OU_1 64025 >
CD ^ CO
>
OSMANIA UNIVERSITY LIBRARY
3QSII No. 32-7- ~)$IU*X%& * ^cession No.
Author
This book should be returned on or before the date last marked befflBiw
PUBLICATIONS OF THE
COUNCIL ON FOREIGN RELATIONS
CHARLES P. HOWLAND
DIRECTOR OF RESEARCH
SURVEY OF AMERICAN
FOREIGN RELATIONS
1928
SURVEY OF
M
AMERICAN FOREIGN RELATIONS
1928
CHARLES P. gOWLAND
DIEECTOE OF EESEAECH
OF THE COUNCIL ON FOREIGN RELATIONS
EESEAECH ASSOCIATE IN GOVERNMENT AT TALE UNIVERSITY
PUBLISHED FOR THE COUNCIL ON FOREIGN RELATIONS
NEW HAVEN • YALE UNIVERSITY PRESS
LONDON • HUMPHREY MILFORD • OXFORD UNIVERSITY PRESS
1928
Copyright, 1928, by Yale University Press
Printed in the United States of America
COUNCIL ON FOREIGN RELATIONS
THE purpose of the Council on Foreign Relations is to study
the international aspects of America's political, economic,
and financial problems. ^
In addition to holding general alidl^Mp meetings, the Council
publishes Foreign Affairs, a quarterly review ; A Political Hand-
book of the World; individual volumes on special international
questions; and with the present volume inaugurates an annual
survey of American foreign relations.
OFFICERS
ELIHU ROOT JOHN W. DAVIS
Honorary President President
PAUL D. CEAVATH EDWIN F. GAY
Vice-President Secretary and Treasurer
HAMILTON FISH ARMSTRONG
WALTER HAMPTON MALLORY
Executive Directors
DIRECTORS
ISAIAH BOWMAN GEORGE 0. MAY
NORMAN H. DAVIS WESLEY C. MITCHELL
STEPHEN P. DUGGAN FRANK L. POLK
ALLEN W. DULLES WHITNEY H. SHEPARDSON
JOHN H. FINLEY PAUL M. WARBURG
OTTO H. KAHN GEORGE W. WICKERSHAM
R. C. LEFFINGWELL OWEN D. YOUNG
COMMITTEE ON RESEARCH
EDWIN F. GAY
Chairman
GEORGE W. WICKERSHAM ISAIAH BOWMAN
WHITNEY H. SHEPARDSON WESLEY C. MITCHELL
PREFACE
THE Council on Foreign Relations has inaugurated the series
of volumes of which this is the first as an attempt to ex-
amine comprehensively and continuously the foreign relations of
the United States. There will be a discussion of selected topics ; the
subjects chosen each year will be those in which a culmination of
some sort has thrown the questions involved into high relief, or
those which have come to a stage of temporary arrest and so allow
of deliberate examination.
It is proposed to examine a field somewhat broader than that
covered by the term "foreign policy." That term suggests the con-
scious formulation of principles upon which our state bases its
attitude toward other states, and the administration of those
principles by official organs of government ; the Survey is intended
to cover also the events and circumstances in the relationships
of the United States with any foreign country or people which
affect or may come to affect our governmental policy or the action
to be taken by groups of American citizens in international af-
fairs. Thus, not only matters at present political will be reviewed,
but those of an economic character which may have a political out-
come, domestic or international. So much of the historical back-
ground of each topic will be given as may be necessary to illumine
present-day happenings. Some topics will require reexamination :
the world is a living organism, growing and changing ; nothing,
therefore, is permanently "settled," and all international relations
are both continuous and fluctuating.
Each volume will bear the date of the year of its publication. In
general, it will bring the topics chosen for discussion down to the
beginning of the year of its date ; the topics contained in the pres-
ent volume, for instance, are brought down to January 1, 1928.
In this respect, as well as in some others, it will differ from the
British Survey of International Affairs published by the Royal
Institute of International Affairs, whose volumes bear the date of
the year containing the latest events with which they deal.
The general policy of the Council on Foreign Relations in this
as in its other publications is to present an unbiased statement of
facts and a fair interpretation of policy. Interpretation of policy
viii AMERICAN FOREIGN RELATIONS
may at one time or another require the presentation of a point of
view ; but our effort will be directed toward objectivity, and there
will be no bias either in favor of official or prevailing policies or
against them.
The editor desires to express his cordial gratitude to Arthur
Bullnrd, who prepared the section on Limitation of Armament, a
part of Traditions, and a chapter in the section on the League of
Nations ; and to Quincy Wright, who prepared the chapter on
Domestic Control. It is intended to continue this practice of en-
listing the collaboration of contributing specialists.
All of the material contained in the Survey has been examined
not only by the Committee on Research but by other authorities
or specialists, and their comments and constructive suggestions
have been of great value. Help of this fruitful character has been
given by Messrs. James P. Baxter, Charles A. Beard, Tasker H.
Bliss, Norman Burns, M. E. Curti, Norman H. Davis, Tyler
Dennett, John Foster Dulles, Sidney B. Fay, Virgil Jordan,
John H. Latane, H. Barrett Learned, Walter Lippmann, A. Law-
rence Lowell, Walter Hampton Mallory, Ed win B. Parker, and
James T. Shotwell. The Council on Foreign Relations is respon-
sible for the undertaking arid, through its Committee on Research,
for the choice of an editorial staff; the whole volume was put in its
final form by the editor who therefore assumes responsibility for
its contents.
Especial acknowledgment must be made to the editor's staff
associate, Mr. Herbert B. Elliston, who prepared the sections on
the LTnited States as an Economic Power and Financial Relations
of the United States Government after the World War, and gave
general assistance in the preparation of the volume.
Thanks are due to the staff of the Yale University Press for its
collaboration in the enterprise.
*****
To our critics, we offer the petition of Master Caxton: And I
require and beseech all such that find fault or error, that of their
charity they correct and amend it, and I shall heartily pray for
them to Almighty God, that he reward them.
C. P. H.
New Haven
August 1,1928.
ERRATA
p. 183, 1st par., 8th line, read "citizen" instead of "nation."
p. 248, 2d par., read "member of" instead of "reporting member
attached to."
p. 249, 2d par., read "Attorney-General Gregory" instead of
"Lord Grey."
p. 252, 2d par., read "about fifty aides and experts, five hundred
assistants, and another seven hundred chauffeurs, guards,
orderlies, and clerical helpers were attached to" instead of
"1,300 . . . were picked to accompany."
p. 406, 3d par., read "Even before" instead of "After."
CONTENTS
Section I. American Foreign Policy 1
Chapter 1. Factors and Forces 3
The Course of Power 3
Balance of Power in Europe 4
Pursuit of National Security 6
Other Objectives Consequent upon Growth 12
Economic Maturity 14
The United States and World Power 17
How We Impinge on the World 19
The Responsibilities of Power 22
Chapter 2. Traditions 24
Isolation 24
The Monroe Doctrine 37
The Freedom of the Seas 60
The Open Door 75
Chapter 3. Domestic Control 83
Foreign Affairs and the Presidential System 83
The Development of Foreign Affairs 88
Evolution of the American System of Control 91
The Law of the Constitution 105
The Development of Constitutional Understand-
ings 113
Extra-Governmental Organization of Public
Opinion 119
Utilization of Expert Services 129
The Reorganization of the State Department 138
Section II. The United States as an Economic Power 149
Chapter 1. Commercial Expansion 151
The United States as a Manufacturer 156
The Pacific in the American Future 160
The Government and Business 164
Chapter 2. The United States as a Creditor Nation 166
Finance and Commerce 174
Balance of International Payments 179
Chapter 3. State Department Supervision of Foreign
Loans 183
Loans to Nations Which Have Not Funded Their
War Debts to the United States 191
x AMERICAN FOREIGN RELATIONS
Loans To Assist Monopolies of Raw Materials
Essential to Normal Peace-Time Consump-
tion in the United States 193
Loans for Non-P reductive Purposes 194
Opinion on the Policy 197
Chapter 4. International Implications of Gold Distribution 202
Returning to the Gold Standard 206
The Gold Flow to the United States 209
Controlling the Relation between Gold and Credit 211
Inaugurating Active International Banking Co-
operation 219
The Importance of New York 224
Section III. The United States and the League of Nations 229
Chapter 1. Historical Projects for a Society or League of
Nations 231
The League To Enforce Peace 235
President Wilson and a League of Nations 237
Chapter 2. The Senatorial Elections of 1918 239
Chapter 3. The United States Delegation to the Peace Con-
ference 247
Chapter 4. The Creation of the League of Nations 254
The Reception of the League Project in the
United States 258
The Last Stage of the Peace Conference 260
Chapter 5. The Attitude of the American Public toward the
Treaty and the Covenant 263
President Wilson 268
Chapter 6. The Senate and the League 271
Chapter 7. Treaty-Making in the United States and Else-
where 284
Treaties in the United States Senate 284
The Adoption of the Covenant Elsewhere 286
The Case of Switzerland 288
Chapter 8. The Presidential Election of 1920 294
Chapter 9. The Harding and Coolidge Administrations and
the League 302
Chapter 10. The Development of the League of Nations 314
CONTENTS xi
Section IV. Financial Relations of the United States Gov-
ernment after the World War 323
Chapter 1. Reparations 325
Introductory 325
President Wilson's Foundation of Reparations 326
How the Peace Conference Built on the Wilson
Program 330
The Formulation of the Reparation Clauses 337
The Reparation Commission — without America 342
The Economics of Deliveries
The Employment of Sanctions
Condition of Europe Prior to the Dawes Plan 350
Renewal of American Interest in Reparations
German Payments before the Dawes Plan
1919 and 1871
The Enthronement of Common Sense 361
The New Administration of Reparations
What Is the Dawes Plan? 371
The Transfer Committee
Reparations Still a Problem 379
The Position of the German Economy
Loans and German Recovery
The Outlook for Marketing
The "Priority" Question
Possibilities of the Future
Chapter 2. Debts 402
Financing the War 402
The Place of Subsidies in War Financing
How the Loans Were Contracted 411
The United States an Associate, not an Ally
The United States a Combatant as well as a
Lender
The Debts as Obligations
Funding the Debts 424
Formulas of Negotiation
The Settlements 437
Comparison with British Settlements
Effects of the Settlements 450
1. Economic
How the Payments Are Absorbed
2. Psychological
xii AMERICAN FOREIGN RELATIONS
Chapter 3. The German Debts under the Treaty of Berlin 464
The Treaties of Berlin, Vienna, and Budapest 464
The Treaty of Berlin 466
Chapter 4. The Mixed Claims Commission, United States
and Germany 471
Creation of the Commission 471
Organization of the Claims 474
The Decisions
The Nature and Sources of Germany's Liability 475
Private Claims 476
The Relation of Germany's Liability to State
Liability under International Law 482
The Amounts Claimed and Allowed 484
The Manner of Payment 485
Section V. Limitation of Armament 489
Chapter 1. Introduction 491
Pre-War Armaments 491
The Experience of the War 493
The Peace Conference 497
Chapter 2. Geneva 501
Creating Machinery 501
Discussion of Criteria 504
The Treaty of Mutual Guarantee 506
The Protocol for the Pacific Settlement of Inter-
national Disputes,, 1924 507
The Reception of the Protocol 509
Chapter 3. Washington 517
The American Naval Situation 517
The International Political Situation 521
The Domestic Political Situation 524
The Conference 526
The Results of the Conference 529
Other Attempts at Disarmament 533
Chapter 4. The Preparatory Commission, 1926 537
Background 537
American Participation 537
The Work of the Commission 538
Chapter 5. The Three Power Conference 543
The Invitation 543
The Conference 545
CONTENTS xiii
Chapter 6. 1927 Assembly 554
The Vitality of the Protocol 554
Speeding up the Preparatory Commission 555
Chapter 7. Naval Armaments : a Special American Interest 557
Chapter 8. Anglo-American Naval Controversy 560
Neutral Rights in Naval Warfare 560
American and British Interests at Sea 573
British Attitudes toward Naval Policy 577
The Heart of the Matter 582
Chapter 9. Suggestions for an Anglo-American Naval Un-
derstanding 590
Index 597
I.
AMERICAN FOREIGN
POLICY
CHAPTER ONE
FACTORS AND FORCES
THE COUESE OF POWER
POLITICAL thinkers are now learning to take account of the
fact that for the first time in two thousand years the
strongest single force is outside of the European continent. That
which Pitt began when he destroyed French power on the American
continent and put an end to European rivalries on this side of the
world has reached its consummation.
The ancient world had little coordination except that resulting
from breathing spells in warfare. Chaldean, Assyrian, Lydian,
and Persian conquests and dominations succeeded one another ; he
who could make himself Leviathan held what power there was
until his overthrow. The opposition of the Hellenic world to the
flood of the Persians was the first successful effort to substitute
voluntary federation, however reluctant, for the practice of mu-
tual destruction. The Athenians made the earliest concrete pro-
posal for toleration by agreement: they offered to Philip in 341
B.C. an amendment to the existing treaty which would include all
the Greeks in the peace, guarantee their freedom and autonomy,
and bring all to the aid of any one of them who might be attacked.
Meantime, remote from the Oriental idea of universal do-
minion, the power of Rome was beginning its pacific growth by
alliances with Latin communities of the Campagna, not fey wars
of aggression and conquest. But even Rome, with her superior and
more organized lowland civilization, had eventually to turn to force
in resisting and reducing to order the restless and populous hill
tribes whose forays incessantly disturbed Roman peace. The in-
tolerable disturbances of Sabini, Aequi, and Volsci were put down,
their territories tranquilized, themselves taken into alliance or con-
federation. Rome showed no definite expansionist tendency until
about 350 B.C. ; and even when expansion began, it was more inci-
dental than purposeful in that it was mainly a consequence of
maintaining order on the frontier. It was not until the Romans had
brought the Italian peninsula into subjection that they adopted
4 AMERICAN FOREIGN RELATIONS
an imperialistic policy, and the outcome of this process was that
universal dominion from which the parts fell away in proportion
to the decay of the central nervous system.
