but after that month declined rapidly, until
the volume on a 1913 base in October, 1921, was
greater than the value. This decline started first
in the consumers' group in October, 1919, was
registered by raw materials commencing with
June, 1920, and by producers ' goods commencing
with August, 1920. It was finally entirely
FOREIGN TRADE, FOREIGN EXCHANGE 77
checked in November, 1921, but average prices of
consumers ' goods had already commenced to show
a reverse movement in July, 1921.
"The value of both exports and imports in-
creased more rapidly than their volume during
1919 and the first half of 1920. Since the summer
of 1920, however, these values have shrunk very
rapidly and in recent months values of selected
imports are relatively lower than in 1913, while
values of a selected group of exports are only
about 40 per cent higher than they would have
been at 1913 prices."
The excess in the volume of trade for the year
1921 over that for 1913 causes 0. K. Davis, sec-
retary of the Foreign Trade Council, to ask, in
the New York World: "Why do we Americans
so sedulously indulge in bewailment? Why per-
sist in seeing the dark as well as the wrong side
of these matters?
"In 1913 we were selling substantially all that
we produced. The war came on, with its amaz-
ing expansion of our productive capacity and our
curtailment of consumption. In every industry
there is an element, roughly estimated, as the last
20 per cent, the sale of which is essential to the
prosperity of the whole operation. This applies
equally to the steel maker, the farmer and to any
person or concern engaged in industry. Costs
are met, still roughly speaking, with the 80 per
cent, and profits accrue from the 20 per cent.
"A farmer produces 1,000 bushels of wheat
78 OUR ELEVEN BILLION DOLLARS
and sells only 800 bushels. If he cannot sell the
remaining 20 per cent he will have a hard year —
his profits will be cut off entirely. And precisely
the same is true of the industries.
"Before the war we had developed an export
trade of about $1,000,000,000 in finished manufac-
tures. Then came the war, with the enormous
stimulation of production capacity and corre-
sponding vital diversion of labor from agriculture
to industry. We came out from the war with a
capacity for production for export far beyond
what our normal increase would have been. We
accomplished in a jump, under the forced draught
of the war, such an industrial development as
would normally have been accomplished only over
a period of two or three decades.
"At the same time, we curtailed consumption to
a point where there was an enormous expansion
of our customary increment of wealth. In other
words, we saved more than we ordinarily would
have saved, and this extraordinary saving under
the inspired impetus of the war bulks so large in
the aggregate that we came from the war very
greatly a creditor nation instead of the substantial
debtor nation we were when we entered the war.
Thus, we achieved in financial status in a single
jump the same thing we achieved in industrial
status, excepting that it would have required
twice as long to build up such a credit as it would
have required to build up such an industrial de-
velopment. As a people we will have to learn
FOREIGN TRADE, FOREIGN EXCHANGE 79
what the last 20 per cent of industrial production
means to the economic health of the country."
America is learning, at great cost, that the mar-
gin of surplus production over domestic demand
can break the domestic market and with it the
domestic demand. Producers in the United
States — industrial and agricultural leaders and
workers alike — are beginning to realize that the
country's production must be readjusted on a
basis that provides for a surplus of production
to meet the actual demand of foreign markets, a
demand which will increase as Europe revives
but which can never reach the high level of the
war until another great war is waged abroad —
after the debts of this war are settled — or the
world's population has greatly increased.
European countries are still far from the point
where they can increase their production and ex-
ports so that an equilibrium against our con-
stantly increasing creditor position can be
reached. Before the war we paid Europe $250,-
000,000 every year for capital invested in this
country; now her annual interest debt to us
amounts to about $800,000,000. The remedy for
the situation is the reciprocal increase of exports
and of imports, and a field of foreign trade new
to us — foreign investment. But first Europe
must produce the goods. How she is failing to do
so is represented in Table 16 (see page 78A).
With the problems of international trade, infla-
tion, gold reserves and budgetary equilibrium, the
80 OUR ELEVEN BILLION DOLLARS
problem of exchange is to be considered. The
effect, not the cause of the world's economic
troubles, exchange has fluctuated in the last few
years in an amazing manner, rising or falling
with every financial breeze or political sneeze.
' ' Stabilize exchange ' ' is the cry that has gone up
throughout the world, as if stabilization were the
cure-all for the world's post-war ills. But under
the present economic and political conditions in
Europe it would be just as impossible to stabilize
exchange as to stabilize Lloyd George.
Since the removal of the artificial supports pro-
vided by the United States for allied exchange
during the war, numerous artificial methods have
been suggested for the stabilization of exchange,
and a few tried, unsuccessfully, of course, since
the credit position of Europe is to be strength-
ened and her buying power increased only in the
natural way — hard work and strict economy, in-
creased production and normal consumption. So
great is the gap between the dollar and most Euro-
pean currencies to-day that not even all our gold
could bridge it without Europe's reform. Sta-
bilization of exchanges will never be brought
about so long as Europe's economic and political
instability continues.
The disordered state of European exchanges is
shown in Table 17 (see page 81), which gives the
high and low European exchange rates for the
year 1921 and their averages for January, 1922,
compared with parity.
UE8
Df imports
ports, —
3f exports
iports, +
Belliger
Belg
Buhj2
Finli2
Frai
Gen 9
Gre< 6
Italj8
Port 1
Unit 9
Neutral
Dem
Boll
Spai
S\v
5w
tcu'j
Countri
An
Bras
Ja
Uni
pa4
British
A us
far.
In
N
dii'
(o)
(b)
(e)
(d)
■
if)
>u
{h)
(t)
0>
(k)
U>
m)
(n)
(>)
.
(r)
000,000
000,000
000,000
000,000a
000,0006
000,000
000,000
000,000
000,000
000,000
,-C(l
It .">
3,000,000
4,000,000
,000,000
,000,000
000,000
,000,000 c
5,000,000
000,000
,000,000
,000,000
,000,000
,000,000rf
000,000
.Soutjl.000,000
Imports
7,728,937,000 e
'2;626,8bi,666/
23,548,000,000
6,523, 650,000/i
986,380,000
334,764,000 i
2,425,410,000 j
744.698.000A-
832,311,000/
46,601,000m
l.li'U. 224,000/1
2,509,025,403
43,657,000m
674,96 l,000p
29,442,000 v
28,4 11, 000 r
1921
Exports
5,447, 104,000 e
' 1 1993,772,666/
21,553,000,000
'2;G77,16i',006a
'703,130,666
844,778,000 i
1,239,871,000.;
356,677,000A-
681,376,000/
36,256,000m
975,920,000/1
4,485,122,690
33,225,000<>
629,949,00Op
31,181,0007
11, 758,000 t
Excess of imports
over exports, —
Excess of exports
over imports, +
— 2,281,833,000e
'^633,029,606/
—1,995,000,000
— 13,000,000,0001/
—3,846,489,000/1
—277,250,606
+510,014,000/
-1,185,539,000;
— 388,02 1,000 k
—150,935,000 /
—10,345,000m
—318,304,000/1
+ 1,976,097,293
— 10,432,000u
— 15,012,000p
+ l,739,000y
-1 6,653,000 r
: PRINCIPAL CIM'NTRII S
Unit
19.3
1919
i«i
Cunt™
m^*
Exports
ExeesToTeiporM
[mporta
_
Excess of import*
Excess of exports
^
Exports
Excess of exporU
B '"ffi™,' u CO ° n " ie * °' E "° Pe:
Franc
Franc
Krone
Gulden
I. . .'
TSE
■l."-;'i. ,; .1
1 H3-.ri.HMJ. 1
Lm|ooo!ooo
—134.000.000
"jUJUMMMM.
+23.000.000
— 25,OUU,UO0
+09l!o00;000
--:(,
■ aa i!ooo!
I.Ih-TJMMI.kmi
■ ■
79f>|l.H«l!lHXI
^l-'UXX.M."*)
—669,000,000
— 23SiO00!0O0
+ 4,018;UOO!000
+48,000,000
+732,00o|000d
■i 22.lKNi.IMU
7,728.937.000,
5,„7.,«.00O,
, , s] S(((MK)
PiS
Franco
Germany
Countries outside Europe
United States
N.Vzf-nland.'.;:
2,026,801,000/
1,993,773,000/
B44,778,000i
| J 1 ...S7_|.,I,MI ;
esilsTalooo,
36,25fl,b66n
975,920,000i
33,236,0001
629.949.00Op
—038,029,000/
— 1 3.000,000.000 b
980,380,666
■,.i - 4,000
.•.^■-..IM.iHin,
nalauioooi
j/HiitTij.yi.i.L
29,4*2,666i
-277,250,000
| 510,01 1,000,
1 lS.V-.ilt.lMKlj
■ |N\"21,INM*
| io,sa 0001
+l,97fl;097;298
—10.432.00Oq
—.5.0 12,000 j»
hi liirltjilinp .\l-ii. i-I.-.rr
I-...I,,.
eSSlt
Total 1
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55
82 OUR ELEVEN BILLION DOLLARS
The chaotic condition of international ex-
change and its harmful effect as one of the factors
hindering the recovery of the world's commerce
is summed up by the statement of the United
States Section of the Inter-American High Com-
mission: "For the most part the exchange situa-
tion merely reflects the economic situation. Ex-
change has been likened to a barometer; the
barometer indicates the weather, but it does not
make the weather. The dislocations which still
exist in the whole international economic struc-
ture and the derangements of the international
price structure are mainly responsible for the
disordered exchange situation. The exchange
situation will improve as the world's economic
recovery goes on, especially in Europe, and par-
ticularly as the existing distortions in the price
structure disappear.
11 Confusion in the existing exchange situation
shows itself principally in two ways: First, in
the relative premiums and discounts on the cur-
rencies of different countries, and, second, in the
disastrous daily fluctuations of the currencies of
some countries.
"The export trade of countries whose cur-
rencies are at a premium is at a serious disadvan-
tage. The trade of the United States is suffering
more from this derangement than any other coun-
try, because its currency is at a premium with
respect to practically every other country. The
other American republics are, however, suffering,
FOREIGN TRADE, FOREIGN EXCHANGE 83
if not in the same degree, nevertheless in much
the same way as the United States wherever a
similar relationship exists with regard to their
respective currencies and to the currencies of the
different states of Europe.
"It is to be expected that in the course of time
price levels and wage levels will rise in countries
with depreciated currency and will decline in
countries with premium currencies until an eco-
nomic equilibrium is once more attained. Mean-
while, however, while changes in the relative pre-
mium and discount on currencies are going on, the
process is causing incalculable inconvenience and
serious injury — economically, financially and
socially — both to the premium and discount
countries.