BALANCE OF POWER IN EUROPE
AFTER the emergence of Europe from the Dark Ages, coalitions
of rising nationalities swayed to and fro in a locked struggle, in
whose dark confusion can be distinguished a determination that
whatever might be the opposing demands of dynastic blood, or
race, or recent alliance, no Power should long remain the master
of Europe. Sometimes this determination created an equipoise of
groups; at other times a counterpoise, which destroyed an ag-
gressor in order to prevent too great an accession of power. The
evolution of Europe has been dominated for centuries by the fear
of hegemonies : of Spain, of the Holy Roman Empire, of France,
and of Germany, against which more or less powerful coalitions
were formed whose raison d'etre was best defined by Frederick the
Great: "cette balance qu'etablit en Europe V alliance de quelques
Princes considerables pour s'opposer aux Ambitieux, n*a pour but
que le repos du monde." In the same vein were the instructions to
Talleyrand for his conduct at the Congress of Vienna.
It is a combination of the mutual rights and interests of the
Powers, by means of which Europe aims at securing the following
ob j ects :
1st. That no single Power, nor union of Powers, shall have the
mastery in Europe.
2nd. That no single Power, nor union of Powers, shall be at liberty
to infringe the actual possession and recognized rights of any other
Power.
3rd. That it shall no longer be necessary, in order to maintain the
established state of affairs, to live in a state of imminent or actual
war, and that the proposed combination shall secure the peace and
repose of Europe against the efforts of a disturber, by diminishing
his chances of success.1
For geographical reasons the assertion of coalition against at-
i Gerardf The Peace of Utrecht, p. 393, translated from correspondence between
Prince Talleyrand and Louis XVIII.
FACTORS AND FORCES 5
tempted hegemony came to depend largely upon England, who
maintained it with her navy and her control of seaborne com-
merce. Philip, Louis XIV, Napoleon, the Pan-Germans — all their
"grand schemes of war and diplomacy," as Trevelyan says, "de-
pended on the battleships of England tossing far out at sea." Thus
the successive efforts of Napoleon and of German imperialism to
develop sea power were the most serious bids for predominance,
for they combined with military strength the element which could
menace the security of Great Britain and hence of European tran-
quillity.
Out of these conditions grew the doctrine of the "balance of
power," in the sense of an equipoise of military strength between
two groups of European Powers intriguing for allies and matching
military outlay with military outlay. This was the state of things
in which the Entente was pitted against the Alliance, each with its
satellites, the whole so carefully balanced in military strength that
when the power of Turkey was crippled by the Balkan wars, it
became necessary for the Triple Alliance of which Turkey was an
appendage immediately to increase its military appropriations.
But the relative strength of such groups in resources, man-power,
and prestige was never static; there was no equilibrium, only a
striving for equilibrium, and international relations reflected the
instability, charging the atmosphere with uneasiness. Normal
events thus received sinister interpretations and any untoward
event contained the ingredients of explosion.
It was this "game" which President Wilson denounced in his
address before Congress on February 11, 1918: "the great game,
now forever discredited, of the balance of power." At Manchester
in England he told his audience that "if the future had nothing
for us but a new attempt to keep the world at a right poise by a
balance of power, the United States would take no interest, be-
cause she would join no combination of power which is not a com-
bination of us all." One result of the World War is designed to
give the coup de grace to this kind of world order ; the League of
Nations proposes to replace the pre-war modus and to make uni-
versal those tendencies of European policy which do not admit of
the domination of the weak by one or two strong Powers acting
6 AMERICAN FOREIGN RELATIONS
clearly in their own interests. It is a criticism of present-day civi-
lization and not of the League that the conception is in advance
of the morality of the times. It cannot hope in a generation to gain
general allegiance to its chartered basis of international relation-
ships, for national power is still sought in the material realm, and
national security is still sometimes looked for in the old refuge
of "defensive" alliances, as is manifest in the new Balkans and in
the Balkan relations between France and Italy. Yet to an increas-
ing extent existing regional balances in post-war Europe owe
their equilibrium to the League ; Corfu and Vilna come to mind in
this connection. Men are groping toward a more pacific ordering,
and are more than ever conscious of the necessity for world or-
ganization, and more than ever in revolt against the grip of po-
litical forces. They see that the old system of opposing groups try-
ing to outbid each other creates fear and resentment and leads
ultimately to catastrophe.
PURSUIT OF NATIONAL SECURITY
THE year 1898 marked America's cognizance of her place in the
new world order. In that year the Spanish- American War ac-
celerated existing forces, and the crowded years from 1898 to
1914 gathered up a number of diverse tendencies which had not
hitherto been recognized as integral parts of a common develop-
ment.
The corner stone of American foreign policy before then had
been the achievement of national security. In her desire for this
swmmum bonum, the United States had not been different from
other states, but the geography and the economics of her situa-
tion were so different from theirs that the American Government
had departed widely from the orthodox canons of statecraft of the
transatlantic states. In securing a strategic boundary the United
States could spread out over uninhabited spaces, reach from sea
to sea, and from the Gulf to the Lakes. Men whom other nations
required to stand guard on the boundary, the United States could
put to clearing the forests, breaking the prairie, and operating
the factory. For a century, while other states were under the
necessity of increasing naval armament, the United States was
FACTORS AND FORCES 7
under no such compulsion notwithstanding the fact that her mer-
chant ships until 1860 were known in every port. There was less
necessity to increase armaments after 1860, for foreign trade be-
gan to decrease as new territory was opened up.
Toward the close of the century the need for a navy developed.
The acquisition of Hawaii, Samoa, and the Philippines stirred
men's imagination, and the shadows of the coming expansion in the
Caribbean stretched across the last decade of the nineteenth cen-
tury. More important, the capital and commercial energies of the
European Powers had for a generation been pressing out to the
commercial frontiers in the American continent. Each decade the
competition of the European countries for world markets, rein-
forced by the military or naval power of government, became more
energetic, and constituted in the western hemisphere a direct bid
for the markets, and a potential challenge to the policies, of the
United States. As the United States became a World Power she
had to adjust her statecraft to meet a new set of world conditions
which were fundamentally the creation of European nationalism.
The corner stone, however, remained the same : the preservation of
national security.
Let American foreign policy be reviewed on the page of an his-
torical atlas of the United States, and it will be realized that terri-
torial expansion has been a major impulse of that policy and that
the dominant motive back of expansion has been self-protection.
This expansion has been militant at times, but the militancy has
been sporadic with the boyish unconcern of democracy. The Ameri-
can people and their representatives in Congress have usually not
been conscious that their security or prosperity was more than a
domestic problem; it has been a characteristic of the American
people, in fact, to resolve every political and economic question
into a domestic one and to ignore its foreign relations.2
At the close of the American Revolution the United States com-
prised thirteen relatively small federated states along the middle
Atlantic seaboard of North America, surrounded, save for her
2 "In the New World, far more than in the Old, foreign and home politics are
linked together, and to follow either is to study the institutions of Republicanism."
Reddaway, The Monroe Doctrine, p. 2.
8 AMERICAN FOREIGN RELATIONS
coastline, by the possessions of European states. The greater part
of the present state of Maine, the upper Connecticut valley, the
basin of Lake Champlain, northern New York, the valleys of the
Great Lakes, the Ohio, and the Mississippi and indeed of all other
rivers flowing into the Gulf were either in dispute or were threat-
ened. Within sixty-five years the United States had reached an
approximate agreement as to the northern boundary, crowded
every European state out of the western territory, acquired the
Pacific Ocean for a western boundary, eliminated Spain from the
Atlantic and Gulf coasts, and established in the Gulf of Mexico a
position of approximate parity with Spain, France, and Great
Britain. Indeed, national security is such a relative term, so de-
pendent upon the character of communications and methods of
warfare at any given moment, that the United States in 1850 may
be said to have been more secure than she was half a century later.
A single naval base in the Caribbean in 1900 was a greater po-
tential menace to the United States than all of the European pos-
sessions in that region in 1850.
It is proper to remember that the gigantic forward strides
of the young state were assisted by a peculiar set of European
political conditions which had relaxed the grip of France and
Spain and left England loath to prosecute an aggressive co-
lonial program in the western hemisphere. But we must also bear
in mind that the American advance was due to some extent to
far-seeing statesmanship. The purpose of dominating North
America was not infrequently expressed by Benjamin Franklin
and was present in the Continental Congress. The "plan of trea-
ties" adopted by the Congress in September, 1776, to be used as a
model for the projected treaty of alliance with France, contained
the following significant article :
Art. 9. The Most Christian King shall never invade, nor under
any pretense attempt to possess himself of Labrador, New Britain,
Nova Scotia, Arcadia, Canada, Florida, nor any of the Countries,
Cities, or Towns, on the Continent of North America nor of the
Islands of Newfoundland, Cape Breton, St. Johns, Anticosti, nor of
any other island lying near to the said Continent, in the Seas, or in
any Gulph, Bay or River, it being the true intent and meaning of
FACTORS AND FORCES 9
this Treaty, that the said United States, shall have the sole, ex-
clusive, undivided and perpetual Possession of the Countries, Cities,
and Towns, on the said Continent, and of all Islands near to it, which
now are, or lately were under the Jurisdiction of or Subject to the
King or Crown of Great Britain, whenever they shall be united or
confederated with the said United States.
One may fairly read into this article the intention to oppose all
increase of European power in the western hemisphere and to re-
duce it at every convenient opportunity. In the treaties with
France it became necessary to compromise by agreeing that any
captured British territory in the Gulf should go to France, but
the course of history for a hundred and fifty years shows clearly
that the United States lias held as steadily as circumstances
warranted to her original purpose as expressed in the "plan of
treaties."
Every step in the territorial expansion of the United States has
been a step in the accomplishment of this purpose to reserve
America for Americans and for systems of government in harmony
with American political principles. The purchase of Louisiana
had for its immediate object the freeing of the Mississippi valley
from European control. The greatest accomplishment of the
Treaty of Ghent was to assure to the United States the use of the
Great Lakes and to make secure the territory north of the Ohio.
The purchase of Florida represented one more step in the pro-
gram to crowd European Powers off the western hemisphere. The
Monroe Doctrine restated the principle incorporated in the "plan
of treaties" ; it placed the United States in open opposition to the
extension of European colonies and to the reestablishment of Eu-
ropean political institutions.
The Rush-Bagot agreement as to armaments on the Great
Lakes (1816), followed by the Webster- Ashburton treaty (1842)
and the settlement with England of the Oregon question (1846),
placed Anglo-American relations on a footing sufficiently secure
to make it improbable that the United States will ever again se-
riously consider the acquisition of Canada or an effort to expel
Great Britain from the Caribbean regions. This external harmony
in Anglo-American relations was assisted by the series of political
10 AMERICAN FOREIGN RELATIONS
and social reforms in England by means of which Great Britain
entered the category of essentially democratic governments. Such
changes promoted in America fundamental good will toward Eng-
land, notwithstanding the multitude of petty quarrels. Not for a
long time has American policy felt any urge to wrest Canada from
Great Britain, and the United States feels an added security in the
autonomy which her neighbor has received, and in the enjoyment
of which the Canadians have developed types of thought and habits
of societal behavior akin to those of the American people. The
political system of England is no longer thought dangerous to
American institutions.
The annexation of Texas and the Mexican War, as a result of
which the vast territory west and north of Texas reaching to the
Pacific Coast was acquired, seem at first glance to be inconsistent
with the anti-European policy. This vast area was no longer a
colony of Spain, and the action taken by the United States can-
not be explained as an application of the Monroe Doctrine. Con-
trary to general supposition, the Monroe Doctrine is not the
diplomatic grounds of all American foreign policy south of New
Orleans ; only two years after the pronouncement of the Monroe
Doctrine another policy was laid down which passed almost un-
noticed. First Colombia and then Mexico was rumored to be
contemplating an expedition against the power of Spain in Cuba
with the intention of removing the last Spanish threat to her
independence. Cuba, freed from Spain, would, so it may have ap-
peared to the Spanish American statesmen, no longer afford
shelter and protection to a Spanish fleet which might at any fa-
vorable moment sail westward to renew the struggle with the lost
colonies. The rumor was disturbing to the American Government.
Such an effort on the part of Colombia or Mexico would not fall
under the ban of the Monroe Doctrine ; on the contrary, it might
appear to be in line with it, for it would represent still another at-
tempt to crowd Europe out of the hemisphere. Actually such an
effort, if successful, would have cast Cuba adrift and would have
made her the sport of some other transatlantic Power, and would
almost certainly have led to slave emancipation, so odious to
Southern statesmen because of its epidemic nature. Henry Clay, as
FACTORS AND FORCES 11
Secretary of State under John Quincy Adams, forthwith in-
structed the American representatives in Colombia and Mexico to
warn these states that such an expedition would not meet with the
favor of the United States. The new policy thus defined amounted
substantially to this : not only would the United States oppose the
extension of European dominion in the western hemisphere, but she
would also oppose the extension of any political power in the re-
gions adjacent to the southern boundary of the United States. This
policy passed unnoticed in 1825 but it did not lapse, and the
American Government took a similar attitude in 1927, when there
was evidence of Mexican activity in Nicaraguan domestic affairs.
The Mexican War has often been held up as the shame of Ameri-
can history. Although fine spirits like Lincoln and James Russell
Lowell felt that the attitude of the American politicians and peo-
ple was provocative and thought the war abhorrent, it satisfied
the standards of those days, and was deemed inevitable. It was
likewise inevitable that at the close of the war the United States,
influenced by the westward flow of an American population and by
the traditional policy of working out territorial security, should
acquire what was needed to round out the southern boundary and
carry it to the Pacific Coast. A Mexico which had been unable to
administer Texas and could not hold it against the Texans, and
at the same time had lost control of California, would never have
been able to defend the area from the attacks of any Power ; the
action of the United States forestalled a situation in which
American security might have been imperiled. The United States,
acting as every successful state would have acted, could brook no
rivals in North America : this was cardinal American policy.
The Clayton-Bulwer treaty would also seem to have revealed
a departure from traditional policy in that it contemplated an
isthmian canal under the joint control of all interested Powers.
But the United States did not grant to England rights which she
did not already possess by virtue of her position in Central America
and in the Caribbean ; the treaty represented an effort on the part
of Secretary Clayton to effect a reduction of those rights, an effort
which was moderately successful. By the Clayton-Bulwer treaty
12 AMERICAN FOREIGN RELATIONS
the United States edged forward in her policy of crowding trans-
atlantic Powers out of the western hemisphere.
OTHER OBJECTIVES CONSEQUENT UPON GROWTH
ALLIED with the policy of territorial security and supplementary
to it was that of economic strength. No state is master of its own
development until it has achieved a greater measure of economic
power than the original thirteen states possessed.
Before the Revolution trade had been largely financed by long-
term credits supplied by England, the colonies' chief customer.
The war itself had been financed by French and Dutch loans which
had been made, at least in the case of the French, mainly for politi-
cal purposes. The first administration of Washington was marked
by financial conditions which threatened general bankruptcy.
From the British West Indies, the former source of most of the
hard money in the colonies, American commerce was excluded.
Elsewhere in the ports of the world, in those of Europe and of Eu-
rope's colonies, American trade faced the bulwarks of the old
mercantilist system or was subjected to the whims of dynastic con-
flicts. By 1914, the United States, although to a diminishing ex-
tent she was still a debtor nation, although she was still buying and
borrowing more than she was selling and lending in the world's
markets, had achieved economic independence and in few ports
in the world was her commerce subjected to political restrictions
not shared by rival nations.
From the outset the commercial foreign policy of the United
States was determined by the fact that the American people were
either unable or unwilling to support war for the sake of economic
advantages, least of all for such an economic monopoly as that
enjoyed by the British or Dutch East India Company. Since
American commercial policy had of necessity to be prudent and
conciliatory, to employ the characteristics of weakness rather than
of strength, the prosperity which attended it was therefore the more
notable.
The policy of neutrality, the inclination to arbitrate rather
than fight, the abstention from alliances, and the "open door"
FACTORS AND FORCES 13
policy, were all more or less involuntary choices of a government
whose people were unprepared to fight. The Monroe Doctrine
itself was not without its economic aspects. The American people
had to fear not only the reestablishment or extension of European
dominion on the continent ; they had also to fear that with that
dominion would come the old mercantilism which, though dying,
was not yet dead. In short, they had to fear that in Spanish
America their ships and traders would be treated as then they were
treated in the West Indies.
When one frankly recognizes the economic background of these
policies one is better prepared to understand the forces which since
1914? have been at work to modify the traditional policies of the
nation. The spirit of American frontier life was provincial, and
could hardly be described as pacific. American commercial policy,
on the contrary, obviously could not be provincial and was of
necessity conciliatory; the American merchant abroad had no
choice but to seek peace and pursue it.
The heart of American commercial policy was "most-favored-
nation treatment." The United States in her first commercial
treaty secured most-favored-nation treatment from France and
thereafter she sought to incorporate the principle, in its condi-
tional form, into all of her commercial relations with foreign states,
even with the little kingdom of Hawaii. Far from asking for her
nationals exclusive commercial rights she sought only to make
sure that in the territory of a foreign state her merchants should
be subjected to no restraints not shared by other foreign mer-
chants. A free field and no favor was all that the American mer-
chant expected.
To these simple objectives of territorial security and economic
strength the American Government held consistently through
changing administrations, Democratic and Republican. The
methods put forward to attain these ends showed occasional varia-
tions, but seldom was any political party long identified with a
particular measure, and in general these methods were peaceful :
arbitration, conciliation, purchase.
There was in the earlier days of the republic a third objective
which represented hardly more than a pious wish. The American
14 AMERICAN FOREIGN RELATIONS
people usually favored in another state the party which most
closely identified itself with popular liberty and free institutions ;
the American Government was sometimes dangerously close to an
infringement of its cardinal principle of non-intervention in the
domestic affairs of other states. In the fat and opulent 'eighties the
customary practice of recognizing the de facto governments which
usually follow revolutions was somewhat qualified by insistence
that a new government, to obtain recognition, must specifically
engage to assume the international obligations which had been
recognized or assumed by its predecessor. This modification in
the recognition policy foreshadowed a changing temper in Ameri-
cans which has in the last ten years made them the most conserva-
tive of peoples, as is borne out in our relations with Soviet Russia
and in our attitude toward those applicants for admission to our
shores who are notoriously reformist.
ECONOMIC MATURITY
IT may be assumed from what has been said that no new American
foreign policies emerged in 1898. The project to intervene in Cuba
was already so old as to have become traditional. The notable fact
was that notwithstanding the numerous projects to take possession
of Cuba, Congress at last passed a self-denying ordinance and
foreswore its liberty to annex in the case of a successful war. The
project to annex Hawaii had been fully considered in 1853, in
1867, and periodically thereafter in connection with the tariff
question. A naval base in the Far East had been frequently ad-
vocated in the 'fifties and was earnestly recommended by Commo-
dore Perry who drew upon his head no reproof for his imperialism.
In fact, in 1898 the United States merely resumed a course of de-
velopment in foreign relations which had been interrupted by the
Civil War.
But a new force was complicating our policy, namely, economic
maturity, which had become apparent after the recovery from the
panic of 1893. With wealth came a new and abounding sense of
power. The easy successes of the Spanish- American War brought
a self-assurance not characteristic of the earlier period ; the United
FACTORS AND FORCES 15
States was no longer on the defensive. At the same time came a
portentous change in the international affairs of the transatlantic
states, which were already beginning to take tentative positions in
anticipation of the World War. Here in the western world was a
new and unmeasured force to be reckoned with ; the United States
became a World Power because her potential influence was recog-
nized, sought, and feared around the entire world.
The region in which the larger influence of the United States
was first noticed was the Far East. The "open door55 notes and the
prominence of the American Government in the liquidation of the
Boxer uprising were remarkable demonstrations by a government
which not long before had been accustomed to declare that its
interests were exclusively confined to the western hemisphere. The
corollary of the Monroe Doctrine had broken down as far as the
Orient was concerned. But American policy remained true to type :
the United States was anxious to keep out of all political combina-
tions in the Far East and to support native sovereignties ; she had
an economic purpose in that she saw in the markets of Asia poten-
tial opportunities for trade. It was repugnant to the spirit of
American foreign policy to tolerate monopolies which must of ne-
cessity narrow the sphere of American economic liberty ; hence our
protests against the establishment of economic privileges of an
exclusive character by means of political or military pressure.
The next great stroke of American diplomacy was the acquisi-
tion of the rights for an isthmian canal, to be constructed, oper-
ated, and protected exclusively by the United States. We may re-
gard this as a stroke of diplomacy, crude as was the precipitate
recognition of the Panama Government, because, before the canal
rights could be secured, the United States had to come to a gen-
eral agreement with Great Britain as to the balance of power in
the Caribbean. The management of the Spanish- American War,
the negotiation of the Hay-Pauncef ote treaty, the demand upon
Germany that she arbitrate her Venezuelan claims, the reduction
of British naval forces in the West Indies — all these events con-
stituted the working out of a definite American policy of national
defense in the Caribbean. Their success measured the respect of
16 AMERICAN FOREIGN RELATIONS
the transatlantic Powers and increased American prestige in world
affairs.
Came the Russo-Japanese War. With Russia and France linked
together on one side, with England and Japan linked on the other,
with Germany fishing in troubled waters, with China unable to
defend Manchuria, there was a clear possibility of world-wide
war. Theodore Roosevelt stepped forward and used his position
as chief executive of this new World Power. Those were dramatic
days when one man, indifferent to precise constitutional limita-
tions, determined the destinies of the wrorld. That he used his
power in favor of peace was in accord with the best American
traditions; in becoming the peace-maker betwreen Russia and
Japan he asked for no specific compensation in political advantage
(save that of preserving the balance of power in the Pacific) or
commercial concession.
In 1914 the United States which prided herself on her policy
of isolation and above all else feared compromising relationships
was face to face with European Powers not only in the Caribbean
and in Spanish American countries but also in the Near and Far
East. The policy of no alliances had survived but isolation had
become a myth. In our efforts to preserve our security and in our
new contest for markets, present and future, we could no longer
face the Powers alone, could no longer depend on that practice of
weak states, the playing off of one state against another. The
American Government was rapidly reaching a point where it must
join forces, tacitly if not openly, with such other Powers as had
interests most similar to its own to oppose other states which
threatened its prosperity. It had already opposed Russia in the
Far East by threatening to support Japan ; it had opposed Ger-
many at the Algeciras Conference and ranged itself momentarily
on the side of the Entente. It had reached a tacit agreement with
Great Britain in the Caribbean. The reality of the old traditions
was weakening, though the formulas were still repeated. In be-
coming a World Power the United States had already assumed
some of the burdens incident to membership in the society of na-
tions.
FACTORS AND FORCES 17
THE UNITED STATES AND WORLD POWER
THUS, since the Napoleonic era, and while the British fleet was
holding a veto against the hegemony of any European nation,
this new Power has developed in the West, a Power based on eco-
nomic resources of unparalleled magnitude. It is obvious that the
industrial preponderance which was once England's and which
gave her the capacity to build the largest and strongest navy in
the world has been broken by the United States. Heretofore, prob-
lems of power have engaged the attention of the American people
but little, because Europe was remote and strange and because in
the western hemisphere they need take no account of "balance,"
their strength exceeding that of all the other American peoples
combined. But all profound European political conditions, every
change in the status quo, affect the United States nowadays, and
must be taken into account by those in charge of her foreign re-
lations. Though not self-supplied in her requirements of raw mate-
rials, being an importer of such essentials as rubber, silk, and
vegetable oils for her industry, and of sugar, coffee, furs, and art
works for her "creature comforts," she need fear no rivalry in the
push for prosperity. Her economic strength is greater than that
of any nation, perhaps of any two ; if present processes continue,
her citizens will before long possess nearly five times the wealth of
England. Such wealth has an influence that can affect the indus-
trial and thereby the social development of most countries of the
world. It can also be transmuted into military and naval expres-
sion.
The area for the exercise of that power is changing. Prior to
and during the Middle Ages the area of conflict wras thalassic, in
the Mediterranean and later in the Baltic. The age of discoveries
opened the oceanic rivalries in the Atlantic and the Eastern seas,
and here the continental Powers fought for supremacy, with Great
Britain trying to maintain an equilibrium. The westward progress
of the restless, colonizing, inventive white races now carries the
stage to the shores washed by the Pacific Ocean.
"The future lies in the Pacific !" This does not mean that culture
or commerce or power will be centered there, but that the Pacific
area holds major problems, huge in scale and new in the sense that
18 AMERICAN FOREIGN RELATIONS
they are in the early stages of solution or evolution. The European
world is organized and developed in the relation of one part to the
others ; its hope of peace lies in its continuous intellectual and sty-
listic integration. Old as it is, the Pacific area is in process of
receiving a new form of development, and this has brought Sew-
ard's prophecy into general quotation :
Torrents of emigration are pouring into California and Australia
from the South American states, from Europe, and from Asia. This
movement is one for which men and nature have been preparing
through near four hundred years. During all this time merchants
and princes have been seeking how they could reach cheaply and ex-
peditiously "Cathay," China, the East, that intercourse and com-
merce might be established between its ancient nations and the newer
ones of the west and the reunion of the two civilizations, which, hav-
ing parted on the plains of Asia four thousand years ago, and having
travelled ever afterward in opposite directions around the world, now
meet again on the coasts and islands of the Pacific Ocean. Who does
not see, then, that every year hereafter, European commerce, Euro-
pean politics, European thoughts, and European activity, although
actually gaining greater force — and European connection, although
actually becoming more intimate — will, nevertheless, relatively sink
in importance; while the Pacific Ocean, its shores, its islands, and the
vast regions beyond, will become the chief theatre of events in the
world's great hereafter?3
The struggle in the East on a large scale is a new thing to
Americans, but not to Europeans. To them it has been one of the
elements in the contest for predominance since the sixteenth cen-
tury, when Albuquerque overthrew Arab sea-power and won con-
trol of the Indian Ocean for Portugal, through the Franco-Brit-
ish strife in India, the contentions between the Dutch and the
East India Company, until the dawn of the twentieth century,
when the imperial rivalries of Great Britain and Russia were inter-
locked on so grand a scale as to dictate events over practically all
of Asia. These were the epic struggles which caused Lord Acton
to question whether the discovery of the sea route to the East was
not more important than the discovery of America.
IT/^T,.,. T
FACTORS AND FORCES 19
HOW WE IMPINGE ON THE WORLD
LIKE Great Britain, we have reached the point of rapid city
growth and a relatively diminishing agricultural population. In
colonial possessions, in the relations of an advanced country to
countries less "civilized" or backward, in the export of capital
for foreign investment and in the competition for raw materials
and foreign markets, we have moved toward the English situation.
While our problems may be different in detail, they involve us in
the study and settlement of questions often similar to those of
Great Britain. Panama has many resemblances to Suez, and our
relation to Panama is in many respects analogous to that of Great
Britain to Egypt. It was constantly on the tongues of the English-
men at the Peace Conference that many of our new problems in the
Philippines resembled their own in Egypt and the Ear East. The
wide geographical distribution of our territorial problems — Li-
beria to the Philippines, Alaska to Panama — puts us at last in the
same general situation that Great Britain has long occupied ; that
is, we impinge upon most of the major problems of the world.
Our economic contacts are much more numerous and con-
tinuous than our purely political contacts. The local manager of
an American oil company has differences with the Mexican au-
thorities over taxes or requisitions by the army, and complains to
the local consul, or even to the Ambassador, who appeals to the De-
partment of State if he cannot himself adjust the difference; or
the president of the company, apprehending confiscation of sub-
soil ownership under the new Mexican constitution and the rele-
vant legislation, calls on the Secretary of State in Washington to
protest to the Mexican Minister for Foreign Affairs. Or Mr. Sec-
retary, again on behalf of American oil interests, interposes in the
parceling out of the output of the Mosul field and secures a share
for American capitalists. Or Nicaragua, many of whose bonds are
held by Americans, asks the State Department to assist her in plac-
ing a new or a refunding loan to stabilize her currency and to
enable her to improve her organization ; the State Department so-
licits the help of bankers and, once they are in, feels under obliga-
tion to see that they have reasonable treatment.
Diplomatic protection of American economic interests all over
20 AMERICAN FOREIGN RELATIONS
the world in their expanded volume is a new thing in our foreign
relations, requiring a personnel capable of understanding busi-
ness and finance, a new technique, a far more acute sense of the
intricacy and delicacy of such relationships than was required in
the early days of comparative isolation. Once the missionary in
China made the predominant American interest there; once the
United States was in a state of high excitement over the status of
the Hungarian refugee Koszta; even as late as 1904 Roosevelt
sought to galvanize a Republican presidential convention with
the shout — "Perdicaris alive, or Raisuli dead !" But these are no
longer the dominant leitmotifs; the modern interest is the economic
interest.
Another factor in foreign relations making for complexity is
the increasing consciousness that political decisions, even those
seemingly domestic, have repercussions outside of the boundaries
of the countries which make them. In the political world, as in the
physical one, it would seem that force is never lost. The question of
national armament has always been regarded by Americans as a
domestic one, but they are fast coming to the realization that it is
so concerned with other national armaments as to necessitate inter-
national conferences in order to clarify and in some respects to
regulate it. A fortiori must we take account of the effect on other
countries of those measures directly affecting our relations with
them: the tariff, immigration, the export of capital, the subsidy
of the merchant marine and so on. These all invite reprisals or
counter-measures, which may be much more damaging to us than
they would have been in the days of our comparative seclusion.