"The second phase of the derangement, that
is, the daily fluctuation of exchange, is destruc-
tive of sound and progressive business, because
it drives every international transaction into the
realm of speculation. The daily fluctuation in
exchange in many instances absorbs more than
the normal margins of profit, and thus either
enlarges the margins or drives business to a cash
basis instead of the accustomed credit relation-
ships. In either case the result is a decrease in
the entire commerce of the world.
"The fluctuations are less extensive between
the American republics than they are between
the American republics as a group and Europe,
but it is impossible to dissociate inter-American
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FOREIGN TRADE, FOREIGN EXCHANGE 85
exchange relations from the European relation."
The need of every country to-day is not only
stable exchange but also a stable price level.
Stable prices are possible only when there is
neither inflation nor deflation. How to secure this
needed stability awaits a practical solution. The
plan of stabilizing prices by stabilizing the value
of gold met with little support at the Inter-
national Financial Conference. Money, whether
specie or paper, has been varying in value
throughout the centuries, yet its movements dur-
ing the war and post-war periods have kept its
holders more than ever on the anxious seat be-
cause of the instability of its purchasing power
through fluctuations of the dollar, pound, franc
and other units in foreign exchange, through
variations in the premium of gold in paper money
countries, through upward and downward move-
ments in price index numbers. The result has
been that during the last eight years every man's
money has changed its value more rapidly and
more irregularly than ever before in this business
generation, whether resting quietly in his pocket
or deposited in a bank or invested in securities,
without his being able to lift a hand to help or
hinder. This instability is indicated in the index
numbers of Table 18 (see page 84).
The instability of the purchasing power of the
dollar during the War of 1812, the Civil War
and the World War, and the years immediately
following, is shown in this tabulation of index
86
OUR ELEVEN BILLION DOLLARS
numbers for the prices of food, the figures calcu-
lated from the average prices of foodstuffs for
five years before each of the three wars :
TABLE 19
INDEX NUMBERS OF FOOD PRICES IN THE UNITED STATES
DURING THREE WAR AND POST-WAR PERIODS
War of 1812
Civil War
World War
1810....
.. 165
1860
93
1913
102
1811....
.. 160
1861
93
1914
102
1812
. . 162
1862
109
1915
102
1813
.. 189
1863
137
1916
126
1814
. . 235
1864
176
1917
178
1815....
.. 185
1865
200
1918
200
1816....
157
1866
176
1919
219
1817
.. 159
1867
159
1920
250
1819
.. 137
1868
148
1921
150
1820
.. 117
1869
142
1922
134a
1821
112
1870
131
1923
(a) Index number for January only.
VII
g e r man r eparatio ns and .
- prepar; '
In the first years of the war we heard from the
Germans of the huge indemnities that her con-
quered enemies, also the United States because of
alleged un-neutrality, would be compelled to pay
when Germany dictated the treaty of peace.
Since 1919 the Germans have been trying to
convince the world that they are unable to pay
reparations even when reduced to 138,000,000,000
gold marks, a figure less than the losses result-
ing from the German invasion of France.
The will to pay, t^Freiich_say^comes before
the capacity to pay, and the world sees that Ger-
many has the ability to pay but not the inclination.
The judgment of public opinion, based on justice,
not on sentimentality, is that Germany must make
restitution for the damage caused by her aggres-
sion, this restitution to be limited only by her
capacity t<ypay without endangering her economic
system. 4jVith almost constant conflict between
France, insisting upon reparation payments ac-
cording to schedule for her devastated regions,
and Great Britain, as stubbornly demanding a
revision that will help devastated British com-
87
88 OUR ELEVEN BILLION DOLLARS
merce to revive, Germany has taken full advan-
tage of the antagonism between her former
enemies in attempting to escape payment of a
debt to which she has agreed.
Germany continues to lack good faith — from
August, 1914, to the Armistice, from the Armistice
till to-day, from to-day until when? Her artifi-
cial substitutes for honesty and reliability should
deceive nobody. The national policy is based on
deceit and dishonesty. The government has fur-
nished the evidence. It has defaulted with
respect to treaty obligations, notably disarma-
ment, the trials of war criminals, and reparations,
including the undervaluation of German exports,
26 per cent of whose value is due the Allies.
A dishonest debtor, Germany has deliberately
brought herself to a point where the government
is near bankruptcy — fraudulent bankruptcy. If
bankruptcy comes, it will be financial, not eco-
nomic, and it will be the result of the Allies ' stupid
failures to take the proper steps at the right time
and of the German plan to escape reparation pay-
ments.
The shrewd manipulation of the mark within
the past year has written a spectacular page in
financial history, a page on which Germany is
credited with the profits and her former enemies
debited with most of the losses. To meet repara-
tion payments and to line German pockets with
gold, German bankers, speculators and manufac-
turers extended their dumping tactics to paper
REPARATIONS AND PREPARATIONS 89
marks, skilfully and at first quietly dumping them
in ever increasing quantities on the world's finan-
cial centers.
At the beginning of 1921 the mark stood at 73
to the dollar, in February at 61, in March at 63,
in May at 62, in June at 69, in July at 76, in
August at 84, in September at 104. On October
1, with the mark at 122, the rapid decline began.
By the twentieth of the month it had reached 158,
on November 1 it was at 181, on the third at 205,
on the fourth at 240, on the fifth at 248 and
on the eighth at 302. Then it went to 247, but it
took another fall to 287 to the dollar on Novem-
ber 20. Then it speeded back to 187. But why
continue the dizzy pursuit? The mark is a
smashed Humpty Dumpty that all the kaiser's
horses and all the kaiser's men can't put together
again at the old par value of 23.82, or 4 to the
dollar.
With the mark plunging to unprecedented
depths and the units of other countries dislocated
under the pressure, the Germans brazenly faced
the world with more and more paper money.
Using wood pulp and printing press, they played
havoc in the foreign exchange markets and suc-
ceeded in getting the creditor nations to pay a
part of the German war bill out of their own
pockets.
Of the hundred and more billions of German
paper marks, how many are held abroad? For-
eigners own 20,000,000,000, according to the presi-
90 OUR ELEVEN BILLION DOLLARS
dent of the Reichsbank — but the less credit given
to a German banker or his word the better. Other
estimates, more reliable and nearer the mark than
the Herr President's, put the total sum that the
Germans succeeded in selling abroad between
30,000,000,000 and 50,000,000,000 paper marks.
Regarding American speculations in marks the
Saturday Evening Post says: ''Something like
one hundred million American dollars vanished in
the thin air of the Germany currency balloon.
Competent authorities estimate that 20,000,000,000
paper marks are in the hands of American specu-
lators." In addition to the billions of paper
marks held by speculators abroad, it is figured
that foreign investors have put into Germany
since 1918 from 80,000,000,000 to 100,000,000,000
paper marks. Most of the speculators and inves-
tors bought at prices considerably higher than
those which prevailed in the last months of 1921,
consequently, a lot of dollars, pounds and other
good money went to enrich the Germans for
nothing more than printing.
Germany's inflation is a colossal North Sea
bubble, with government and financiers playing an
adroit game, chiefly at the present and future cost
of the Allies and the German working classes. A
part of this German game is repudiation, which
is bound to come in some degree, and Germans
only are, through the conversion of marks into
commodities and stable moneys, more or less pre-
pared for repudiation. The German government
REPARATIONS AND PREPARATIONS 91
will wish to cancel the entire paper mark issue.
This is the step that a certain American who
advises investors how to invest, advises Germany
to take, but the Allies cannot be ignored in this
matter. Conversion to a unit with a low gold
value has already been discussed in allied finan-
cial circles. The losses due to such partial
repudiation can be and must be largely borne by
Germany.
The German government has intentionally made
itself poor while making German industries and
a limited number of citizens rich. At the same
time that the government has been enormously
increasing public expenditure, it has taken no
effective measures to balance its budget. Totally
inadequate taxation has continued, and the paper
mark has been depreciated in an amazing fashion,
as may be seen from Table 20, on page 92.
"The fall in the value of the mark is due to
reparations," cries the government, and "Repar-
ations are the cause for the entire financial dis-
tress of the Reich," says the Minister of Finance,
and their words are echoed by verbal and printed
propaganda, which carefully ignores such impor-
tant factors as mark speculation, government
subsidies, colossal expansion in the treasury bill
circulation and the absurdly low rates of taxa-
tion.
While the Reichsbank, once a great commercial
banking institution, has been playing the printing
press to the state, the government has continued
92
OUR ELEVEN BILLION DOLLARS
TABLE 20
INCREASES IN GERMAN CURRENCY AND DECREASES IN
EXCHANGE VALUE OF THE MARK
Date
Paper marks
Value in cents
1912 — July 25
1,004,260,000
1,826,920,000
2,013,860,000
7,246,260,000
10,103,740,000
10,622,300,000
16,959,260,000
22,188,000,000
27,286,000,000
35,698,000,000
49,127,540,000
68,805,000,000
70,839,000,000
69,724,403,000
71,838,000,000
75,321,000,000
77,390,000,000
80,072,000,000
86,204,000,000
87,547,000,000
91,347,101,000
104,387,000,000
113,458,889,000
112,403,362,000
23.80
1913 — July 25
23.80
1914 — May 30
23.80
191g — Nov 6..
5.83
1917 — Nov. 6
Nov. 30
1918 — Nov 1
Dec. 31
1919 — May 24. . .
Dec. 31
2.08
1920 — May 24
2.50
Dec. 31
1.35
1921 — April 30
1.50
May 24 (b)
1.65
May 31
1.57
June 30
1.30
July 30
1.20
Aug. 30
1.15
Sept 30. . .
.82
Oct. 15
.66
Oct. 31..
.55
Dec. 15
Dec. 31
.56
.53
1922 — Jan. 14
.54
(a) No quotations during the period when the United States was at war with
Germany. .
(6) The purchase of foreign cash balances for reparations began the third week
in May.
the war policy of low taxation, making possible
large fortunes — the profits of Krupp's, Stinnes
and the German General Electric Company are
outstanding examples among a host of individual
and corporate profiteers. Although the treaty
provides that Germany's taxation must equal that
of the Allies, her taxes do not live up to this pro-
vision. Taxation in defeated Germany is con-
siderably less than in victorious Fr ance an d Eng-
land. Figuring on the basis of the budgets of
1921 and the purchasing power of the respective
currencies abroad, the English taxpayer is paying
REPARATIONS AND PREPARATIONS 93
about $60 to his government, the French citizen
about $45 and the German about $15. And Ger-
man tax-dodgers are to be numbered by the mil-
lions, from the ex-kaiser to the socialists. Ger-
many's taxation schedules have been farcical, and
the recent schemes of a forced loan of 1,000,000,-
000 gold marks and a voluntary internal loan offer
inadequate remedies. A comparison of post-war
taxes and the taxation schedules of 1913 shows
that Great Britain has increased her taxes more
than three times what they were the year before
the war, France about twice and Germany prac-
tically not at all.