Modern diplomacy in bargaining concessions for advantages must
now embrace within its province questions formerly considered es-
sentially domestic.
It is no longer an easy matter to draw a line between foreign and
domestic questions. The "valorization" of Brazilian coffee has
stimulated coffee-growing elsewhere, to the detriment of the Bra-
zilian planter ; the boll- weevil reduces the crop and raises the price
of American cotton, and thereby stimulates cultivation in India and
Egypt of cotton to which Lancashire spinners look for emancipa-
tion from the American quasi-monopoly. Nor is it easy to draw a
FACTORS AND FORCES 21
line between an economic consideration and a political considera-
tion. The "Stevenson plan" of British rubber growers sets Mr.
Firestone to planting young trees in Liberia with an investment of
a million dollars ; the enterprise will demand political protection
if the Liberian Government should withdraw its countenance, and,
if this were granted, a new stimulus would be given to those Ameri-
cans who demand such protection in the Philippines, if not
American control of the islands, before embarking on schemes of
rubber exploitation. While the continuance of our control of the
Philippines has hitherto rested almost wholly on political grounds,
such economic factors have already begun to complicate the prob-
lem. The British raise the price of rubber by the "Stevenson
plan." American tire manufacturers cast longing eyes upon the
Philippines, where the soil and climate are favorable to rubber
production and where cheap Chinese labor is available. Their aims
are thwarted by the possibility that the Philippines may some day
be independent, by the law of 1902 which fixes at 2,500 acres the
maximum ownership of agricultural land by non-Filipinos, by the
Jones Act which vests the control of all public lands in the Philip-
pine legislature, and by the prohibition on the importation of Chi-
nese labor. While the importance of this new economic factor may
be easily exaggerated, and only a small part of our electorate has
any knowledge of or interest in the rubber possibilities of the
Philippines, the influence of an energetically interested group far
exceeds its numbers. The influence of this group is already en-
croaching on the political considerations hitherto paramount in
our relations with the Philippines because it chimes in with the
demands of a national economy whose requirements of external
rubber supplies are enormous and whose needs in other respects are
fast outgrowing domestic resources. These circumstances may in-
deed condition our future political considerations.
Our economic forces enlarge the sphere in which operate the
factors of strategy and prestige. The one was severely limited be-
fore we assumed territorial responsibilities outside of our domain
and when the great goal of our economic achievement was the ex-
ploitation of domestic resources and the development of domestic
commerce. The other is the product of accession to power. The
22 AMERICAN FOREIGN RELATIONS
farther flung our commercial dealings, the more ramified our
strategy and the more prestige we deem it necessary to acquire and
to protect.
THE RESPONSIBILITIES OF POWER
WE have suggested that our economic and industrial relation-
ships have put the traditions of the seventeenth and eighteenth
centuries into the melting-pot, making them as remote from re-
ality as the proposal of Chevalier Bayard that gentlemen should
abstain from the use of firearms in warfare. Thus we must seek new
forms of security in correspondence with our new-found position.
The British insure their national security by abating their sover-
eignty through agreements — the Covenant of the League, to be
enforced by the League ; the covenants of Locarno, to be enforced
by self-interest and buttressed by "sanctions."
The development of this security through "sanctions," whether
of habit or of covenant, is far more important than "disarma-
ment." The utterances of President Wilson are the expression of
a fervent hope that an evil may cease to exist in the form which
has become familiar and painful to us. Has the search for security
been sublimated in an appeal to a higher court than the "balance of
power"? There are many factors to be considered, for the future
holds forms of organization other than those proceeding on na-
tional lines — groupings of manufacturers in cartels, of bankers in
consortiums, of capitalists in large-scale development schemes, of
the labor groups in Internationales, and of labor and employer
groups in the International Labor Office. In most situations at
present the nationalistic grouping is still the prevailing associa-
tion, and nations are still looking for friends to provide themselves
against contingencies. And as nations they are still certain to com-
pete for the materials of production and for trade as long as we
possess the type of nationalism that rests on the doctrine of abso-
lute sovereignty.
It is not unnatural that we should hesitate as to where lies our
most advantageous position in this new apportionment of power.
Our position in the western hemisphere has been one of absolute
supremacy, absolute even if all the Latin American countries
FACTORS AND FORCES 23
should unite to oppose our policy, a union which their separate
desires to win the favor of the United States have always helped to
frustrate. We can call our acts those of a policeman, and pay no
heed if others say they are those of a bully ; we can do with im-
punity things that, done in Europe, would immediately cause a
general war. This is our good fortune, but we are naturally per-
plexed and uneasy when we have to abandon this carefree habit of
mind for the unaccustomed anxieties and responsibilities which
our new position as a World Power is thrusting upon us.4
4 \Ve follow this general sketch with summaries of four cardinal traditions of
American foreign policy in order to provide a background for a fuller discussion in
the specific fields which they concern. "The Freedom of the Seas" is dealt with
exhaustively in the section on "Limitation of Armament" in this volume; the
"Monroe Doctrine" and the "Open Door" will come under examination in future
volumes in reviews of our relations with Latin America and the Far East re-
spectively.
CHAPTER TWO
TRADITIONS
ISOLATION
THE American attitude of aloofness embodies two distinguish-
able principles: (1) the doctrine that no state should inter-
vene in the domestic affairs of other states, a general doctrine of
international law for all nations ; and (2) the doctrine of isolation,
that the United States should abstain as completely as possible
from taking part in European affairs or even from displaying an
interest in them, avoiding not only alliances but also close relation-
ships under engagement with any European nation. This latter
doctrine (which, as Seward once said, might seem "straight, abso-
lute, and peculiar" to other nations) when combined with its corol-
lary, the Monroe Doctrine, produces the "doctrine of the two
spheres." We consider here the doctrine of isolation.
A policy of non-intervention was natural for a weak young re-
public in a world of fierce and unscrupulous national ambitions
which aimed at finding their colonial gratification in the hemi-
sphere in which that young republic had just come into existence.
Although the protection afforded by geographical remoteness was
practically unique and for a long time remained unique, there
have been and are other weak states which hope for permanent
neutralization in a world dominated by great military Powers.
Since Holland ceased to be a great naval Power, her foreign
policy has aimed mainly at a sheltering neutrality, and that is now
the chief aim of the Scandinavian countries. And Switzerland is in
fact the subject of an international guarantee of neutrality dating
from 1815, as was Belgium under the treaty of 1889.
Although Senator Lodge thought that he would make himself
"the subject of derision by quoting from the Farewell Address,"
it would be squeamish not to set out that part of it which states the
isolation principle. "Europe," said Washington, "has a set of
primary interests which to us have none or a very remote relation.
Hence she must be engaged in frequent controversies, the causes
of which are essentially foreign to our concerns. Hence, therefore,
TRADITIONS 25
it must be unwise in us to implicate ourselves by artificial ties in
the ordinary vicissitudes of her politics or the ordinary combina-
tions and collisions of her friendships or enmities." In his monu-
mental style, Washington expressed the same thought as Baron
de Nolken, the Swedish Ambassador at St. James's, fifteen years
earlier: "Sir," said he to John Adams, "I take it for granted that
you will have sense enough to see us in Europe cut each other's
throats with a philosophical tranquillity." By the year 1797 the
idea which has passed into popular history as a conception of
Washington's had been developed out of the experiences of twenty
years, had been applied to various classes of events in the inter-
national relations of the colonies or the nation, and had received
substantially unanimous approval from public men and from the
people.1
During the Revolutionary War Congress was fearful of any
"alliance" except commercial reciprocity ; and although the com-
missioners to France exceeded their instructions and signed the
Frencli alliance treaties of 1778, it was only because the desperate
situation justified a desperate remedy. The cordiality toward
France on account of her participation in the war was qualified in
many quarters. In disregard of their instructions, the American
envoys to the Paris peace conference with Great Britain made the
provisional peace treaty of November 30, 1782, with England,
and the United States at the conclusion of the war drew away to
the extreme end of the commercial tether which binds all civilized
countries together. When France and England went to war in
1793 the neutrality position of Washington and his cabinet
pleased most of the American people.
In all of these events Washington and his contemporaries had
had some part. They had put themselves on record on the subject
again and again, and for every public expression of their views
that remains to us there must have been hundreds of private ex-
changes and confirmations of those views. The doctrine of isola-
tion was not only "in the air," it was the air itself.
i A full treatment of the subject in the revolutionary period, of which only a
suggestion is here given, by Professor J. Fred Hippy and Miss Angie Debo, entitled
The Historical Background of the American Policy of Isolation, appears in Smith
College Studies in History, Vol. IX, Nos. 3 and 4.
26 AMERICAN FOREIGN RELATIONS
John Adams was so consistently vehement in expounding the
idea as to be its protagonist. In the thick of the Revolution he ad-
vocated "a principle of foreign affairs," which, near the end of
his life, he said, "has been the invariable guide of my conduct in
all situations, as ambassador in France, Holland, and England
and as Vice-President and President of the United States, from
that hour to this. The principle was that we should make no
treaties of alliance with any European Power; that we should
consent to none but treaties of commerce ; that we should separate
ourselves, as far as possible and as long as possible, from all Eu-
ropean politics and wars." It is agreeable to read that in the dis-
cussion in Congress "I was remarkably cool, and, for me, un-
usually eloquent." He was on a committee of Congress to prepare
a French treaty, and in the discussion in Congress "many motions
were made to insert in it articles of entangling alliance." Adams
favored peace with all the Powers of Europe as soon as the Revo-
lution should be over, "and perfect neutrality in all their future
wars." "Our business with them and theirs with us," he said, "is
commerce, not politics, much less war." He had no enthusiasm for
a close connection with our sister republic, France, and even con-
fessed to the thought that "after a very few years it will be the
best thing we can do to recall every minister from Europe, and
send embassies only on special occasions."
Samuel Adams, though he favored the French alliance, almost
hoped that the French would refuse it, and feared the "intrigues
of foreign Ministers about our Court when Peace is happily set-
tled," as well as "Factions in America, foreign or domestick."
Jefferson was almost as fervently a supporter of isolation as
John Adams. "We should," he thought, "stand with respect to
Europe precisely on the footing of China. We should thus avoid
wars and all our citizens would be husbandmen." This would keep
us out of Europe, "where the dignity of man is lost in arbitrary
distinctions, where the human species is classed into several stages
of degradation, where the many are crushed under the weight of
the few, where the order established can present to the contempla-
tion of a thinking being no other picture than that of God Al-
mighty and his angels tramping under foot the hosts of the
TRADITIONS 27
damned." "We ought, like the Turks," he said more soberly, "to
keep out of European affairs, but not like the Turks to be ig-
norant of them."
Richard Henry Lee had been one of those who in 1776 "panted
after this connection with France," but his was a martial en-
thusiasm; with the corning of peace he cooled off, and in 1785 he
desired that we might "be detached from European politics and
European vices," and from those "European councils where artful
and refined plausibility is forever called in to aid the most per-
nicious designs." Even Lafayette was clear that a policy of neu-
trality was best for his adopted country.
Franklin was the only one of the early fathers who was not
constantly an isolationist, and he knew that he was the exception
that proved the rule. In 1776, although "commonly silent" accord-
ing to John Adams, he concurred with the isolationists, and the
next year said "with his usual apathy" that he was "not deceived
by France." But he "shifted his sentiments as easily as the wind
ever shifted" ; Adams's views he called "the ravings of a certain
mischievous madman," and during his long stay in Paris extended
to France the same benevolence which he indulged toward the
more personal charms of Madame Helvetius and Madame Brillon
de Jouy.
Congress itself in 1783 resolved that "the true interests of the
states require that they should be as little as possible entangled
in the politics and controversies of European nations," and in
congressional debates on various issues both sides used the idea of
isolation as a premise to support their opposing arguments. It
was even thought in Congress that the creation of the office of a
Secretary for Foreign Affairs would destroy American isolation ;
it afforded "a means of attraction which it was prudent to guard
against" ; so instead of a Secretary for Foreign Affairs, like the
rest of the world, we have a "Secretary of State," whose depart-
ment was originally intended to embrace, in addition to whatever
slender amount of foreign business there might be, the whole do-
mestic administration with the exception of war and finance.
So deep did these ideas penetrate that they found their way into
the Constitution. The President should be chosen by an electoral
28 AMERICAN FOREIGN RELATIONS
college instead of by Congress because in the latter the great
colonial Powers would intrigue for the election of "a man attached
to their respective policies and interests." The length of citizen-
ship required for eligibility to House and Senate was affected by
the certainty that "persons having foreign attachments will be
sent among us and insinuated into our councils, in order to be
made instruments for their purposes." The two-thirds rule for
the ratification of treaties, which so many writers regard as the
bane of our foreign relations, was supported as making treaty
making difficult and preventing the corruption of the Senate by
foreign influence. Jefferson would have made the President in-
eligible for reelection for fear of European intrigue: "a Gallo-
man or an Angloman will be supported by the nation he be-
friends." But John Adams thought eligibility for reelection would
have the contrary result by making the incumbent anxious for
popular favor. We owe to the apprehensions of the isolationist
period Article I, Section 9 of the Constitution, which "dates," as
they say of fashions :
And no Person holding any Office of Profit or Trust under them
[the United States] shall, without the Consent of the Congress, ac-
cept of any Present, Emolument, Office, or Title, of any kind what-
ever, from any King, Prince, or foreign State.
A tradition established with such a single and so emphatic a
voice by the early fathers had for the populace the force of thun-
der from Sinai. They could not have imagined that any change in
circumstances would ever make it obsolete, and succeeding gen-
erations faithfully held to the tradition as masses of people do to
any dogma which has at some time in their history made con-
spicuously for the tribal welfare.
There was a seeming inconsistency between the Jay treaty and
the French treaties of 1778 which led to the painful charge that
Washington was repudiating an obligation of honor. Washington
agreed with Jefferson that the French treaties were binding on the
United States even after the change in the form of the French Gov-
ernment, but he thought that the achievement of the purpose for
which the alliance with France had been contracted (the strug-
TRADITIONS 29
gle for the independence of the United States) justified the atti-
tude that it was made for defensive purposes only, and did not
apply to the new French war with Great Britain, which he con-
sidered offensive on account of the accompanying French proc-
lamation of revolutionary ideas applicable to all peoples.
It is significant that the instructions to Monroe at Paris said
nothing about a commercial treaty between Great Britain and the
United States ; these instructions concluded "that, in case of war
with any nation on earth, we shall consider France as our first and
natural ally." When the French Directory learned of the Jay
treaty, they issued a decree on July 2, 1796, to the effect that
French cruisers would apply to neutral vessels the same rules that
their governments permitted the English to enforce. The effort to
reestablish diplomatic intercourse led to the "XYZ" scandal, and
in turn to a formal abrogation by Congress of the French treaty,
the organization of a tiny army, and the naval war with France.
Here was political material of the gravest character. "The vital
question," as Professor Latane says, "was not our duty to the rest
of the world but whether the rest of the world would let us live."
There was also a personal experience such as always gives an edge
to a general principle. Washington had a strong affection for La-
fayette, and Lafayette had become the subject of a possible inter-
national complication. Quitting his army in 1792 when the Jaco-
bins proscribed him, Lafayette was on his way through Belgium
to take ship for America. The Austrians captured him and kept
him prisoner for five years. Curiously enough, Lafayette was an
American citizen,2 and he appealed to Washington to demand his
release. Washington did not wish to "jeopardize the interests of
the United States by intermeddling with European concerns" on
Lafayette's behalf, but asked his release as a favor to Washington
as a private citizen. The request was refused. "Lafayette's case
was in Washington's mind as he formulated the principles of the
Farewell Address. He was writing Hamilton about the boy George
2 How he became an American citizen is described by Bemis in the Yale Re-
view, Vol. 16, p. 316 ; it came about through his being a citizen of Maryland and
Virginia, title and all, "himself and his heirs male forever."
30 AMERICAN FOREIGN RELATIONS
(Lafayette's son) at the same time that he was working over with
the adviser the text of that famous document."3
Here were two personal causes of pain : a charge of "infidelity
to existing engagements," and a rebuff when he tried to help a
friend. It was his duty to warn the youthful nation against such
entanglements in the future.
Jefferson in his first Inaugural in 1801 used the phrase, "Peace,
commerce and honest friendship with all nations, entangling al-
liances with none." When his opinion was consulted by President
Monroe in 1823, he said it was "fundamental for the United States
never to take an active part in the quarrels of Europe," for "their
political interests are entirely distinct from ours; their mutual
jealousies, their balance of power, their complicated alliances,
their forms and principles of government, are all foreign to us."
The Monroe Message to Congress of 1823 containing the Mon-
roe Doctrine struck the same note. John Quincy Adams thought
it so important that the United States should not join with Great
Britain, even in a guarantee of the independence of the Spanish
American colonies, that his view prevailed against that of Jeffer-
son and Madison, who favored a joint declaration by England
and the United States.
Through Secretary Everett in 1852 we declined to join Great
Britain and France in guaranteeing Cuba to Spain, for one rea-
son because of our "aversion to political alliances with European
Powers." As in 1823, our aloofness thus went so far as to refuse
cooperation with European nations even in the pursuit of an ob-
ject which coincided with our own desire. So in 1886 Secretary
Bayard would not join in the presentation of claims in common
with other countries for injuries to the nationals of each of these
countries under similar circumstances, nor would Mr. Root in
1906 act to prevent the persecution of Armenians by the Turkish
Government because, he said,
By the unwritten law of more than a century, we are debarred
from sharing the political aims, interests, or responsibilities of Eu-
rope, just as by the equally potential doctrine, now nearly a cen-
a Yale Review, Vol. 16, p. 334.
TRADITIONS 31
tury old, the European Powers are excluded from sharing or inter-
fering in the political concerns of the sovereign states of the western
hemisphere.
The Clay ton-Bui wer Treaty of 1850, binding both parties not
to "obtain or maintain" any exclusive control of the proposed isth-
mian canal, or unequal advantage in its use, has been criticized by
John W. Foster, one of our most important writers on American
foreign policy, as an unsound international agreement, and a
treaty arranged by Secretary Frelinghuysen in 1884 providing for
the protection and integrity of the territory of Nicaragua by the
United States was withdrawn from the Senate by President Cleve-
land as contrary to "a line of precedents from Washington's day,
which proscribes entangling alliances with foreign states."
But there have been contrary voices which treat Washington's
policy as conditioned by the circumstances of his time. Secretary
Seward wrote to the United States Minister to Costa Rica in 1862,
It may well be said that Washington did not enjoin it upon us as
a perpetual policy. On the contrary, he inculcated it as the policy to
be pursued until the union of the States, which is only another form
of expressing the idea of the integrity of the nation, should be estab-
lished, its resources should be developed and its strength, adequate
to the chances of national life, should be matured and perfected.
Even Jefferson, notwithstanding his general principle, would in his
famous phrase have "married us to the British fleet and nation,"
and Secretary Fish in 1875, notwithstanding Everett's earlier re-
fusal to join Great Britain and France in guaranteeing Cuba to
Spain, proposed a joint intervention of the United States and the
leading European Powers for the restoration of peace between
Spain and the Cuban revolutionists.
The United States, in spite of harsh criticism in the House of
Representatives, wras officially represented at the Berlin Con-
ference of 1884-5, which was called to deal with conditions in the
Congo Basin in Africa, though again Cleveland, when he came
into office in March, 1885, would not allow the consideration of
the resulting treaty by the Senate. In 1885 the United States even
went so far as to request that Great Britain and France join the
32 AMERICAN FOREIGN RELATIONS
United States in urging Italy and Colombia to submit a dispute
to the arbitration of the King of Spain.
A clear departure from the tradition seems to have taken place
when the United States with Great Britain and Germany estab-
lished a joint protectorate over the Samoan Islands. This incurred
the animadversions of Cleveland when he took office for the second
time, and of his Secretary of State, Mr. Gresham. Cleveland in
fact was a logical isolationist and Monroe doctrinaire.
In 1880 we went even further, being represented at the Madrid
Conference, which was called to deal with the difficult situation
that existed in Morocco, and ratifying the subsequent convention.
Participation in this Moroccan affair led to our similar repre-
sentation in Roosevelt's time at the 1906 conference at Algeciras,
when one of the periodical states of tension between France and
Germany had been created. Senator Lodge, on January 24, 1906,
made the official speech in the Senate defending the administration
for its participation in the Algeciras Conference, and in the course
of it recognized that Washington was "altogether too sensible and
too practical a man to suppose that because we were not to engage
in alliances which might involve us in the wars of Europe with
which we had no concern, therefore we were never to engage in
any agreements with any of the nations of Europe, no matter how
beneficial to the world at large or to ourselves."
From the foregoing it would seem that in the main the effort
of our statesmen has been to keep the United States free from en-
gagements of a political character with European countries which
might require us at a later date to take collaborative action. As to
Latin America, we have consistently refused to join with European
states for the purpose of ending war or of preventing its out-
break. It has been thought that the isolation doctrine should forbid
political undertakings with the Latin American nations, and a
committee of Congress in 1825 expressed this opinion, but Presi-
dent Adams said that he had considered the policy of the Farewell
Address in this connection, and thought the United States ought
to take part in the proposed Pan American conference, question-
ing whether if Washington had been alive in 1825 his counsel
TRADITIONS 33
would have been the same in view of the change in "the situation
and the circumstances of the time."
A more serious erosion of the non-intervention doctrine hap-
pened when the competition for Asiatic trade made it impossible
for us to add to our prosperity and at the same time to remain
isolated. It was decided, without any doctrinaire inhibitions, that
the non-intervention doctrine did not prevent us from pressing
our trade in Asia, and, eventually, from acquiring islands in the
Pacific.
Even as early as 1864 the United States had joined Great
Britain, France, and the Netherlands in chastising Japan for
closing the Strait of Shimonoseki and in exacting an indemnity
as reparation for the alleged injury.4 We abandoned isolation com-
pletely as to the Philippines when we became responsible for them
by the proclamation of the Spanish- American peace treaty on
April 11, 1899, and we were not restrained by the doctrine from
joining European Powers for the rescue of Americans in Peking
during the Boxer disturbances and from acting with the same
Powers in the protocol of 1901. We then waived the "tradition"
ad hoc, and Roosevelt did the same in 1905 when he used his good
offices to bring Japan and Russia together at Portsmouth for the
making of peace, thus ending the war before either side should
win a crushing victory which would have had the effect of upsetting
the balance of power in the Pacific. A man of Roosevelt's stamp
was not likely to limit himself to the conventional prerogatives of
the President in dealing with foreign questions and to leave to his
Secretary of State the achievement of innovating policies to whose
success he felt that his own boldness and vigor were indispen-
sable. During this war he determined that no second European
Power should join Russia in an attack on Japan, and informed
Germany and France that in the event of a combination against
Japan, he would go to "whatever length was necessary on her be-
half." These enterprises in Asia we have begun to duplicate in
other parts of the world.
* In 1883 the United States voluntarily returned the money received by way of
indemnity.
34 AMERICAN FOREIGN RELATIONS
It may be said that the "open door" policy is inconsistent with
the basic theory of isolation, the doctrine that the United States
confines her political activities or those activities which may have
political consequences to the American continent. The World
War, furthermore, brought every "entanglement" that could be
imagined. Those who criticize our entry into the war are few ; that
entry only gave official recognition to an entanglement which al-
ready existed by the force of facts from which we could not escape.
The best we could do was to refrain from military alliances or from
the aims of conquest, and our official efforts were devoted to that
end.
In October, 1916, President Wilson announced that we had no
part in "the ambitions and the national purposes of other na-
tions." In May of that year he said that he would free "the people
of the world from those combinations in which they seek their own
separate and private end and unite the people of the world to seek
it on a basis of a common regard of justice." "There is no en-
tangling alliance in a concert of power," he said in his address to
the Senate of January 2, 1917.
Political expediency learns to discard a principle as inapplica-
ble to the circumstances on one occasion and on another occasion
to use it with full traditional effect without incurring the charge
of inconsistency. Senator Lodge thus supported vigorously the
Roosevelt policy of participation at the Algeciras Conference in
1906, saying:
It is the policy of the United States to be at peace; but, more
than that, the policy and interest of the United States alike demand
the peace of the world, and it is not to be supposed for a moment
that we are never to exert our great moral influence or to use our
good offices for the maintenance of the world's peace. . . . Mr.
President, the phrase "entangling alliances" does not mean that we
should not unite with other nations on common questions, on the
settlement of rights of commerce, as to the rights of our citizens in
other countries, or in the promotion of those great and beneficent
objects which are embodied in international conventions.
TRADITIONS 35
So also in May, 1916, to Mr. Taft, Mr. Lowell, and other im-
portant Republicans in the League to Enforce Peace, Lodge said :
I do not believe that when Washington warned us against en-
tangling alliances, he meant for one moment that we should not join
with the other civilized nations of the world if a method could be
found to diminish war and encourage peace.
But when in January, 1917, the Senator was called upon to
declare himself on Wilson's peace policy, the phrases of Washing-
ton, Jefferson, and Monroe were furbished up again as statements
"as clear as the unclouded sun at noonday" and "not reflections of
double meaning words under which men can hide and say they
mean anything or nothing" ; and Lodge's later keynote speech in
the Senate against the Covenant of the League was based on the
importance of preserving the ancient doctrines intact.
As if to illustrate Wilson's argument that a general agreement
for peaceful purposes is a disentangling alliance and not an en-
tangling one, the United States was officially and energetically
represented at The Hague Peace Conferences of 1899 and 1907,
and the Senate in 1922 found little difficulty in ratifying the Four
Power treaty which emerged from the Washington Conference
and which contained an engagement on the part of the four Powers
to "discuss fully and frankly the most efficient measures to be
taken" in the event of "aggressive action" in the Pacific. But
enough vitality remained in the old principle to induce President
Harding to assure the Senate that "nothing in any of these treaties
commits the United States or any other Power to any kind of
alliance, entanglement or involvement," an assurance which was
followed by senatorial reservations attached to the treaty disavow-
ing any intention on the part of the United States to depart from
the old doctrine of avoiding entangling alliances and participation
in the affairs of other nations.
There is, of course, a field of international activity entry into
which has never alarmed us. The United States was represented in
1863 in Paris at the International Postal Conference and at its
successors, at the Paris Conference of 1878 for the regulation
36 AMERICAN FOREIGN RELATIONS
of weights and measures, at the Paris Conference of 1884 on sub-
marine cables, and at successive conferences for the same end, at
the Brussels Conference in 1886 on the exchange of public docu-
ments, at one at Washington in 1888 and one at Brussels in 1905
for the purpose of preventing collisions at sea, at the conference
of 1890 on the sale of liquor in Africa, at a group of conferences
relating to international fisheries, patents, trademarks, copy-
rights, and sanitary conventions, at London in 1908-9 at the Con-
ference for the Formulation of the Rules of Sea Law in time of
War, at the Geneva Red Cross Conference in 1906, the Radio
Telegraph Conferences of 1906 and 1912, the Spitzbergen Con-
ference of 1914, and so on. Often we accompanied this interna-
tional activity with conventional reservations, but other nations
doubtless considered that we introduced them for our own comfort
rather than for any bearing they may have had upon the engage-
ments undertaken.
The fear of our young republic at being involved in situations
serving ends other than our own individual interests has been slow
to abate ; the attitude is supposed to remain in full force in regard
to the politics or territorial questions of Europe, which, like a
gift of gloves, or a rose from a Borgia, are poisonous to American
touch or smell. But our reverence of a tradition has had no claims
upon the economic explorers, their engineers and financial
backers, who are carrying American capital into the unexploited
regions of the earth — the Americas, the Pacific islands, Asia,
and African Liberia. They reck little of the doctrine of isolation
3r the "Doctrine of the Two Spheres" ; they involve us in a com-
petition with the economic expansionists of other countries ; they
clamor for protection and assistance when concessions are in
langer or a rival receives the backing of his home government;
md in their eyes the responsibility of a government to protect its
lationals and their foreign investments abroad takes precedence
wer the non-intervention theory and over its corollary, the Mon-
^oe Doctrine. When an established political theory quits the field,
it is usually because some new non-political force has created a
$et of facts in which the old theory cannot survive.
TRADITIONS 37
NOTE
TEXT OF RESERVATION MADE BY AMERICAN DELEGATES IN SIGNING
THE ALGECIRAS TREATY
Instructions from the Department of State
The Government of the United States, having no political interest
in Morocco, and no desire or purpose having animated it to take part
in this conference other than to secure for all peoples the widest
equality of trade and privilege with Morocco and to facilitate the
institution of reforms in that country tending to insure complete
cordiality of intercourse without and stability of administration
within for the common good, declares that, in acquiescing in the
regulations and declarations of the conference, in becoming a signa-
tory to the general act of Algeciras, and to the additional protocol,
subject to ratification according to constitutional procedure, and in
accepting the application of those regulations and declarations to
American citizens and interests in Morocco, it does so without assum-
ing obligation or responsibility for the enforcement thereof. (U. S.