While holding down taxation as a part of the
scheme to defeat the payment of reparations, Ger-
man officials, from the highest to the lowest, have
connived in the established practice of removing
wealth from Germany to neutral countries in
Europe, to South America and also to the United
States. The result is that a considerable per-
centage of Germany's liquid assets have been
transferred to hiding-places abroad, where they
may escape future German tax assessments and
the claims of the Reparation Commission. Of the
money transferred abroad some has actually been
smuggled out with the aid of minor officials,
whereas a considerable part has been expatriated
with governmental aid under the guise of com-
mercial expansion. Various estimates have it that
from 2,000,000,000 to 7,000,000,000 gold marks are
in safe keeping in Holland, Spain, Switzerland
94 OUR ELEVEN BILLION DOLLARS
and Scandinavia. Dutch bankers believe that the
German credits in Holland alone amount to more
than $200,000,000.
Germany's budget deficit for 1921, according to
the Minister of Finance, reached 161,500,000,000
paper marks, with expenditures, including the
paper cost of reparations, totaling 240,000,000,000
marks. Her outstanding treasury bills in No-
vember, 1921, amounted to 212,548,000,000 marks,
having risen from 166,329,000,000 at the beginning
of the fiscal year. In January, 1922, her floating
debt was 247,000,000,000 marks. Of this sum
132,000,000,000 marks represented government
notes discounted by the Reichsbank — more than
the total currency circulation, which was then
about 112,500,000,000 marks. Yet at the time the
total gold reserves of the Reichsbank, which is
capitalized at only 300,000,000 marks, amounted to
only 995,000,000 marks, less than 10 per cent of
the paper marks outstanding. Its holdings of
dollars and other foreign exchanges are thought
to have amounted to 350,000,000 gold marks the
first of the year. The revised reparation budget
brought before the Reichstag in February, 1922,
estimated 187,500,000,000 paper marks as neces-
sary for expenditures, itemized as follows: gen-
eral reparations, 135,000,000,000; expenses for
armies of occupation, 6,200,000,000; inter-allied
commissions, 1,800,000,000; territory claims out-
side reparations, 20,700,000,000; clearing house
expenditures, 18,000,000,000; interior expendi-
REPARATIONS AND PREPARATIONS 95
tures, resulting from the treaty, 5,600,000,000.
The estimated sum of 16,500,000,000 marks from
taxation is made available for reparation pay-
ments. The state deficit for 1922, without includ-
ing the peace treaty liabilities, is put at 225,000,-
000,000 marks, on the basis of 60 paper marks to
one gold mark. If sales of treasury bills in 1922
maintain the same proportion as in 1921 the new
inflation will amount to 125,000,000,000 paper
marks. If Germany is permitted to keep on at
this rate, it will not be long before her floating
debt exceeds 500,000,000,000 marks. In October,
1920, the German national debt was 418,000,000,-
000 marks, exclusive of reparations but including
compensations to German citizens arising from
the treaty of peace.
While Germany has been proclaiming to the
world her inability to pay reparations, the govern-
ment has systematically been squandering billions
at home. Its unbalanced budget provided for
extravagant expenditures on subsidies and other
items. The government has been paying an
important part of the cost of the German people 's
bread and coal and meeting with budget appro-
priations the deficits of the postal service and rail-
roads. For 1921 the railroads showed a deficit
of 18,700,000,000 marks, a loss said to be greater
than the yield from the income tax. This, taken
with the deficit of the preceding year, equals the
whole of the book value of the German railroads.
Another enormous item on last year's budget was
96 OUR ELEVEN BILLION DOLLARS
11,000,000,000 marks for the merchant marine.
So Germany's extravagant expenditures, her
failure to collect adequate taxes and the inflation
of her currency have combined to work against the
payment of reparations, which the German gov-
ernment agreed to undertake.
The American vipw of this whole situat ion, was
s ummed up by Secretary Hoover in December^
1921, in reviewing economic conditions in Europe :
"The most eminent and most dangerous of the
unbalanced inflation situations is Germany. Her
case depends upon the method and volume of
reparation payments. As the United Sates does
not participate either in its control or its receipts,
we have no voice nor right to interfere. In any
event this is peculiarly a European matter and
must be adjusted by the parties at interest. It is
earnestly to be hoped that the present negotia-
tions upon reparations may succeed in finding a
sound basis that will secure permanent economic
and political stability to Germany and certainty of
regular payment to the Allies. With this effected
the way is open for constructive consideration of
the other states. The American people have
never been, and will not be, remiss in participation
in these further measures, but our people cannot
successfully enter until those who have control of
the reparations have settled this major issue upon
so sound an economic basis that we can look on
the future of Europe with confidence."
Six weeks later followed the statement of the
REPARATIONS AND PREPARATIONS 97
United States Section of the Inter- American High
Commission — it has been noted that the chairman
is Mr. Hoover — containing the following on
reparations: "The German government is not
meeting its reparation obligations by taxation,
while other countries are unable to mobilize
enough taxable resources to cover their expendi-
tures for reconstruction, for military forces and
for other purposes. There can be no hope of
stability in the world's exchange until, in the
first place, German reparation payments have
been put upon a basis not only securing a definite
flow of economic strength into the just task of
rehabilitating the devastated countries, but also
calculated to be within the practical power of the
German people to pay."
Despite the fair and sane attitude nf ^m^rj^a^
toward the subject of reparations, the publication
of this statement was followed by harsh criticism
in F rance . This, with the expression of French
opinion in regard to the enactment of the refund-
ing bill with its stipulated interest and maturity
clauses, our stand on French submarines and cap-
ital ships and Senator McCormick's resolution
asking the State Department to supply figures on
the armament expenditures of our European
debtors, makes a sum total of French criticism
that has served to enlighten the American public
on the irritated and irritating state of the French
mind.
From the various allied countries come pro-
98 OUR ELEVEN BILLION DOLLARS
posals for the settlement of the unsettled repar-
ations question, and most of these proposed
solutions insist on linking the $11,000,000,000
owed to our government by Europe with the
reparation sums to be paid by Germany.
An unofficial French solution is th at of
Loucheur, a minister "un^er^uiemenceau and
Briand and one of the wealthiest men in France,
who is not above suspicion in his own country.
He has declared through the French press,
the New York World and the London Daily
Express, and in an address at Lyons, that "all
debts among the allied and associated powers
must be cancelled and Germany's debt to the
Allies reduced in proportion." He holds to the
idea that "France, for example, could pay her
debts to the United States and Great Britain by
means of a third series of bonds, the so-called C
bonds, to be issued by Germany to the Reparation
Commission in accordance with the reparation
system established last May, and that the United
States and Great Britain would forthwith throw
these obligations into the fire, thereby relieving
Germany to that extent.
"In considering the reparational problem, the
first essential is to find out what Germany can
pay. If she cannot pay in full it becomes doubt-
ful that we in turn can pay our debts to the Allies
and our associates. And, if we could, would not
the confusion become worse confounded than ever
— America be worse off than before? The only
REPARATIONS AND PREPARATIONS 99
sure way out of the present chaos is to wipe the
slate clean of both Germany's indebtedness to us
and ours to one another and to the United States,
with the exception of the amount required to meet
France's essential needs."
Then there is the Italian v iew of ex-Premier
Nitti, representing special financial interests, who
is said to be peculiarly favorable to the Germans.
To restore Europe he would establish a reduced
sum for reparations, involving cancellation of
debts among the allied nations of Europe and the
United States. Regarding the effect of his plan
on this country, Signor Nitti says in his book,
"Peaceless Europe": "The United States is
running the risk of seeing the purchasing power
of its best customers reduced and annihilated,
which in the long run constitutes an infinitely
greater damage than the renunciation of the sums
due it. And industrial crisis and widespread
unemployment are far more damaging than the
cancellation of debts which are, to a large extent,
uncollectable."
However, in view of objections on the part of
the creditors to losing all the money due them, the
Italian would have Germany pay a sum represent-
ing 20 per cent of the intergovernmental debts
over and above the war indemnity imposed upon
her. Estimating that these credits amount to
about $20,000,000,000, Nitti would have Ger-
many's payment of $4,000,000,000 divided among
the Allies and the United States in proportion to
100 OUR ELEVEN BILLION DOLLARS
the credits due them. His plan means that we
would receive about $2,000,000,000 and Germany
would pay a total sum of 60,000,000,000 francs.
He figures out that Germany should pay only
20,000,000,000 francs more for reparations, pay-
ment to be made largely in coal and other mate-
rials.
To be considered in connection with reparations
is John Maynard Keynes, who has played a prom-
inent part in Germany's payments, or rather lack
of payments — in the eyes of the Germans a great
hero in the tragedy, from the French viewpoint a
villain in the drama and, as others see it, the
man who was both right and wrong in the great
European post-war farce. Keynes performed a
real service for the American people when he
opened the Pandora steel box of the Peace Con-
ference and allowed us to see our innocents abroad
among the wolves of Europe. In his "Economic
Consequences of the Peace" he also served the
Germans, supplying them with finished propa-
ganda recipes for paying reparations by paring
them — the parings thick enough to leave only the
core. He also made prophecies, some of which
came true. "Many of the misfortunes which I
predicted have not occurred," Keynes admits in
his recent book, "A Revision of the Treaty."
Starting with the revised reparation figure,
138,000,000,000 gold marks, the English economist
chops, hacks, halves and pares until he reduces
Germany's debt to the Allies to 22,000,000,000
REPARATIONS AND PREPARATIONS 101
gold marks, that is, about $5,500,000,000. The
New York Tribune suggests he should summarize
his method in this fashion : ' ' The method I apply
in arriving at the reparation total is an extremely
simple one. It is what may be called the method
of continuous halving. When expert investiga-
tion showed that Germany had done injury to the
extent of forty billions I said that she should pay
twenty billions. Later, when it was agreed she
could mobilize this sum, I again cut this total in
two and said ten billions was the proper figure.
This now being approximately the settlement, I
urge five billions — or, to be exact, $5,500,000,000."
Keynes summarizes his new proposals as fol-
lows: "First, Great Britain, and if possible,
America, to cancel debts owing them from the
Governments of Europe and to waive their claims
to any share of German reparations. Second,
Germany to pay 1,260,000,000 gold marks per
annum for thirty years and to hold available a
lump sum of 1,000,000,000 gold marks for assist-
ance to Poland and Austria. Third, this annual
payment to be assigned in shares — 1,080,000,000
gold marks to France, 180,000,000 to Belgium."
Careful analysis, without sentiment or preju-
dice, shows that Germany can pay a much larger
sum than Keynes' latest figure, and other coun-
tries are anxiously waiting for France and Eng-
land to decide upon a united course of action and
together compel Germany to institute financial
and fiscal reforms. But the allied governments
102 OUR ELEVEN BILLION DOLLARS
do little but argue. The British government
keeps on pointing out that England's existence
as a great nation demands the resumption of nor-
mal trade relations. This she should have, just
as should all the great and small nations to which
this same resumption means a return to normal.
France wishes security from future German
aggression, and she should have it, not only for
her own sake, but so the whole continent of
Europe may not be turned into an armed camp
preparing for the next war. France also wishes
payments by the Germans, as partial reparation
for her devastated regions, and Germany will be
able to pay a large sum if England and France
stand together.
But Lloyd George, distrusted by the English
business man and accused of representing other
than British interests in the triangular game with
France and Germany, has kept on playing politics
with economics. He has helped delude a large
part of the British public with the notion that the
more reparations Germany has to pay the greater
will be her competition with British industries —
as if German competition will not be as keen
against English and American products, repara-
tions or no reparations. Most of the time he
chooses to ignore that the stipulated reparations
constitute a debt that is the first charge on Ger-
many's entire wealth, but the Federation of Brit-
ish Industries takes a stand differing from that of
the Premier from Wales, since the German gov-
REPARATIONS AND PREPARATIONS 103
eminent is not to be trusted in taxing Ger-
man industries for meeting the reparation
payments. This organization of British manu-
facturers has a plan whereby reparation pay-
ments would be transferred from the German
government to German industry, the Allies to hold
or sell to private persons mortgages, or first
preference interest-bearing shares, on German
industrial and commercial firms, banks, railroads,
canals, shipping lines and so on.
Reparation puts the question as to which tax-
payer shall pay. Every billion the Germans
escape paying means just so much more in taxes
for the French, Belgians, Italians and British.
The French paid beginning in 1871 with billions
of francs in gold and millions of tons of iron ore
in Lorraine, laying the foundation of the great
modern wealth of the German people. The peace
terms of 1871 seemed overwhelming to the world
of that time, and the Prussian statesmen intended
that they should be. The French billions wiped
the costs of the war from the budget of the new
empire, established German currency on a gold
basis and provided the means for the German
government to carry out various domestic im-
provements. There was no plan or propaganda
against the indemnity, for France was then doing
the paying and Germany the receiving. France
cannot now be expected to add to Germany's
wealth of $110,000,000,000, if only because France,
thanks in the main to the Germans, has the largest
104 OUR ELEVEN BILLION DOLLARS
per capita debt in the world. The French debt
increased during the war more than four times
what it was in 1914, and it has more than doubled
since the Armistice. In 1914, it was 34,000,000,000
francs; on December 31, 1918, it amounted to
151,000,000,000; on December 31, 1919, it stood at
240,000,000,000; on September 30, 1920, it was
285,000,000,000; by February 28, 1921, it had
reached 302,000,000,000, and on September 30,
1921, it totaled 320,000,000,000 francs.
France^the government, the people, the press
— 3ias made great mistakes in policy since the
Armistice, but the French know best of all the
German people and their character and what may
be expected of them.
While trying to escape paying reparations,
preparations for the next war have been going on
in Germany. These preparations began when the
Armistice was signed; when and how they are
going to end is a matter in which not France alone,
but all the world, is interested. It is not that the
mass of German people to-day wish another war,
but powerful influences are at work to gain at
some time in the future what Germany lost by not
winning this war. The German war preparations
are at present not material except in so far as
they can be concealed in laboratories, secret
recesses and the innermost government offices.
The chief factor of the present preparation is
propaganda. The most dangerous form is the
insidious propaganda in the German schools, pre-
REPARATIONS AND PREPARATIONS 105
paring the coming generation for the state of
mind that will again make the German people
willing to wage war. But any other attitude can
hardly be expected in a Germany that is unre-
pentant so far as the last war is concerned. To-
day the great majority of Germans, no matter
what their class or position, refuse to admit that
Germany was in any way responsible for the war.
They claim that the war was one of self-defense.
To them justification of the violation of Belgian
neutrality lies in their assertion that the French
and English would have attacked them through
Belgium if the German army had not crossed the
border first. The Germans still justify the sink-
ing of the Lusitania and every other act of fright-
fulness. Their spirit of hatred is not dead; the
irresponsibility to moral obligations which charac-
terized them during the war has increased since
1918.
Too many Germans wish the restoration of the
Hohenzollerns. Too many strings in the republi-
can government are being pulled by the financiers
and industrialists, who through war profits and
the currency depreciation have filled their pockets
and foreign bank accounts with gold. Germany
is wealthier to-day than at the end of the war, but
the wealth is in the hands of a limited number.
Her factories are intact and busy, her industries
have expanded, her agriculture is flourishing.
Wages are low, but large profits are being made
and big dividends paid.
106 OUR ELEVEN BILLION DOLLARS
Yet reparations cannot be paid, the Germans
cry, loudest of all the bankers, speculators and
industrialists, who have the money with which to
pay them. And German propaganda goes on to
further the mistaken idea that payment of
reparations will ruin the trade of the Allies and
America, that German bankruptcy would ruin
Europe and shake the rest of the world.
All of which goes to show that Germany 's word
to-day is worth no more than "the scrap of
paper" of 1914 and even less than the paper mark
of 1922.
VIII
EUROPEAN PLANS TO REVIVE
WORLD TRADE
Greed and selfishness are the distinguishing
characteristics of most of the schemes advanced
abroad for financing Europe 's commerce and her
liabilities with American products and other
assets of the United States, notably that gold we
hear so much about but never see except in small
samples at Christmas time. The supporters of
these get-Europe-rich-quick schemes display a
versatility that ranges from gold bricks and
worthless paper money to the lowest forms of
high finance and hopes of another war — a war in
which Onkel Sam, fighting Japan, will be com-
pelled to buy Europe 's old munitions and rusting
armaments with the gold that once was Europe's.
Of the suggestions so far advanced by European
financiers for restoring the world to economic
normality the most important is that of C. E. ter
Meulen, a banker of Amsterdam. Mijnheer ter
Meulen officially announced his ambitious plan of
international credits, now generally known as the
ter Meulen Plan, on October 2, 1920, at the Inter-
national Financial Conference in Brussels. This
conference adopted the plan, and shortly after-
107
108 OUR ELEVEN BILLION DOLLARS
ward it was endorsed by the Council of the League
of Nations. Then the Finance Section of the
League set to work to prepare the plan for world
consumption, with special regard to feeding it to
America.
Since its first presentation the ter Meulen Plan
has met with varying degrees of approval from
representatives of finance, industry and commerce
throughout the world. In the United States the
endorsement of the American Bankers' Associa-
tion makes a prominent showing, this important
organization of bankers having adopted the fol-
lowing resolution at their 1921 convention after
hearing the ter Meulen Plan described in detail by
Sir Drummond Fraser, acting for the Finance
Section of the League of Nations :
"Believing that the restoration of normal con-
ditions in the world and in our own country
depends upon the reestablishment of a proper
balance between nations, and that the cooperation
therein of the United States is desirable and
necessary for the reestablishment of normal con-
ditions in American business life, we approve the
principles of the plan for an international credit
organization, known as the ter Meulen Plan. This
plan offers a means of mobilizing the assets of the
war-stricken countries under responsible inter-
national supervision and of issuing bonds based
on these assets, thereby enabling them to secure
long-term credits for the payment of essential
imports. The Commerce and Marine Commis-
PLANS TO REVIVE WORLD TRADE 109
sion of the Association is hereby directed to make
the necessary investigations for the purpose of
recommending the best means of cooperation on
the part of this Association in carrying out the
principle of the ter Meulen Plan."
Among the business organizations that have
accepted the ter Meulen Plan as the best solution
of the problem confronting world trade, the
World's Cotton Conference and the International
Chamber of Commerce stand out conspicuously.
This plan of international credits was incor-
porated in the consortium scheme adopted by the
conference of allied financiers and industrial
leaders for presentation to the Cannes conference
as the most effective means for the economic
restoration of Europe.
This proposed consortium, known as the Inter-
national Corporation for Restoring European
Trade, with $100,000,000 capital, would act as a
clearing house for credits far in excess of its
capitalization. Its first purpose would be to
restore railroads and kindred agencies in coun-
tries where economic stagnation is partly due to
the lack of transportation, notably Russia. Each
nation participating in the formation of the cor-
poration would establish an affiliated national
corporation, this subsidiary organization to un-
dertake no work other than that assigned it by
the parent body, which would have its headquar-
ters in London. The corporation would be
created by a special act of the British Parliament,
110 OUR ELEVEN BILLION DOLLARS
specifying its powers, duties, functions, responsi-
bilities and liabilities, with special provisions for
the exemption of foreign holdings from income
tax. The central corporation would consist of
representatives of the national corporations
formed in England, France, Italy, Belgium, Japan
and the United States, if this country chose to
enter the organization. The supporters of this
consortium scheme consider American participa-
tion as important eventually but by no means pri-
marily essential to the establishment of the organi-
zation. Germany would be admitted to the cor-
poration with the understanding that half of the
profits accruing on the shares of the German
national corporation would be turned over for
reparation payments. The council governing all
operations would consist of two representatives
from England, two from France and, with the
usual "if," two from the United States, and one
from each of the other countries.
The assets of the countries aided by the inter-
national corporation would be pledged, in accord-
ance with the ter Meulen Plan, as security for the
loans involved in transactions where the con-
sortium was not granted a concession for
operation. Objections to the consortium are
based on the ground that credits cannot be
granted to more or less bankrupt countries
unless secured by assets realizable abroad. The
feeling is widely entertained in British com-
PLANS TO REVIVE WORLD TRADE 111
mercial circles that the ter Meulen Plan provides
the way out of such credit difficulties.
At the International Financial Conference
Mijnheer ter Meulen, who is said to have spent
two years in working out the details of his inter-
national credit plan, claimed that his method
would enable private exporters in one country to
sell to private importers in another without inter-
fering with existing organs of trade and would
restore international trading to its normal pros-
perity. He suggested a central commission of
financial experts of recognized ability and repute,
appointed by the League of Nations, to supervise
the arrangements with those countries participat-
ing in the plan.
To see how the ter Meulen plan would operate,
according to its originator, a specific example may
be considered. Imagine that the United States,
now the world's leading creditor nation, has
joined in the ter Meulen Plan with Great Britain
and the Irish Free State and with other war-
stricken and unstricken countries of Europe. For
example, France, whose importers have been in
need of credits, has been informed by the Inter-
national Commission, which is supervising the
operations under the ter Meulen Plan, that the
revenues it held ready to pledge for credits
granted to importers of the country have been
examined and the limit in gold value which could
be furnished against them fixed at, for example,
112 OUR ELEVEN BILLION DOLLARS
1,000,000,000 francs. The French government
would prepare a bond issue secured by the rev-
enues approved by the International Commission
and bearing interest fixed at, say, 6 per cent by
mutual agreement between the French Ministry
of Finance and the International Commission,
these bonds to mature in five, ten and fifteen years.