Department of State Publications, Papers Relating to the Foreign
Relations of the United States, Vol. for 1906, Part 2, page 1627.)
THE MONROE DOCTRINE
BOTH the difficulty and the advantage, according to circum-
stances, of using the Monroe Doctrine as a basis of national
policy lie in its diffuse character. In extent and intent, as Professor
Hart says,5 "the Monroe Doctrine was not a term but a treatise ;
not a statement but a literature ; not an event but an historic de-
velopment." "In spite of the criticism of their publicists," writes
an English author about Olney's attitude in 1895,6 "East and
West joined in a paroxysm of enthusiasm for a doctrine of which
a hundred conflicting explanations were on their lips."
The previous chapter has shown that the principle of absten-
tion from politics in Europe would avail the young republic little
if Europe could bring its politics into the western hemisphere.
The danger of this saturated the political atmosphere, and all that
was needed to produce its precipitation into dogma in the youth-
's Hart, The Monroe Doctrine: An Interpretation, p. 141.
« Reddaway, The Monroe Doctrine, p. 146.
38 AMERICAN FOREIGN RELATIONS
f ul nation was some European event foreshadowing an increase of
European influence in the neighborhood of the United States. The
country whose remoteness from others Jefferson wished to liken to
that of China would no longer be remote if European complexities
could penetrate its solitude ; there must be, as he wrote to Short
in 1820,7
the advantages of a cordial fraternization among all the American
nations, and the importance of their coalescing in an American sys-
tem of politics, totally independent of and unconnected with that of
Europe. The day is not distant when we may formally require a
meridian of partition through the ocean which separates the two
hemispheres, on the hither side of which no European gun shall ever
be heard, nor an American on the other ; and when, during the rage
of the eternal wars of Europe, the lion and the lamb, within our re-
gions, shall be drawn together in peace. . . . The principles of so-
ciety there and here, then, are radically different, and I hope no
American patriot will ever lose sight of the essential policy of inter-
dicting in the seas and territories of both Americas the ferocious and
sanguinary contests of Europe.
Statesmen had been saying this sort of thing much earlier.
Hamilton wrote in the Federalist, "By a steady adherence to the
Union, we may hope, ere long, to become the arbiter of Europe in
America, and to be able to incline the balance of European com-
petition in this part of the world as our interest may dictate."
Jefferson said in 1808, "We shall be satisfied to see Cuba and
Mexico remain in their present dependence; but very unwilling
to see them in that of either France or England, politically or
commercially. We consider their interests and ours the same, and
the object of both must be to exclude European influence from
this hemisphere." As to West Florida, Madison in 1811 said in
a message to Congress, "the United States could not see, without
serious inquietude, any part of a neighboring territory, in which
they have, in different respects, so deep and so just a concern, pass
from the hands of Spain into those of any other foreign Power."
These quotations show the natural wish of the United States to
keep European quarrels from her hemisphere; but the way in
7 Thomas, One Hundred Years of the Monroe Doctrine, p. 61.
TRADITIONS 39
which it should be elaborated into a systematic policy was not
worked out in those early days, and a number of positions were
taken up by the United States either inconsistent with the Monroe
Doctrine as it came to be formulated or with each other. We made
no objection, for example, to the transfer of Haiti by Spain to
France in 1795 ; but we felt concerned about the proposed transfer
of Louisiana in 1801, which involved the control of Mississippi
navigation by a Power stronger than Spain, and, for the same rea-
son, we should probably have objected to British conquest of Loui-
siana in an Anglo-French war or to Anglo-French acquisition of
Cuba and Mexico. We made no protest when England took over the
French West Indies from Napoleon, but we fomented revolt in
Spanish territory contiguous to our own.
Another principle which led up to the formulation of the Mon-
roe Doctrine was one which John Quincy Adams had insisted upon
for a number of years before 1823, the principle of reserving to
the United States for purposes of expansion the whole of the North
American continent not already in British and Spanish occupancy.
The world, he declared in a cabinet meeting of November, 1819,
must be
familiarized with the idea of considering our proper dominion to be
the continent of North America. From the time when we became an
independent people it was as much a law of nature that this should
become our pretension as that the Mississippi should flow to the sea.
Spain had possessions upon our southern and Great Britain upon our
northern border. It was impossible that centuries should elapse with-
out finding them annexed to the United States.8
This was a little too strong for direct statement to an English-
man, so Adams modified it in discussion with Stratford Canning
in 1821. "And in this," said he (Canning), "you include our
northern provinces on this continent?" "No," said I; "there the
boundary is marked, and we have no disposition to encroach upon
it. Keep what is yours, but leave the rest of this continent to us.9"
This ambition was pointed by a dispute with Russia over the
Pacific coast, involving Great Britain also, in which the Russian
s Perkins, The Monroe Doctrine 18$8-18%6, p. 9.
» Ibid., p. 10.
40 AMERICAN FOREIGN RELATIONS
Government by a ukase of 1821 claimed jurisdiction as far south as
the 51st parallel, jurisdiction carrying with it the right to colonize.
It was the existence of this right which Adams wished strenuously
to deny ; he wished to make the North American continent "a spe-
cial preserve of the United States, from which the rest of the world
ought to be excluded," at least as far as concerned exploration and
new settlement.
The dispute with Russia, which was carried on both at Wash-
ington and St. Petersburg, synchronized with the set of events
which afforded the opening for the pronouncement of the Monroe
Doctrine.
As early as 1818 Monroe had asked John Quincy Adams to ap-
proach Great Britain on the subject of joint recognition of the
Spanish colonies, and the next year a proposal was made to the
British Government for the recognition of Buenos Aires: "If it
should suit the views of Great Britain to adopt similar measures
at the same time and in concert with us, it will be highly satisfac-
tory to the President." Great Britain was then friendly to Ferdi-
nand VII of Spain, But in 1823 French determination to restore
him to the throne from which a revolutionary movement had
driven him caused British apprehension that France might lend
her assistance to Spain in subjugating the revolted colonies or
that France herself might take some of them over as pay for her
service. According to Chateaubriand, the Spanish American settle-
ments had by 1823 become, in respect of trade, a species of English
colonies. The increase of reactionary activity in Europe on the
part of the Holy Alliance increased the hostility toward it of
Great Britain, and gave to the United States the assurance of
British support in preventing French aggrandizement in the
western hemisphere. Hence Canning conceived the idea of a joint
declaration to prevent France from resuming her rivalry, and to
keep the carrying trade.
Monroe himself, Jefferson and Madison whom he consulted, and
most of the members of his own cabinet favored a joint declaration
with England. John Quincy Adams, the Secretary of State, op-
posed joint action, not because that would have meant an hor-
rendous entangling alliance, but mainly for a reason of specific
TRADITIONS 41
policy. England had disclaimed any intention of taking over any
of the Spanish colonies and had attempted to obtain such a dis-
claimer from France. Adams feared she was going to ask such a
disclaimer from the United States as one of the conditions of joint
action. Later, Canning got his disclaimer from France — she de-
sired neither annexation nor exclusive advantage of trade and
even said she would not use force against the colonies. But before
this happened, the American Government had committed itself to
an independent declaration. We were, indeed, willing to collabo-
rate with Great Britain to gain our end as to the Russian- Alaskan
southern boundary, but while these negotiations were in progress
the Monroe Doctrine was proclaimed in a presidential message
dated December 2, 1823. Canning immediately drew off because
he was unwilling to accept the principle that the Americas were
no longer open to European colonization.
There were thus two motives for the declarations in the Message
of December 2, 1823, relating to European activities in the Ameri-
can hemisphere : the assurance of room for expansion, mainly on
the North American continent ; and the fear for American safety if
the European Powers, by colonization or by wars or by intrigue
should increase their influence in the Americas and bring over their
reactionary political and colonial systems. There was, certainly in
Adams's mind, a third motive, that of the commercial interest;
either European colonization or conquest would, if it created no
other harm to the United States, exclude American trade from
that part of the Americas colonized or reduced to subjection ; Web-
ster made an argument on these lines in the House in 1826.
As the two great principles, non-colonization and non-extension
of the European "political system" to this continent (as Clay
stated them in 1825) were crystallized by two distinct and separate
sets of events, the one by the controversy with Russia, and the
other by the activities of the reactionary Powers in the Holy Al-
liance, the two ideas are expressed in widely separated parts of
the Message ; but the two principles are harmonious and on ac-
count of their generality have often been used interchangeably or
in combination to support a policy of the United States.
42 AMERICAN FOREIGN RELATIONS
The parts of the Message expressing "the Monroe Doctrine"
may be summarized as follows :10
(1) Colonization by the European Powers on the American
hemisphere must cease.
(2) The United States will not interfere with the existing colo-
nies of those Powers.
(3) Any attempt of the allied European Powers to extend their
political system to the American hemisphere is dangerous to the
peace and safety of the United States.
(4) In respect of the struggle between Spain and her revolted
colonies, "it is still the policy of the United States to leave the
Spanish colonies to themselves, in the hope that other Powers will
pursue the same course."
There was also in the Message a reaffirmation of the policy of
isolation ; the United States would remain aloof from matters es-
sentially European.
The Message was received in continental Europe with disfavor
or dismay. Metternich said that "great calamities would be
brought upon Europe by the establishment of these vast republics
in the New World, in addition to the power of the United States,
of whose views no man could entertain a doubt after reading the
speech in question." In England it was received with favor by the
Whigs and with dubiety by the Tories, especially the non-coloni-
zation point. In Latin America it was received with satisfaction,
but without excitement ; there was more gratitude to Great Britain
for her refusal to join the Holy Alliance, probably because the
United States announced the doctrine as a means of protecting
her "peace and happiness" and "peace and safety," and not be-
cause of an altruistic interest in the Latin American republics.
The United States has never wavered in her support of the two
major principles of the doctrine. The only serious effort to bring
the European political system into this hemisphere was the French
invasion of Mexico and the setting up of Maximilian's empire in
1863. Congress promptly resolved that:
10 The parts of President Monroe's message to Congress of December 2, 1823,
which comprise the Monroe Doctrine are contained in a note on page 58.
TRADITIONS 43
The Congress of the United States are unwilling by silence to have
the nations of the world under the impression that they are indifferent
spectators of the deplorable events now transpiring in the Republic
of Mexico and that they think fit to declare that it does not accord
with the policy of the United States to acknowledge any monarchical
government erected on the ruins of any republican government in
America under the auspices of any European Power.
The Civil War over, Seward stated to the French that the pres-
ence of the French army in Mexico was a cause "of serious concern
to the people of the United States." When Maximilian obtained
permission to raise recruits in Austria, Seward notified the Ameri-
can Minister at Vienna that the continuance of this would be ac-
counted an act of war against the republic of Mexico, and that the
United States could not undertake to remain neutral. Austrian
troops were kept at home; the French forces embarked, leaving
Maximilian to his fate.
Seward saw the French ousted from Mexico without mentioning
the Monroe Doctrine. The doctrine, whose invocation had fre-
quently caused irritation in Europe, was, as John Bigelow warned
Seward, not an ingratiating argument to use at a time of ticklish
foreign relations. Seward in this instance relied on the principle of
national independence, and the right of any nation to intervene in
behalf of any other which might be oppressed ; but the effect of his
action was to make national what had hitherto been primarily
"democratic" doctrine.
The principle of non-colonization has a more extensive history.
Colonization by the extension of boundaries was in question in
1881 when Secretary Evarts objected to the acquisition of terri-
torial rights by Great Britain at the expense of Venezuela. A re-
conquest by the original sovereign came under the ban, once the
Spanish colonies had stabilized their independence, for we pro-
tested against Spain's attempt or reported intention to attempt a
reconquest of Mexico (1858), Santo Domingo (1861), Peru
(1864), and part of Chile. In each case the attempt was aban-
doned, or we were informed there was no such intention; in the
case of Santo Domingo, the Spanish gave it up in April, 1865,
immediately after Appomattox.
44 AMERICAN FOREIGN RELATIONS
Were voluntary transfers by the mother country disapproved?
The answer seems to have depended upon the particular circum-
stances. The government was frequently on edge about Cuba. As
early as 1817 a rumor was in circulation that Spain was about to
transfer Cuba to England in payment of the expenses of the
Peninsular campaign. Objections to the cession of the island,
whether to Great Britain or to France, were expressed by Albert
Gallatin, Everett, Van Buren, Forsythe, Webster, Upshur, Polk,
Clayton, Marcy, and Fish. Seward even objected to a pledge of
Cuban revenues by Spain to French capitalists, because that would
interfere with the "constant gravitation" (Jefferson's phrase)
which would ultimately bring Cuba to us. Besides the fear that a
maritime Power would use the island as a naval base, the main
reason for the objection, sometimes expressed and always existing,
was the fear that the slaves in Cuba would be emancipated by
Great Britain. Yet we made no objection to the retransfer of
Guadaloupe by Sweden to France, nor to other similar transfers
in the West Indies.
As to a cession by an American country itself, there is no say-
ing whether Monroe thought of this or not; it is within the rea-
soning of the Message and bases of the doctrine. Polk in 1848 ob-
jected to the whites in Yucatan offering themselves to Great
Britain or to Spain in consequence of their quarrel with the In-
dians. Clayton similarly objected to Costa Rica's request for Brit-
ish protection in a controversy with Nicaragua over territory south
of the San Juan river ; so did Marcy in 1852 to Great Britain's
acquisition of the Bay Islands from Honduras, and Frelinghuysen
in 1884 and Bayard in 1888 to the Haitian offer of Mole St.
Nicholas or Tortuga Island to France. Senator Lodge in 1912
thought it wise to warn Japan and any other government away
from the American continent by a resolution which the Senate
adopted :
Resolved : That when any harbor or other place in the American
continents is so situated that the occupation thereof for naval or
military purposes might threaten the communications or the safety of
the United States, the government of the United States could not see
without grave concern the possession of such harbor or other place
TRADITIONS 45
by any corporation or association which has such relation to another
government, not American, as to give that government practical
power of control for national purposes.