The date of maturity of these bonds has nothing
to do with the period for which the credits are
granted, since this phase of the transaction is
arranged between the importer and exporter.
At this point enter Monsieur Franc Papier, of
Paris, importer of foodstuffs and raw materials
for manufacturing purposes, and the Spot Cash
Co., of New York, Chicago and San Francisco, who
sell coal, corn, pork, steel, cotton, copper and
almost anything else you can think of. Orders
from Europe for their products have long been an
important part of their business, but since 1919
their export trade has suffered in an alarming
and unprecedented fashion, with the direct result
that workers in their offices and factories all over
the country have been laid off until former clients
abroad have real money with which to pay for the
goods they need.
Since the war M. Franc Papier and a lot of
societes anonymes, limited companies, unlimited
individuals and Gesellschaften mit beschraenkte.r
Haftung have been asking, demanding, imploring
the Spot Cash Co. to sell them on credit or in
francs, marks or what not, but the American
PLANS TO REVIVE WORLD TRADE 113
company, which will try anything once, learned a
few lessons in European credits and depreciated
currency back in 1919 and 1920 that will last the
president, directors and sales managers until the
next war and after, no matter whether it is busi-
ness w T ith supposedly reputable firms in francs,
marks, kronen, lira or any other paper money.
Under the ter Meulen Plan, M. Franc Papier,
who wishes to purchase agricultural implements,
wheat and cotton to the extent of $300,000, first
secures the consent of the International Commis-
sion to import such commodities into France
against the security of the so-called ter Meulen
bonds issued by the French government. Since
M. Franc Papier has a reputable business and the
products he wishes to import are essentials —
materials considered necessary for the economic
welfare of his country — the International Com-
mission issues a permit to M. Franc Papier for
the purchase of $300,000 worth of wheat, cotton
and agricultural implements in the United States.
M. Franc Papier then settles with the Spot
Cash Co. the credit terms he is to be allowed —
the period for which the credit is granted, the rate
of interest and the collateral, which is the nom-
inal value of the bonds of the French government
put up by M. Franc Papier. Through the Min-
istry of Finance he borrows these ter Meulen
bonds, of sufficient value to cover his transaction
with the Spot Cash Co., and for them he puts up
security satisfactory to his own government. The
114 OUR ELEVEN BILLION DOLLARS
ter Meulen bonds used in this transaction will be
payable both as to principal and interest in dol-
lars, the currency of the exporter 's country.
The pledged revenues of the French govern-
ment, which back M. Franc Papier 's purchase
from the Spot Cash Co., are being managed by
French officials, since in this case the Inter-
national Commission considers the borrowing
government sufficiently capable and trustworthy.
But if it should so happen that France should fail
to fulfil any of its obligations, the management of
the pledged revenues will at once be transferred
to the International Commission, which will turn
over the proceeds from them to the United States
and other countries whose exporters have ex-
tended credit facilities under the scheme, in pro-
portion to the total of credits granted by the
exporters of such countries. From these funds
provision will be made for the payment of matur-
ing coupons and for a sinking fund.
If M. Franc Papier should default, the bonds
held as collateral for the transaction with the
American exporters will be offered to the French
government, against payment of any sums out-
standing under the credit, plus accrued interest.
Should the French government fail to redeem the
credit within two weeks, the Spot Cash Co. will
be at liberty to sell out the collateral. Such de-
faulted bonds the International Commission
should be able to purchase from the sinking fund.
In the ordinary course of the transaction the Spot
PLANS TO REVIVE WORLD TRADE 115
Cash Co., upon receiving from M. Franc Papier
the ter Meulen bonds backing the $300,000 order,
would transfer them for cash to a bank or to an
export credit corporation of the kind formed
under the Edge Act.
Here is where the American investor and his
dollars come in. Investors, large and small, are
not to be offered the ter Meulen bonds direct, but
the cash necessary to enable the banks and cor-
porations to finance the Spot Cash Company's
$300,000 sale to M. Franc Papier and a multitude
of similar transactions is first to come from the
sale to investors of special foreign trade bonds
secured by the ter Meulen bonds held by the bank
or Edge Act corporation discounting them.
When M. Franc Papier 's credit expires and he
meets his obligations in full, the Spot Cash Co.
or the financial institution holding the pledged
bonds will return them to M. Franc Papier, who
in turn will hand them back to the French govern-
ment to obtain the release of his security. The
French government will then be in a position to
loan these bonds again for a new transaction.
"It should be clearly understood that this plan
acts in no sense whatever as a monopoly," says
Mijnheer ter Meulen. "The exporter cannot,
however, obtain bonds as a pledge unless the
credit has been sanctioned by the International
Commission. As general conditions improve,
there will be less inclination on the part of im-
porters to apply to the International Commission.
116 OUR ELEVEN BILLION DOLLARS
The sooner this happens the better it will be. My
plan of international credits is meant only to
make possible transactions which otherwise could
not have been brought about. ' '
IX
THE FIRST INTERNATIONAL BANK— AN
AMERICAN PLAN FOR RESTORING
EUROPE
While Europe has been putting forward all
sorts of schemes in the vain endeavor to stabilize
exchange before stabilizing herself, Americans
have been advancing ideas on the salvation of
Europe. Many of our American suggestions have
been expressed in the heat of after-dinner
speeches or under the spot-light of newspaper
columns offering the opportunity of publicity,
without careful consideration or understanding of
Europe's situation and the economic and political
laws affecting it.
Those plans which are important enough and
sufficiently developed to deserve attention all in-
volve direct and close relations between the
United States and the European nations, and they
are based upon an international bank with a capi-
talization of ten figures — at least a billion dollars
or more — except in one case. The plan of Amer-
ican origin that so far has received the most
attention here and abroad is that of Frank A.
Vanderlip, banker and financier, who went to
Europe in 1921 for the purpose of studying the
economic situation at first hand.
117
118 OUR ELEVEN BILLION DOLLARS
After visiting nearly every country Mr. Van-
derlip formulated a tentative plan, the details of
which are given in his book, "What Next in
Europe?" "Whether this plan proves to be
acceptable or not," says Mr. Vanderlip, "I have
a good deal of confidence in stating that any pro-
posal that is successful in averting the complete
wrecks of currencies in a number of nations must
be formulated in the light of the two principles I
have laid down. First, that in the present situa-
tion there is nothing curative at work, that the
disease is a progressive one and that there must
be outside help. Second, that a currency must
be created that cannot be depreciated by the unre-
stricted use of the government printing press."
Having absolute faith in the principles of our
Federal reserve banking system, Mr. Vanderlip
applied them in evolving his plan of a federal
reserve bank for Europe, or as he terms it, the
Gold Reserve Bank of the United States of
Europe. This institution would be organized as
a corporation, under the laws of no particular
country, with an ultimate paid-in capital of
$1,000,000,000 in gold. The stock would be dis-
tributed in shares of $100 each, open to any indi-
vidual or organization able to pay for them in
gold. Although it is presumed that the bulk of
the initial subscriptions would come from the
United States, all shares owned in America would
be purchased eventually by Europeans. Stock
bought by Americans would bear the designation
THE FIRST INTERNATIONAL BANK 119
"A," and that by Europeans "B." These two
classes would be issued under the same terms,
with the exception that the "A," or American,
stock would be subject to retirement by call at
possibly $120.
The Gold Reserve Bank of the United States of
Europe would be controlled by a board composed
of nine trustees, five of them Americans and four
Europeans, to hold their positions for life or until
reaching a designated age limit. Men of the
highest character and widest financial experience,
they would have to give up all other financial con-
nections and agree, in case of resignation, not to
engage in any banking or financial business until
after an interval of five years. New trustees, to
be elected by the board, must be approved by a
majority of the members of the Federal Reserve
Board at Washington. The trustees would elect
a governor general and a deputy governor general
from among their number, the governor general
to be a citizen of the United States. The pro-
visions regarding American members and Amer-
ican control would likely lapse when 75 per cent
of the "A." stock had been converted into "B"
stock.
A Gold Reserve National Bank, with a board of
nine governors, would be established in each
European country wishing such a branch of the
Gold Reserve Bank of the United States of
Europe and meeting the provisions that it furnish
free of all expense ground and buildings, ade-
120 OUR ELEVEN BILLION DOLLARS
quate and fully equipped for the purposes and
having ex-territorial rights of a character pos-
sessed by a foreign embassy, and that it give
assurances that no legislation would be enacted to
hamper the free circulation of the notes of the
Gold Reserve Bank within the country and their
exportation and importation, or the making of
contracts payable in these notes, or against the
opening of deposit accounts in these notes in other
banks.
The Gold Reserve Bank of the United States of
Europe would issue circulating dollar notes, re-
deemable under normal conditions on demand in
gold, and it could make advances of these notes to
the Gold Reserve National Banks against deposits
of gold or of gold and endorsed commercial paper,
a minimum of not less than 20 per cent of gold to
be received against all circulating notes and kept
as a reserve back of all outstanding notes.
In making loans and receiving deposits each
Gold Reserve National Bank would deal, not with
individuals, but with incorporated commercial
banks. It would make loans only against col-
lateral to an amount equal to perhaps 150 per cent
of the loan, and the collateral would have to be
short-term commercial paper arising out of legiti-
mate commercial transactions and strictly of a
kind known as self-liquidating paper, such as
loans against produce during the period of its
transport from the grower to the consumer, or
against raw materials during the process of
THE FIRST INTERNATIONAL BANK 121
manufacture and until their sale as manufactured
goods, or against merchandise, to be paid when
the merchant sells the goods bought with the pro-
ceeds of the loan. No loans would be made
against stocks, bonds, mortgage collaterals or
government bonds.
The rates of discount fixed by the governors of
the Gold Reserve National Banks would have to
be approved by the trustees. Each Gold Reserve
National Bank would pay a dividend of 8 per cent
to the Gold Reserve Bank of the United States of
Europe upon the stock of the branch held by the
parent institution. One part of the remaining
earnings would be retained by the Gold National
Bank as surplus, another would be paid in lieu of
taxes to the governments of the countries in which
the banks are located, and still another part would
be used as extra dividends payable to the Gold
Reserve Bank of the United States of Europe.
The stockholders of the Gold Reserve Bank
should receive a regular dividend of 8 per cent,
also extra dividends amounting in the aggregate
to the total extra dividends received from the
Gold Reserve National Banks. These branch
banks would pay all the Gold Reserve Bank's
expenses of administration, including the salaries
of the trustees and the cost of printing and circu-
lating its notes.
A second international bank succeeded in mak-
ing its way into Congress, to rest in a pigeon-hole.
This so-called Bank of Nations is the principal
122 OUR ELEVEN BILLION DOLLARS
feature of a bill introduced by Senator Hitchcock,
of Nebraska, who believes that international com-
merce can best be reestablished by creating a
world banking and currency system. His Bank
of Nations would provide credit upon which
exporters and importers can do a normal busi-
ness, would ease the debt burdens of European
governments and would stabilize exchange.
Senator Hitchcock's bill calls for an inter-
national bank in the form of a corporation capi-
talized at $2,400,000,000. Of this sum the United
States government, through the Secretary of the
Treasury, would hold $1,300,000,000 and with it
the controlling interest. Stock to the amount of
$200,000,000 would be in the hands of banks and
bankers, exporters and importers, and the remain-
ing $900,000,000 of capital would be offered to
those nations of the world willing to enter into
treaties with the United States, the treaties to
define their rights and obligations as stockholders
in the international banking system. One-third of
each stock subscription would be payable in gold
and the other two-thirds in interest-bearing bonds
of solvent governments, described as govern-
ments making arrangements with the United
States to reduce armaments so as to become sol-
vent. The directors would number twenty-four,
one to each $100,000,000.
The Bank of Nations would have the power to
issue about $3,000,000,000 in currency, to be
known as the international dollar. This currency,
THE FIRST INTERNATIONAL BANK 123
in Senator Hitchcock's opinion, would displace
gold as the medium of exchange between nations.
He also believes that the bank would become the
great international clearing house of the world
for the purchase and sale of exchange, possessing
the power to eliminate gambling in exchange and
to stabilize the value of foreign currencies.
Another international bank plan put before
Congress is that of Senator Owen, of Oklahoma,
one of the authors of the Federal Reserve Act.
In January, 1922, Senator Owen asked Congress
to authorize, by a bill amending the Federal Re-
serve Act, the establishment of a Federal Reserve
Foreign Bank to help restore stable economic con-
ditions throughout the world. The bill proposed
that the international bank should be owned by
the Federal reserve system, its capital of $500,-
000,000 in gold to be supplied by the Federal re-
serve banks. According to Senator Owen, the
withdrawal of this half billion dollars from the 35
per cent reserve of deposits belonging to members
of the Federal reserve system would not impair
their reserves, since the banks themselves cannot
withdraw these deposits, and yet would enable the
American Federal Reserve Foreign Bank to
issue through its branches in London, Paris and
Berlin $2,500,000,000 of notes of any denomination
against sound short-term bankers' bills, insured
by 100 per cent of commodities. This proposed
banking institution and its currency would enable
money of the Federal Reserve Banks to be used
124 OUR ELEVEN BILLION DOLLARS
in making loans against the kind of bankers ' bills
which cannot be negotiated by the Federal reserve
banks. In Senator Owen's opinion, the American
Federal Reserve Foreign Bank would provide
Europe with a stable medium of exchange, thereby
helping to put European currencies on a gold basis
and to restore European industry, and at the same
time benefiting our foreign trade. Gold reserves
for redemption purposes would be available in
New York, London, Paris and Berlin. Loans of
the proposed bank would bear 3 per cent interest,
so that the undertaking might be profitable, and
they would be repayable in gold.
Senator Owen, who went to Europe to study the
situation, said in presenting his plan: "The out-
standing factor that retards restoration of
European industry and commerce is the lack of
gold-secured currency. The United States is able
to provide the means for supplying a currency
secured by gold, redeemable in gold and secured
at the same time by merchantable commodities
that in themselves open and renew the ways of
trade."
A fourth great international bank plan, sup-
ported by the American Exporters and Importers '
Association, calls for a Federal Reserve Foreign
Trade Bank to facilitate international commerce
and to stabilize exchange. The Association asks
Congress to authorize the establishment of such
an organization, with a capital of $2,400,000,000,
the government to subscribe 51 per cent of the
THE FIRST INTERNATIONAL BANK 125
stock, or $1,212,000,000, and the remainder to go
to banks, manufacturers, exporters and importers.
The plan provides that the bank's board shall con-
sist of fifteen members — all native-born Amer-
icans — including the Secretary of the Treasury,
the Secretary of Commerce, the Governor of the
Federal Reserve Board and twelve members ap-
pointed by the President from bankers, manufac-
turers and merchants experienced in foreign
trade.
This bank, as the fiscal agent of the United
States government in foreign trade and finance,
would be established as a part of the general Fed-
eral fiscal system, of which the component parts
would be the Federal Reserve Board for domestic
financial and commercial transactions, the Fed-
eral Farm Loan Board for long-time land mort-
gage loans to agricultural interests and the Fed-
eral Reserve Foreign Trade Bank for foreign
financial and commercial relations.
The Federal Reserve Foreign Trade Bank,
functioning through headquarters in New York
and branches at home and abroad, would deal in
foreign exchange, establish rates of discount and
exchange and commissions, lend money to deposi-
tors, issue bank note or bank currency, open
credits for the accounts of domestic and foreign
banks and traders, facilitate exports from and
imports to the United States. The bank would
act for the United States government in all mat-
ters connected with the European government
126 OUR ELEVEN BILLION DOLLARS
debts and would conduct transactions under the
ter Meulen Plan.
The bill which the American Exporters and Im-
porters ' Association asks Congress to pass for the
establishment of this foreign trade bank exten-
sion of the Federal reserve system, contains this
important provision : ' ' Every transaction directly
or indirectly involving foreign exchange, foreign
credits or foreign balances, whether covering a
commercial transaction or not, in which any per-
son or persons, firm or corporation being or hav-
ing an office or representative in the United States
of America is directly or indirectly concerned,
must, to be valid, be cleared through the bank,
for which clearance the bank shall make a nomi-
nal charge. . . . The Board of Directors shall
from time to time publish a list of those who,
having complied with the board 's rules and regu-
lations, are authorized to buy, sell, deal in and
transfer foreign exchange, foreign credits and
foreign balances."
The supporters of this Federal Reserve For-
eign Trade Bank claim that their plan possesses
peculiar advantages over any other proposed
international bank in that it provides for the
entire capital to be subscribed in the United
States, the bank's capitalization to be based on the
refunded European debt and "on $800,000,000
of the enormous excess stock of gold in this coun-
try now lying idle." Against this capital and
self -liquidating commercial paper the bank would
THE FIRST INTERNATIONAL BANK 127
issue approximately $3,325,000,000 of currency.
The general situation as to financial relief
through international banks, export credits and
other means has been summarized by Secretary
of Commerce Herbert Hoover in the following
letter to Sir Drummond Fraser, with special
reference to the ter Meulen Plan :
" Economic recovery of the states in eastern
and southeastern Europe (and consequently a
considerable fraction of our own and of world
commerce) is dependent upon each state erecting
(1) a balance in taxation and expenditure;
(2) currency reorganization and stabilization;
(3) wise control of their exports and imports;
(4) credits for reproductive purposes.
"It is hopeless to expect that private capital
will extend credits for exports to these states
upon any systematic basis until the first three
have been complied with. Furthermore, attempts
to secure these three vital reforms by action
through various governments foreign to them
risks being wrecked on the rocks of conflicting
political objectives of such governments.
"The ter Meulen Plan proposes to facilitate
credits for exports by the ordinary processes of
business free from political action, when these
three primary reforms have been initiated. This
should act as a great pressure to secure the re-
forms and if accomplished is at once nine-tenths
of the battle for rehabilitation of credits and com-
merce with these states.
128 OUR ELEVEN BILLION DOLLARS
"I have the feeling, however, that something;
more is needed than export credits to these coun-
tries if the three primary reforms are to be accom-
plished, i. e., some assistance must needs be found
to these states in credit for purposes directly of
currency reform. I have already suggested that
some action might be taken by the great banks of
issue of the principal countries looking to formu-
lation of a plan to facilitate solution of this por-
tion of the problem; thus again keeping away
from political action in the economic and financial
affairs of each of these states. Such a plan in no
way replaces the ter Meulen Plan, as the two plans
would supplement each other. ' '
After outlining his plans for an international
bank and for the investment in Europe of the
billions owed us by her governments, Mr. Vander-
lip says in "What Next in Europe?": "We can
furnish Europe with much needed capital, but in
doing that we need to exercise great caution. To
loan governments money so long as they fail to
regulate expenditures properly would be likely to
do more harm than good. We need to consider
with great care how effective any further govern-
ment loans would be in improving the situation
permanently. I think there is reason to view
with much apprehension further increase of
international debts, unless they are contracted
under conditions which are reasonably certain to
bring about fundamental improvement in the rela-
tions between European states.
THE FIRST INTERNATIONAL BANK 129
"While I believe the situation of Europe is
extremely grave, it certainly is not hopeless.
There are inherent possibilities of building a new
Europe which would be more prosperous and
comfortable in every way than the old Europe has
ever been. The prerequisite for that is a change
of spirit, and I believe we can do a great deal to
allay the suspicions, the hatreds and the selfish-
ness of European people. We can help them see
the necessity for unity, help them apprehend the
terrible cost of selfishness. They must understand
that the reconstruction of Europe is a comprehen-
sive task. Only united effort, and a recognition
that the welfare of individual nations can be
achieved through general international good will,
can accomplish it. We could largely aid in de-
veloping such a spirit."
X
WANTED: A WORLD ECONOMIC CONFER-
ENCE IN WASHINGTON
The need of the United States — indeed, of every
country, since the economic structure of all has
been affected by the war — is a world economic
conference, and this conference of the nations
should be held in Washington.
Sentiment for calling such a conference in an
attempt to solve the world's economic and finan-
cial problems has been growing among American
business men and bankers, as it has become more
and more evident that the Conference for the
Limitation of Armament and the Genoa confer-
ence have their place in post-war history as
stepping-stones to a greater gathering of the
large and small nations. The whole world is in
critical need of deeds, not words, on the part of
a world group of representative industrial, finan-
cial, labor and business leaders, within whose
power it lies to make a world economic conference
in Washington the most effective agent since the
Armistice for a safe and sane approach toward a
normal economic existence.
Not that this new Washington conference would
rewrite the treaties made in Paris and its en-
virons, since it is doubtful if Europe will rewrite
130
WORLD ECONOMIC CONFERENCE 131
them except in blood, but the delegates should
take all countries as they are in 1922 and initiate
a plan of mutual cooperation in the world's eco-
nomic rehabilitation, which will be the most
important factor in general political stabiliza-
tion.
Leadership in this great economic and financial
conference devolves upon the United States as the
wealthiest country and the chief creditor nation.