The protection from other vigorous Powers of a weak unde-
veloped people is sometimes only one step from absorption by the
protector. We brought the Hawaiian (Sandwich) Islands into our
sphere of influence by trading with them ; actual annexation, enter-
tained by Marcy in 1853-4 to prevent their falling under Euro-
pean domination, was put off until 1898, and then came as a conse-
quence of the Spanish War and a Republican tariff.
Most of the situations which have involved the reassertion and
application of the Monroe Doctrine have been episodic. The prob-
lem of an isthmian canal, on the contrary, has kept the doctrine
steadily before the public mind ; it was, of course, a problem which
the original utterance of the Monroe Doctrine was not intended to
cover. The contention over a canal route began in Folk's time ; we
could not, said Rives to Palmerston, "consent to see so important
a communication fall under exclusive control of any other great
commercial Power." The desire of the United States to force Great
Britain out of Central America and the desire to prevent her from
monopolizing a canal went together; they were opposed by the
British for reasons of prestige and of unwillingness to allow the
United States to secure a canal monopoly.
The result of the countervailing pressures was the Clayton-
Bulwer treaty of 1850. This was an agreement of equality:
neither the United States nor Great Britain would ever obtain or
maintain any exclusive control over the canal, nor fortify it, nor
erect any fortifications near it, nor colonize or assume or exercise any
dominion over Nicaragua, Costa Rica, the Mosquito coast, or any
part of Central America ; and neither would take advantage of any
intimacy, alliance or connection with the state through which the
canal should pass to acquire for its citizens any advantage in com-
merce or navigation which should not be offered in the same terms
to citizens of the other.
As the United States grew with the century the Monroe Doc-
trine proved inadequate as the sole prop of Latin American policy.
46 AMERICAN FOREIGN RELATIONS
There appeared by its side a more specialized and localized doc-
trine which may be identified as the doctrine of "Paramount
Interest."11 The narrow equality of the Clayton-Bulwer treaty
became in fact as intolerable as its enemies in the Senate in 1852
feared that it would be. After frequent representations to Great
Britain, and after congressional proposals to acquire routes and
to ignore the treaty of 1850, Hay and Pauncefote in 1900 drew up
a new treaty. This the Senate refused to approve because it opened
the canal in time of war to war and commercial vessels on terms of
equality, because it forbade fortifications, and because it contained
a clause inviting the adherence of other nations. It destroyed the
doctrine of Paramount Interest by creating for European nations
in this hemisphere political rights which had not previously
existed.
Great Britain yielded, and the Hay-Pauncef ote treaty of 1902
was signed and ratified. The only right of consequence secured to
Great Britain is that contained in the first of the rules prescribed
for adoption by the United States as the basis for the neutraliza-
tion of the canal :
The canal shall be free and open to the vessels of commerce and of
war of all nations observing these Rules, on terms of entire equality,
so that there shall be no discrimination against any such nation, or
its citizens or subjects, in respect of the conditions or charges of
traffic, or otherwise. Such conditions and charges of traffic shall be
just and equitable.
For the rest, the treaty leaves it to the United States to guar-
antee the neutrality of the canal, and to fortify it if she likes, and
there is no prohibition against the United States closing the canal
to her enemy in time of war.
Then there is the matter of the forcible collection of claims by
non- American countries against a defaulting American country.
What relation has this question to the Monroe Doctrine ? Revolu-
tions, especially as frequent and long-continued as those of the
11 The phrase was Evarts's — "the paramount interest of the United States in
these projects of interoceanic communication across the American isthmus has
seemed quite as indispensable to the European Powers as to the States of this
continent."
TRADITIONS 47
Latin American countries, are ruinous to a country's finances, and
the effort at economic recuperation by borrowing, complicated by
the financial misdemeanors of many of the evanescent govern-
ments, has given rise to many claims of the nationals of the United
States and of European countries against the Latin American re-
publics. Jackson wished to demand payment of Mexico from the
deck of a warship ; France imposed a heavy debt on Haiti as the
price of Haitian independence ; Great Britain in 1858 forced pay-
ment out of Salvador by a port blockade.
It was in line with these precedents that Cass in 1859 made no
objection to a proposed British expedition against Vera Cruz, nor
did he later "call in question the right of France to compel the
government of Mexico by force if necessary to do it justice."
Seward in 1866 said that the United States had "no ambition to
become a regulator," and Sherman in 1897 was explicit in his
refusal to help Haiti against Germany when the latter sent war-
ships to collect an indemnity for an injury to a German citizen.
Roosevelt in 1901 said that under the Monroe Doctrine we do not
"guarantee any state against punishment if it misconducts itself,
provided the punishment does not take the form of the acquisition
of territory by any non- American Power."12 These precedents and
others seem to warrant John Bassett Moore in saying that the
Monroe Doctrine does not prevent forcible proceedings by Euro-
pean countries against Latin American states for the collection
of claims.13
Yet it can be foreseen that this rule might open the western
hemisphere to expeditions for debt collection or punishment, that
blockade or occupation for the sake of pressure might continue in-
definitely, that the influence of European countries in the Ameri-
can continent might become permanent if they were allowed to send
naval expeditions against American republics. The dilemma is a
difficult one. Sherman thought we should assume no responsibility
for the acts of the protected state, having no ability to shape or
control those acts. Roosevelt, enunciating his hands-off policy, de-
12 Moore, John Bassett, American Diplomacy; Its Spirit and Achievements, p.
167.
is Ibid., p. 159.
48 AMERICAN FOREIGN RELATIONS
clared that he had compelled Germany by a threat of force to arbi-
trate her claims against Venezuela.14
There may be insistence upon arbitration, apart from the Mon-
roe Doctrine, but Roosevelt in explicit language accepted for the
United States the role of policeman in the western hemisphere. As
to Cuba, the Platt amendment, by giving us power of intervention
and protection, throws upon the United States the responsibility
correlative of such power. The principles of the Platt amendment
constitute a new declaration of Caribbean policy, to be clearly
distinguished from the Monroe Doctrine; they are, in fact, an
official definition of the doctrine of Paramount Interest in the
Caribbean. Our entry into Santo Domingo and into Haiti, in both
of which we still maintain an American "receivership," constitutes
an adoption of this doctrine of responsibility in an extreme form.
As to the submission to European arbitrators of questions pend-
ing between American countries we have no settled policy. With re-
gard to arbitration by the King of Spain between Costa Rica and
Colombia, Frelinghuysen expressed a general dislike :
This Government cannot but feel that the decision of American
questions pertains to America itself, and it would hesitate, even when
consulted [«ic] by the most friendly motives (such as naturally join
it to that of Spain) to set on record an approval of a resort to Euro-
pean administration.
And it is obvious that the Harding administration found it a
pleasure to undertake the settlement of the Tacna-Arica dispute,
which both Peru and Bolivia had sought to bring to the attention
of the League of Nations. Yet the United States assented to
European mediation in 1885 between Colombia and Italy, and
made no objection in 1898 to arbitration by Queen Victoria of a
boundary dispute between Argentina and Chile, the award being
actually made by Edward VII as successor arbitrator. Indeed,
some favor has been shown by the United States toward several
such arbitrations by European jurists under The Hague Perma-
nent Court of Arbitration ; and the attempt of European countries
to enforce claims against Venezuela by a pacific blockade was aban-
i* Though satisfactory support for Roosevelt's declaration is wanting, it may
be cited as indicating Roosevelt's view of sound policy.
TRADITIONS 49
doned in 1902 in exchange for a submission of all of the claims,
those of the United States included, to European arbitrators se-
lected by the Tsar of Russia.
The assertion of the Monroe Doctrine which is the liveliest in
the minds of most persons happened in a controversy with Great
Britain, in which the American protagonists were Cleveland and
Olney, in consequence of Great Britain's unwillingness to arbi-
trate a boundary dispute with Venezuela which had intermittently
caused friction since 1844. It is fairly clear that Americans in
Monroe's time had never been alarmed over a boundary dispute in
which one of the European colonies was involved, provided of
course the position of the European state was taken in good faith
and was not a cover for forcible expansion. The action of Cleve-
land and Olney is mainly regarded by historians as making new
policy, although so philosophical an historian as Professor Latane
supports the position taken by Cleveland and Olney. Among con-
temporary historians, James Ford Rhodes thought that Olney's
contention had "the fatal defect of applying" the Monroe Doctrine
to a mere boundary dispute between a European and an American
Power. John Bassett Moore feared this use of the Monroe Doc-
trine would lead to "our participation in numberless quarrels" ; a
doctrine intended to keep the peace in this hemisphere might be-
come a cause of frequent war and thus the whirligig of time would
bring in his revenges. But popular opinion then and since has sup-
ported Cleveland's stand on the basis of nationalistic self-assertive-
ness and without analysis or historical examination.
What the statesmen said was another matter. Cleveland him-
self called Olney's note of July 20, 1895, "Olney's twenty-inch
gun," and Olney's phrase, "Today the United States is practically
sovereign on this continent, and its fiat is law upon the subjects
to which it confines its interposition," continues to sound both
ominous and bombastic in Latin American ears. The arguments
he addressed to the British of the superiority of our social and po-
litical system may have sounded well to American chauvinists, but
they seemed offensive and naive to the British.
Any permanent political union between a European and American
state [is] unnatural and inexpedient. . . . Thus far we have been
50 AMERICAN FOREIGN RELATIONS
spared the burdens and evils of immense standing armies and all the
other accessories of huge warlike establishments ; and the exemption
has highly contributed to our national greatness and wealth as well
as to the happiness of every citizen. But with the Powers of Europe
permanently encamped on American soil, the ideal conditions we
have thus far enjoyed cannot be expected to continue.
This was an innovation in diplomacy — the treatment of a theory
of destiny as a factor in international relations. It was an expan-
sion of a thought of John Quincy Adams, who, as has been said, as
early as 1819 had maintained that the world was to be familiarized
with the idea of considering our dominion to be the continent of
North America. He held that the inevitability of the union would
soon be so obvious to the world as to invite instant charges of
hypocrisy if we tried to be Jesuitical in its achievement.
Two efforts to expand the Monroe Doctrine seem extravagant
today, even to American chauvinists. They illustrate the danger
inherent in a popular sentimental attachment to a vague dogma,
an attachment that may at any time develop into a national hys-
teria. Calhoun in 1844 protested to the British Government
against their advising the Texas Republic to emancipate her
slaves. His language was :
So long as Great Britain confined her policy to the abolition of
slavery in her own possessions and colonies, no other country has a
right to complain. . . . But when she goes beyond, and avows it as
her settled policy, and the object of her constant exertions, to abolish
it throughout the world, she makes it the duty of all other countries,
whose safety or prosperity may be endangered by her policy, to
adopt such measures as they may deem necessary for their protec-
tion.15
The House of Representatives in 1867 protested against the
British North American Act which united Canada, Nova Scotia,
and New Brunswick into a single dominion. The House declared
that a measure for a neighbor's better government would consti-
tute an increase of monarchical power on our frontiers and there-
is Hart, op. cit., p. 109.
TRADITIONS 51
fore would be in contravention of the traditional principles of the
United States.
Attempts have frequently been made to base upon the Monroe
Doctrine other policies so little related to it as to receive from Pro-
fessor Hart the title of "Monrovoid Doctrines." These began with
Polk. Whatever one may think of them, certainly Monroe, at
whose door they were laid, would never have accepted their pa-
ternity. In 1846 Polk forcibly annexed New Mexico and Cali-
fornia, and in 1848 he proposed to annex Yucatan because the
whites there were in continual quarrel with the Indians. In 1845
on the Oregon boundary question he objected to any cession of
territory, however made, to any European state; an acquisition
of "dominion" was as obnoxious to him as the colonization de-
nounced by Monroe. Polk proposed to Spain in 1848 to buy Cuba
for $100,000,000, mainly to extinguish the possibility of the aboli-
tion of slavery there, a possibility which like the earlier possibility
of emancipation in Texas occasioned great concern to the slave-
holding classes in the United States. This asserted right to intrude
upon a neighbor's territory was based upon what was called the
"neighbor's burning house" argument.
Roosevelt's important views on the doctrine, which were the
basis of his policy, may be roughly summarized as follows :
1. The Monroe Doctrine is a cardinal interest of the United
States; it is needed for the protection of the approaches to the
Panama Canal and of our interests in the Caribbean Sea. [This il-
lustrates the frequent confusion between the Canal or the Caribbean
policy and the strict Monroe Doctrine.]
2. We ought not to interpose in the American nations unless their
"inability or unwillingness to do justice at home or abroad had vio-
lated the rights of the United States or had invited foreign aggres-
sion to the detriment of the entire body of American nations."
3. "Chronic wrongdoing, or an impotence which results in a gen-
eral loosening of the ties of civilized society, may in America, as
elsewhere, ultimately require intervention by some civilized nation,
and in the western hemisphere the adherence of the United States to
the Monroe Doctrine may force the United States, however reluc-
tantly, in flagrant cases of such wrongdoing or impotence, to the
exercise of an international police power."
52 AMERICAN FOREIGN RELATIONS
4. "We do not guarantee any state against punishment if it mis-
conducts itself, provided that punishment does not take the form of
the acquisition of territory by any non-American Power."
5. "On the one hand, this country would certainly decline to go to
war to prevent a foreign government from collecting a just debt; on
the other hand, it is very inadvisable to permit any foreign Power to
take possession, even temporarily, of the custom-houses of an Ameri-
can Republic in order to enforce the payment of its obligations, for
such temporary occupation might turn into a permanent occupation.
The only escape from these alternatives may at any time be that we
must ourselves undertake to bring about some arrangement by which
so much as possible of a just obligation shall be paid."16
Statesmen and publicists in the Latin American states are con-
stantly discussing the various meanings of the Monroe Doctrine
and the relation to their own fortunes of United States action
under it. Argentina, Brazil, and Chile would, of course, like the
doctrine to have an authoritative interpretation in line with that
of John Quincy Adams of 1825, which was in substance that each
American republic would "maintain the principle in application
to its own territory, and permit no lodgements of foreign power on
its own soil." When Colombian independence was threatened by
France, Adams would not agree to go to her aid if force was to be
exerted from Europe. Congress was equally prudent and would
take no step in behalf of any states in conflict with Spain.
It was the view of Diaz that the Monroe Doctrine should be
made an "American" doctrine. It was in conformity with a general
Latin American demand that Calvo and Drago formulated their
own doctrines to the effect that "the public debt can not occasion
armed intervention, nor even the actual occupation of the terri-
tory of American nations by a European Power"; and that no
Power shall have the right to require an indemnity on account of
injury to its nationals from another Power unless it can show that
the injury was occasioned by the public authorities or in conse-
quence of their delinquency.