Since 1918 America has held the balance of power,
of world power, both political and economic, but
this country has been afraid to use it, even for the
good of the world. And for the first time in
history the balance of power is in the hands of a
country not actuated by a policy of subjection and
exploitation of other peoples. "America," says
H. G. Wells, "does not seem to understand the
scope of its moral ascendancy or its moral advan-
tage over Europe at the present time."
Among the reasons why this world economic
conference should be held in Washington are this
moral ascendancy and the desirability of remov-
ing the conference as far as possible from
European political intrigue. Europe's inter-
national politicians, generally called statesmen,
have brought about the present situation by play-
ing politics with economics, and the fewer of them
in attendance at any economic conference the
better. Too much power, too much trust, has
been the share of the post-war premiers. With a
few minor exceptions, they have all been tarred
132 OUR ELEVEN BILLION DOLLARS
with the same stick — from Benes, clever but un-
scrupulous, to Lloyd George, whose adroit per-
sonal politics coupled with a wait-and-see-saw
policy have cost the British Empire and the world
dearly.
Another reason for the choice of Washington
as the meeting place of this world economic con-
ference is the need of educating the American
public in certain features of international finance
and commerce. As a people we have no tradition
and little experience in foreign business matters.
What our government is doing in these post-war
years in regard to foreign relations will affect
generations of Americans for centuries, but in the
matter of international relations, whether political
or economic, most Americans cannot see beyond
themselves, unless they are parents or grand-
parents, and even then they are shortsighted as
compared with the English, the French, the Jap-
anese. The successful conclusion of any world
economic conference means the investment of
American dollars in Europe — investments which
will constitute just so much national life insurance
for us when the rest of the world turns to Asia,
Africa, Australia, South America for the bulk of
its raw materials. Holding the conference in
Washington would provide the American people
with a much needed lesson in world economic
problems and the part that it is best for this
country to take in their solution. But mav the
rules of the conference preserve us from propa-
WORLD ECONOMIC CONFERENCE 133
ganda about cancellation of debts, the further
paring of reparations, Russia's return to the so-
ciety of nations, and the this and the that of
national rivalries, needs, grievances !
That the Harding Administration is not adverse
to participation in a purely economic and finan-
cial conference after Europe has initiated a defi-
nite plan to set her house in order was indicated
in Secretary Hughes' note declining the invita-
tion to the Genoa conference. The final para-
graph reads: "While this government does not
believe that it should participate in the proposed
conference, it sincerely hopes that progress may
be made in preparing the way for the eventual
discussion and settlement of the fundamental
economic and financial questions relating to
European recuperation, which press for solu-
tion."
Among the first advocates in urging a world
economic conference were A. C. Ratshesky, pres-
ident of the United States Trust Company of
Boston; S. Stanwood Menken, president of the
National Security League; Samuel Gompers,
president of the American Federation of Labor;
Senator France, of Maryland, partly right for
once, and Marshal Foch, who, while in this coun-
try, pointed out that the peace is to be won only
by unity of economic action as the war was won
by a unified military command.
At the beginning of the year Mr. Ratshesky
pointed out in an article in the New York Times
134 OUR ELEVEN BILLION DOLLARS
that the urgency of the existing business situa-
tion justified and necessitated the calling of an
international conference, preferably by the
United States. In his opinion the conference
ought to avoid all undue interference with private
business, paternalistic measures and radical pro-
posals in its effort to bring business in the con-
ferring countries back to a normal and healthy
state. He suggested the open discussion at the
conference of all legitimate methods of promoting
economic harmony and good-fellowship between
nations.
Regarding the results of such a conference Mr.
Ratshesky holds this view: "If composed of
picked men of a practical character and of opti-
mistic nature, I am convinced that it would result
in untold good. If to this troubled and confused
period it brought nothing more than the exchange
of information, no more than a feeling of inter-
national fellowship, no more than a relaxation of
the present tension, and freedom from a para-
lyzing feeling of depression, it would have served
a great purpose. If it actually eradicated funda-
mental defects and solved basic problems, the
gains would be beyond measure."
In outlining his plan for American participation
in a world economic conference the president of
the National Security League suggested a prelim-
inary conference on the part of an American
commission of fifty-three members, appointed by
the President, "to consider and define America's
WORLD ECONOMIC CONFERENCE 135
position on world economic problems, to advise on
the proper course as to Europe's debts to the
United States, and to report on our own tariff and
tax problems, including matters particularly
affecting labor and agriculture."" In Mr. Menken's
opinion, the results of this preliminary national
conference would be popular education as to
the effect of world economic problems upon
the United States; concrete proposals for the
solution of these problems; scientific considera-
tion, free from politics, of tax, tariff and financial
questions ; a good example to be followed by other
countries prior to their participation in a world
conference, and a definite course of action for the
American delegates at an international congress.
That a world economic conference will be held
seems a foregone conclusion, and the Genoa gath-
ering may well be Europe's preliminary step to
such a conference at "Washington. By way of
Genoa it is possible for Europe again to discover
America, but coming this time with land disarma-
ment a partly accomplished fact, with reparation
payments fixed at a figure within Germany's
capacity to pay, with the Near East tangle more or
less unknotted, with individual programs of gov-
ernment fiscal and monetary reforms, and with
definite plans for the payment of inter-govern-
mental debts — to prove to America that Europe,
actuated by a policy of political and economic
unity, is not beyond self-help in the matter of her
own salvation. With such a program Europe
136 OUR ELEVEN BILLION DOLLARS
may then recognize that her rehabilitation lies
more in European deeds than in American dollars.
Surely the governments and peoples on the
other side of the Atlantic have learned through
the disarmament conference and our abstention
from Cannes and Genoa that there exist Amer-
icans who do understand Europe and her per-
verted politics and eccentric economics, that not
all Americans can be bamboozled into false Euro-
pean ideas or bamboozled out of a knowledge of
things as they are.
A bold policy on the part of the United States
will be needed at the world economic conference,
and if it is held in Washington our government
may the more easily select the members of our
delegation from among the most competent and
independent leaders in America's economic life.
Eliminating party politics in the composition of
the delegation and in its support by the country —
including the Senate — Congress should authorize
the President to appoint members of his cabinet,
congressional leaders, practical economists and
representatives of American business, banking,
industries, agriculture and labor — all experienced
experts and specialists in the various ramifica-
tions of national and international economics and
finance.
Among the most important international prob-
lems with which the United States must concern
itself at this world conference are the financial
and economic difficulties of three great empires
WORLD ECONOMIC CONFERENCE 137
shattered in greater or less degree by the war and
by post-war developments — Britain, Germany and
Russia.
Great Britain, owing and owed huge sums, sees
her commerce and industries devastated as a re-
sult of the disintegration of world business. The
prosperity of Great Britain and the British do-
minions depends largely on the upbuilding of the
world's markets, as does America's prosperity,
and it is natural that Great Britain and the United
States should stand together on most matters at
any economic conference. The two countries
cannot afford to let Europe run its present course
to complete bankruptcy, and as the two chief
creditor nations theirs is the right and the duty to
insist on certain lines of economic and financial
conduct that will be of advantage not only to
themselves but to the world in general. Common
interests and mutual ideals should unite the
American and British peoples — indeed, Great
Britain and the United States must hold together
if the principles already evolved in our civiliza-
tion are to continue as a basis for further develop-
ment in the future.
Regarding German participation in a world
economic conference, Germany has not yet shown
herself fit — and an early change of attitude is not
probable — to have an equal voice in matters
affecting individual nations and the world as a
whole. A dishonest bankrupt never occupies a
seat of honor at the council table of his creditors.
138 OUR ELEVEN BILLION DOLLARS
It is too much to expect of Germany that she
should be seen and not heard, but at any confer-
ence in which the United States takes part there
should be a definite understanding that the Ger-
man delegation is to speak only when spoken to.
Germany, preparing to rearm, while disarming,
has failed to show her good faith in helping to
shoulder the economic consequences of the war —
war of her own making and of her own methods
of destructiveness. Germany's economic and
financial restoration is needed as an important
unit in world rehabilitation, but it must come
through honest Teuton efforts.
Russia's presence at the world conference de-
pends, at least so far as the United States is
concerned, on a complete change in methods of
government. But other ideas prevail in western
and central Europe, where politicians and capital-
ists have engaged in one intrigue after another
for the selfish exploitation of Russia's resources
and peoples. Speaking for himself and other
conspirators, Lloyd George said, "We do not
demand certificates of character from our cus-
tomers," while demanding that the Soviet
government reimburse its creditors and guaran-
tee its moral conduct, although fully aware of the
character of the Bolshevist government— a gov-
ernment whose leaders have proudly proclaimed
that they do not intend to observe any agreements
they make with foreign powers, a government
which even in 1922 was continuing its existence
WORLD ECONOMIC CONFERENCE 139
because of murder and imprisonment and despite
disorganization and inefficiency, resulting in eco-
nomic chaos, disease, starvation, death.
If it is necessary for Europe to save Russia so
Russia may save Europe, mutual salvation does
not lie in an allied consortium for the exploitation
of the country nor in Germany 's grabbing of Rus-
sian industries and resources with the ultimate
aim of political as well as economic domination.
The open door in Russia is as vital to world peace
as the open door in China.
The United States government's attitude on
Russia was made known in the Hughes note on
the Genoa conference: "It may be added, with
respect to Russia, that this government, anxious
to do all in its power to promote the welfare of
the Russian people, views with the most eager and
friendly interest every step taken toward the
restoration of economic conditions which will per-
mit Russia to regain her productive power, but
these conditions, in the view of this government,
cannot be secured until adequate action is taken
on the part of those chiefly responsible for Rus-
sia's present economic disorder.
"It is also the view of this government — and it
trusts that this view is shared by the governments
who have called the conference — that, while await-
ing the establishment of the essential bases of
productivity in Russia, to which reference was
made in the public declaration of this government
on March 25, 1921, and without which this gov-
140 OUR ELEVEN BILLION DOLLARS
ernment believes all consideration of economic
revival to be futile, nothing should be done looking
to the obtaining of economic advantages in Russia
which would impair the just opportunities of
others, but that the resources of the Russian peo-
ple should be free from such exploitation and that
fair and equal economic opportunity in their in-
terest, as well as in the interest of all powers,
should be preserved."
The bases referred to by the Secretary of State
are the safety of life, the recognition by firm
guarantees of private property, the sanctity of
contract and the rights of free labor. Although
there is no early solution for Europe's trouble in
going into Russia, since Russia must for years be
a liability instead of an asset, the Lloyd George
government went on record as willing under a
thin disguise to resume trade relations with the
Soviet, and France has kept insisting that the
Bolshevists recognize the legality of Russia's
debt of 22,000,000,000 francs to the French gov-
ernment and people. But Bolshevist recognition
or not, Russia's war and pre-war obligations are
legal debts due the creditors, France, Belgium,
England and the United States.
It is a mistake, however, for the Allies to make
repudiation of the repudiation of these debts the
primary condition requisite for allied recognition.
Lenin, Trotzky and Co. have been demanding
that they be treated as equals, while they have
been suppressing liberty in every phase of
WORLD ECONOMIC CONFERENCE 141
national life and feeding the largest army in the
world, this while America and other countries
have been feeding as many of Russia's starving
people as it has been possible to reach by the
broken-down system of transportation. The very
equality that the Bolshevists want should be the
first basis of the allied and American demand —
not equality based on murder and military dic-
tatorship, but the equality of freedom of speech,
freedom of the press, freedom of suffrage — in one
word, liberty.
At this world economic conference the agenda
to be considered should cover the following sub-
jects:
1. National Trade and Industry. — Basic busi-
ness conditions, problems of manufacture and
agriculture, problems of labor, production and
consumption, reconstruction, development of
natural resources.
The many questions connected with national
trade and industry need to be viewed through the
eyes of the consumer and worker as well as from
the point of view of the manufacturer and banker.
Every country needs greater cooperation between
the worker and his employer for the sake of gen-
eral prosperity and internal security. In regard
to this matter the International Financial Con-
ference at Brussels took the following view:
"Industry must be so organized as to encourage
the maximum production on the part of capital
and labor, as by such production alone will labor
142 OUR ELEVEN BILLION DOLLARS
be able to obtain those improved conditions of
life which it is the aim of every country to secure
for its people. All classes of the population, and
particularly the wealthy, must be prepared will-
ingly to accept the changes necessary to remedy
the present situation." Despite what has been
written on the wall in blood by this war the capi-
talist class, from the little shopkeeper to the great
industrialist, fails to recognize the inevitable
trend of human progress in the readjustment of
class relations.
The question of food supplies is a highly impor-
tant matter for Europe, since the majority of her
people depend on the interchange of manufactured
goods for food and raw materials, an interchange
which is possible only through the complex organi-
zation of international finance and trade, of fixed
and circulating capital. The development of
natural resources constitutes a legitimate ques-
tion for the world economic conference — condi-
tions are sufficiently abnormal without making
them more so by discussion of Italy's argument
that no country possessing rich deposits of natural
products required by the industries of the world
should be allowed to control them.
2. International Trade. — Tariff changes,
transportation, immigration, protection of indus-
trial, literary and artistic properties, status of
individuals and corporations engaging in business
in foreign countries, and communications, with
WOKLD ECONOMIC CONFERENCE 143
reference to cable, wireless and postal guarantees,
and passport reforms.
The world to-day is suffering from too many
trade restrictions, not only in European countries
but also in the United States, though to a less
extent from our tariff barriers. American tariff
schedules must be delicately adjusted to meet our
peculiar needs for protection and the partial pay-
ment of European debts by importation. World-
wide regulation of immigration is necessary in
the face of threatening conflicts as a result of
overpopulation and differences as to racial su-
periority. The United States will be flooded with
undesirable aliens if the three per cent barrier is
let down, while other countries needing immi-
grants will continue to be ignored. The problems
of international transportation and communica-
tion also demand careful and immediate consider-
ation.
3. National Finance. — Public finance, with spec-
ial reference to armament expenditures; recon-
struction of national currencies on a gold basis;
central banks and banks of issue.
"Every government should, as the first social
and financial reform, on which all others depend,
restrict its ordinary recurrent expenditure, in-
cluding the service of the debt to such an amount
as can be covered by its ordinary revenue, rigidly
reduce all expenditures on armaments in so far as
such reduction is compatible with the preserva-
144 OUR ELEVEN BILLION DOLLARS
tion of national security, abandon all unproduc-
tive extraordinary expenditure and restrict even
productive extraordinary expenditure to the low-
est amount possible." This resolution was
approved by the International Financial Confer-
ence at Brussels in 1920, and still holds good as
a basis of action for most of the countries of
Europe. The insolvent countries must settle their
basic financial problems by the balancing of bud-
gets and the elimination of inflation before gold
can be restored as the standard. Not only must
gold be reinstated for the sake of internal stability
but as a fundamental basis for international finan-
cial and commercial relations. The Federal
Reserve Board holds the opinion that "a simple
ultimatum to insolvent nations, to the effect that
obligations must be met and budgets must be
balanced, will not bring about a solution of inter-
national difficulties. The capacity of the several
nations to defray recurrent expenditures out of
regular sources of income must be carefully ap-
praised, and expenditures in excess of ability to
pay must be eliminated before budgets can be
balanced and inflation consequently stopped.
Until some sort of international agreement based
upon recognition of this patent fact has made pos-
sible the cessation of deficit financiering, no
program of currency reform involving a return
to the gold standard has any chance of success."
Despite the Conference for the Limitation of
Armament and the Genoa program, disarmament
WORLD ECONOMIC CONFERENCE 145
will long continue a matter for international con-
sideration. The cause or causes of war have
always been found in personal ambition, class
greed, overpopulation and trade rivalries. The
last war has demonstrated how well peace pays
for the masses, but the profiteer class doesn't
object so much to war as to post-war. Two of the
underlying factors of war can be removed by
economic conferences through the international
adjustment of trade between nations and the con-
trol of the capitalistic elements that profit by war,
the chief controlling measure to be an inter-
national agreement for the conscription, in case of
war, of all the factors of a nation's production.
4. International Finance. — Foreign exchange,
gold redistribution, credits, debts.
To stabilize exchange the essential though dif-
ficult reestablishment of a free movement of goods
and services between individuals and nations must
be brought about. For stabilization artificial
measures have proved useless. In the efforts to
hasten the return to normal trade and exchange,
it is unlikely that the ter Meulen Plan will ever
be tried out on an extensive scale. By the time
conditions are sufficiently stable for its success-
ful operation, there will probably be no need for
the issue of bonds such as the plan calls for. It
is also doubtful if an international bank based on
any of the American plans to help solve the
world's troubles will ever be established. Inter-
national currency, if issued by such a bank, would
146 OUR ELEVEN BILLION DOLLARS
not have enough realized value behind it to pre-
vent its adding to the world's burden of depre-
ciated paper. In fact, an international currency
is not necessary so long as the American dollar
has its 100 cents of gold backing. As ex-Secretary
of the Treasury Shaw has pointed out, the sums
of dollars that would be required for actual ship-
ment from country to country in the use of our
dollar as international currency would be small
in proportion to the volume of business done.
The great evils of the present foreign exchange
system — speculation, huge profits and manipula-
tion of enormous sums by foreign exchange
bankers — call for the establishment by the leading
governments of an international bank of exchange
controlled by the governments and cooperating
with banking institutions in all countries.
The United States will have to consider redis-
tribution of the world's gold supply in accordance
with plans carefully worked out with creditor and
debtor nations, belligerents and neutrals alike.
"If we do not do this in time," said D. R. Cris-
singer, Comptroller of the Currency, "the in-
evitable operation of economic law will sooner or
later begin to do it for us, and perhaps in circum-
stances and by methods that will result in
unfortunate consequences." But until the in-
solvent countries institute effective fiscal reforms
they will receive no American gold.
It is to the interest of our manufacturers, farm-
ers and workers, in fact, of the entire country,
WORLD ECONOMIC CONFERENCE 147
that Europe's buying power be built up, but, as
has been shown, American dollars alone cannot
accomplish the feat. Europe expects enormous
additional credits from us, but the pouring of
further huge sums into Europe is neither desir-
able nor possible. *'It is an anomaly for a nation
such as the United States to be in the position of
creditor to the rest of the world," says Professor
H. G. Moulton, of the University of Chicago. "No
nation ever before became a great creditor when
its own industrial resources were so partly de-
veloped as is the case with the United States."
We must figure out the minimum sum necessary
to help a self -helping Europe with her rehabilita-
tion. Even that sum will not be provided by the
American people in their present state of mind
unless Europe frankly acknowledges her debts to
us and initiates an effective program for their
payment. To counterbalance this payment Amer-
ican investors must undertake the investment
abroad of at least corresponding amounts of
capital and so eliminate the adverse effects that
would accompany Europe's attempts to pay these
debts without unbalanced payment — effects worse
than any we have yet experienced. Since our
investing public knows little of the foreign invest-
ment market, which holds even more pitfalls than
our own, education on the subject and government
cooperation are necessary.
Already we have $11,000,000,000 plus $5,000,-
000,000 in Europe. We, the people of the United
148 OUR ELEVEN BILLION DOLLARS
States, enter any conference with the understand-
ing that we will give assistance in all legitimate
ways, but that cancellation, except in so far as
we see fit, is not one of them. At the opening of
this world economic conference let our representa-
tives at least announce the cancelling of the
$92,262,550 owed to us by Armenia, Czechoslov-
akia, Esthonia, Finland, Latvia, Lithuania and
Poland for food delivered to their peoples in 1919
by the American Relief Administration and of the
sum of $60,340,601 due the United States Grain
Corporation from Armenia, Austria, Czecho-
slovakia, Hungary and Poland — cancellation in
the cause of a good charity. Contingent upon
effective disarmament in Europe might be the
cancellation of the $586,400,968 owed us for sur-
plus war materials. Any further cancellation can
be Europe's own in connection with her internal
war debts. Germany, for example, has $80,000,-
000,000 of war bonds, whose cancellation would
facilitate the payment of reparations — certainly,
as long as these bonds stand and reparations are
evaded the Germans need expect no large loan
from this country, a loan which would serve
them to exploit Russia and her people. Worthy
also of consideration is the suggestion that in the
general readjustment of inter-governmental debts
America should take over China's indebtedness of
more than a billion dollars to the allied nations
and credit the debtor European nations by the
amount of their claims on China.
WORLD ECONOMIC CONFERENCE 149
In case the countries of Europe fail to take
definite and effective action to secure their own
political and economic stability, the United States
will soon be in pressing need of an American
conference to work out a helpful plan for the
reorganization of American business and com-
merce. No matter what the composition and
scope of the next economic conference the
readjustments necessary will require prolonged
negotiations.
No single conference will settle for once and all
how the world may pay for the war and repair the
machinery of trade and industry, but world reha-
bilitation will come, must come, through exhaus-
tive and fearless discussion leading to effective
action. From this world conference and its con-
sideration of the problems presented in the
agenda above, no immediate solution of the
world's difficulties can be expected, but the con-
ference can initiate the program of economic reor-
ganization that will ultimately win this post-war
by providing a hopeful basis for immediate action
and the adjustment of more equitable relations
between consumer and producer, labor and capital,
and among nations, large and small, old and new
—not so much because of the $11,000,000,000 and
more, as for the sake of the many millions of peo-
ple who are in misery throughout the world on
account of the lack of work and the means of a
decent livelihood.
'I
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