Dr. Baltasar Brum, President of Uruguay, presented the Brum
doctrine as a formulation of this Latin American attitude :
ie Hart, op. cit.f p. 225 et seq.
TRADITIONS 53
It is based on equality of responsibility of all American republics
for enforcing the Monroe Doctrine. Under it each American republic
would agree to defend any of its members against foreign aggression
and insure the territorial integrity of each American republic. It
could best be carried out by the formation of a Pan American League,
to which every American republic would subscribe and which would
place all of them on an equal and reciprocal basis in the matter of the
enforcement of the above principles of protection.17
President Wilson put forward a view of Pan American relations
as if it were an interpretation of the Monroe Doctrine ; it is in fact
not an expression of the Monroe Doctrine, but a sort of Locarno
arrangement for the American hemisphere. In his own language
it was as follows :
If America is to come into her own, into her legitimate own, in a
world of peace and order, she must establish the foundations of
amity, so that no one will hereafter doubt them.
I hope and believe that this can be accomplished. These confer-
ences have enabled me to foresee how it will be accomplished. It will
be accomplished, in the first place, by the states of America uniting
in guaranteeing to each other absolute political independence and
territorial integrity. In the second place, and as a necessary corollary
to that, guaranteeing the agreement to settle all pending boundary
disputes as soon as possible, and by amicable process; by agreeing
that all disputes among themselves, should they unhappily arise, will
be handled by patient, impartial investigation and settled by arbitra-
tion ; and the agreement necessary to the peace of the Americas, that
no state of either continent will permit revolutionary expeditions
against another state to be fitted out on its territory, and that they
will prohibit the exportations of munitions of war for the purpose
of supplying revolutionists against neighboring governments.18
In two other speeches he said :
Let us all have a common guarantee that all of us will sign a dec-
laration of political independence and territorial integrity. Let us
agree that if any of us, the United States included, violates the po-
17 New York Times, Jan. 30, 1921.
is Address before the Second Pan- American Scientific Congress, December, 1915,
Inman, Problems in Pan Americanism, pp. 186-7.
54 AMERICAN FOREIGN RELATIONS
litical independence or territorial integrity of any of the others, all
the others will jump on her.
Now, that is the kind of government that will have to be the founda-
tion of the future life of the nations of the world. The whole family
of nations will have to guarantee to each nation that no nation shall
violate its political independence or territorial integrity. That is the
basis — the only conceivable basis — for the future peace of the world,
and I must admit that I was anxious to have the states of the two
continents of America show the way to the rest of the world as to
how to make it a basis for peace.19
The description of the Monroe Doctrine which Wilson incor-
porated in the Covenant of the League of Nations — "a regional
understanding" — corresponds to these views. To say the least, it
does not seem to be historically sound, and it was at best vague.
Whether from the historical point of view or from that of the
hegemony of the United States, it met with prompt and vigor-
ous criticism from various sections of opinion in the United States.
In order that it might be better understood by the other states
which were asked to bind themselves to its acceptance, ex-President
Bonilla of Honduras, who represented his country at the con-
ference at Versailles, offered a clause of definition of the Monroe
Doctrine as follows :
This doctrine, that the United States of America have maintained
since the year 1823, when it was proclaimed by President Monroe,
signifies that: All the republics of America have a right to inde-
pendent existence ; that no nation may acquire by conquest any part
of the territory of any of these nations, nor interfere with its internal
government or administration, nor do any other act to impair its
autonomy or to wound its national dignity. It is not to hinder the
"Latin" American countries from confederating or in other forms
uniting themselves, seeking the best way to realize their destiny.20
What, then, is the Monroe Doctrine ? The reader will find diffi-
culty in giving a non-tendencious answer. There is a clear conflict
between the historically-minded and those who, indifferent to his-
torical origins, look for a phrase that will give viability to a set
™ New York Times, April 12, 1919.
20 Inman, op. cit.} p. 183,
TRADITIONS 55
of national policies of diverse nature. Monroe's cabinet, for ex-
ample, had expressly declined to help Cuba against Spain ; yet in
1898 many Americans believed that it was specifically the Monroe
Doctrine, and not the general interest against oppression or a spe-
cial interest in the Caribbean, which justified the United States in
fighting Spain to give Cuba independence. The Monroe Doctrine
does not, as was said by persons who objected to our participation
in the Berlin conference of 1884 on African questions, inhibit us
from activity in European affairs; the conventional objection
rests on the tradition of isolation. Aggression or annexation by
the United States, the very things that Monroe deprecated in his
Message, have been based upon the doctrine — such is the tendency
of the human mind to rest a desire on an article of faith.
Is there any harm in using a term in statecraft so loosely? It is
often argued that the term may properly be used to cover those
policies of the United States in the western hemisphere which have
no relation to the principles on which Monroe and all but one of his
cabinet agreed in 1823 on the ground of Humpty Dumpty's
principle that "when I use a word, it means just what I choose it
to mean, neither more nor less." There are at least two sufficient
grounds of objection to such imprecise usage.
First, the Monroe Doctrine applies to the whole of the American
hemisphere. It cannot mean one thing in the Caribbean and another
in South America. If our actions in the Caribbean are supported
by the Monroe Doctrine, we give the South American states cause
for fear ; but if we base them on Paramount Interest they imply no
extension beyond the Caribbean. It is important to distinguish
clearly between the principles of the Platt amendment with their
limited application, and the Monroe Doctrine which for South
America retains its pristine significance.
The second danger lies in the misunderstandings that may arise
with other nations, if the term be used in treaties or international
conventions which they are expected to be able to interpret at the
peril of committing a breach of their obligation. What does the
reservation attached to The Hague Court convention mean — a
"traditional attitude toward purely American questions"? What
would the Law Officers of the Crown say to the British Secretary
56 AMERICAN FOREIGN RELATIONS
of State for Foreign Affairs if he should ask them at some critical
juncture to interpret Article 21 of the Covenant, which speaks of
"regional understandings like the Monroe Doctrine" ? Would they
say that Seiior Bonilla's proposal at the Conference at Versailles
was an interpretation of the Covenant, or an addition to it? In
certain circumstances, it might be as vital for them to answer cor-
rectly as for a chemist to know the properties of trinitrotoluol.
They would get no help from this side of the water, except
probably the statement that whatever position the United States
was taking was justified by the doctrine. On December 14, 1919,
Salvador addressed a communication to the United States asking
the meaning of the Monroe Doctrine in Article 21 of the Covenant.
A Democratic Secretary of State replied that the answer to the
question was to be found in the speech21 of President Wilson Pan
Americanizing the doctrine. The reply was a clever way out of the
difficulty, but it is to be observed that historians, Republican
Presidents, Secretaries of State and Chairmen of the Committee
on Foreign Relations, and many Democrats who are not "Wil-
sonian" would deny that the Monroe Doctrine can bear any such
interpretation.
Of one thing we can be reasonably sure, and that is that the
Monroe Doctrine is not a rule of international law. This is im-
portant, for a violation of international law is an attack not upon
an interest but upon a right. Neither Adams nor Monroe, the co-
authors of the doctrine, ever asserted for it a juridical character.
As a policy it has all the dignity it needs. International lawyers
will agree that Lord Salisbury in one of his two notes of November
26, 1895, accurately stated the relation of the doctrine to inter-
national law :
It (the Monroe Doctrine) must always be mentioned with respect,
on account of the distinguished statesman to whom it is due, and the
great nations who have generally adopted it. But international law
is founded on the general consent of nations ; and no statesman, how-
ever eminent, and no nation, however powerful, are competent to in-
sert into the code of international law a novel principle which was
never recognized before, and which has not since been accepted by
21 See p. 53.
TRADITIONS 57
the Government of any other country. The United States have a
right, like any other nation, to interpose in any controversy by which
their own interests are affected; and they are the judge whether
those interests are touched, and in what measure they should be
sustained. . . . Her Majesty's Government fully concur with the
views which President Monroe apparently entertained that any dis-
turbance of the existing territorial distribution in that hemisphere
by any fresh acquisition on the part of any European State would
be a highly inexpedient change. But they are not prepared to admit
that the recognition of that expediency is clothed with the sanction
which belongs to a doctrine of international law.22
Does the foregoing constitute in any way an argument that the
United States should abandon any of the policies which are essen-
tial to her interests, her expansion in the Caribbean, her protection
of the Canal, and so on? Clearly not. Those policies are based in
the main on reasonable grounds and not on traditionalism, though
they can invoke for their support the precedents and many of the
evolving situations in which the Monroe Doctrine in its legitimate
meaning has also been involved. Those policies, as worked out by
Professor Hart,28 may be summarized as follows :
1. The democratic form of government is the accepted principle
of independent American states, and attempts from without to sub-
stitute a monarchical form are hostile to our interests.
2. The settled condition of the American continent allows no op-
portunity for foreign states to alter the map of America, or to build
up colonies in the American hemisphere.
3. The United States has a permanent interest in preventing Eu-
ropean nations from altering or controlling the status of the states
of the American continent by conquest, by colonization or by acquir-
ing naval stations or by intervening in behalf of private claimants,
and accordingly undertakes to prevent certain causes of trouble be-
tween Latin American and European and Asiatic states.
4. The American Powers may combine or separate, and the United
States is free to annex territory according to its judgment, as well
as to establish protectorates over the islands and small land states
nearest to us for the protection of the canal route or to safeguard
22 Dennis, Adventures in American Diplomacy, pp. 29, 30.
23 Hart, op. cit., pp. 368-9.
68 AMERICAN FOREIGN RELATIONS
American capital or to deprive European Powers of an excuse for
intervention.
These were the views expressed by President Roosevelt in va-
rious forms ; these were the policies used in the Venezuela difficul-
ties of 1902-3, in the extrusion of Great Britain from joint
construction and control of an isthmian canal, in the annexation
of Porto Rico, and in the virtual annexation of the canal zone.
Waiving the fourth of these policies and the questions of political
and economic imperialism it raises, they were fully justified by the
declaration in the British Parliament by Lord Salisbury that "it is
no more unnatural that the United States should take an interest
in such questions than that we (the British) should feel an interest
in Holland and Belgium."24
NOTE: MONROE MESSAGE OF DECEMBER 2, 1823
At the proposal of the Russian Imperial Government, made
through the minister of the Emperor residing here, a full power and
instructions have been transmitted to the minister of the United
States at St. Petersburg, to arrange, by amicable negotiation, the
respective rights and interests of the two nations on the northwest
coast of this continent. A similar proposal has been made by His
Imperial Majesty to the Government of Great Britain, which has
likewise been acceded to. The Government of the United States has
been desirous, by this friendly proceeding, of manifesting the great
value which they have invariably attached to the friendship of the
Emperor, and their solicitude to cultivate the best understanding
with his Government.
In the discussions to which this interest has given rise, and in the
arrangements by which they may terminate, the occasion has been
judged proper for asserting as a principle in which the rights and
interests of the United States are involved, that the American conti-
nents, by the free and independent condition which they have assumed
and maintain, are henceforth not to be considered as subjects for
future colonization by any European powers.
* # # # #
It was stated at the commencement of the last session that a great
24 Dennis, op. cit., p. 41.
TRADITIONS 59
effort was then making in Spain and Portugal to improve the condi-
tion of the people of those countries, and that it appeared to be con-
ducted with extraordinary moderation. It need scarcely be remarked
that the result has been, so far, very different from what was then
anticipated. Of events in that quarter of the globe with which we have
so much intercourse, and from which we derive our origin, we have
always been anxious and interested spectators. The citizens of the
United States cherish sentiments the most friendly in favor of the
liberty and happiness of their fellow men on that side of the At-
lantic. In the wars of the European powers in matters relating to
themselves we have never taken any part, nor does it comport with
our policy to do so. It is only when our rights are invaded or seri-
ously menaced that we resent injuries or make preparation for our
defense.
With the movements in this hemisphere we are, of necessity, more
immediately connected, and by causes which must be obvious to all
enlightened and impartial observers. The political system of the
allied powers is essentially different in this respect from that of
America. This difference proceeds from that which exists in their
respective Governments. And to the defense of our own, which has
been achieved by the loss of so much blood and treasure, and main-
tained by the wisdom of their most enlightened citizens, and under
which we have enjoyed unexampled felicity, this whole nation is de-
voted.
We owe it, therefore, to candor and to the amicable relations exist-
ing between the United States and those powers, to declare that we
should consider any attempt on their part to extend their system to
any portion of this hemisphere as dangerous to our peace and safety.
With the existing colonies or dependencies of any European power
we have not interfered and shall not interfere. But with the Govern-
ments who have declared their independence, and maintained it, and
whose independence we have, on great consideration and on just prin-
ciples, acknowledged, we could not view any interposition for the
purpose of oppressing them, or controlling in any other manner their
destiny, by any European power, in any other light than as the mani-
festation of an unfriendly disposition toward the United States.
In the war between these new Governments and Spain we declared
our neutrality at the time of their recognition, and to this we have
adhered and shall continue to adhere, provided no change shall occur
which, in the judgment of the competent authorities of this Govern-
60 AMERICAN FOREIGN RELATIONS
ment, shall make a corresponding change on the part of the United
States indispensable to their security.
The late events in Spain and Portugal show that Europe is still
unsettled. Of this important fact no stronger proof can be adduced
than that the allied powers should have thought it proper, on any
principle satisfactory to themselves, to have interposed, by force, in
the internal concerns of Spain. To what extent such interposition
may be carried, on the same principle, is a question in which all inde-
pendent powers whose Governments differ from theirs are interested,
even those most remote, and surely none more so than the United
States.
Our policy in regard to Europe, which was adopted at an early
stage of the wars which have so long agitated that quarter of the
globe, nevertheless remains the same, which is, not to interfere in
the internal concerns of any of its powers, to consider the Govern-
ment de facto as the legitimate Government for us ; to cultivate
friendly relations with it, and to preserve those relations by a frank,
firm, and manly policy, meeting, in all instances, the just claims of
every power; submitting to injuries from none.
But in regard to these continents, circumstances are eminently
and conspicuously different. It is impossible that the allied powers
should extend their political system to any portion of either con-
tinent without endangering our peace and happiness ; nor can any
one believe that our Southern brethren, if left to themselves, would
adopt it of their own accord. It is equally impossible, therefore, that
we should behold such interposition, in any form, with indifference.
If we look to the comparative strength and resources of Spain
and those new Governments, and their distance from each other, it
must be obvious that she can never subdue them. It is still the true
policy of the United States to leave the parties to themselves, in the
hope that other powers will pursue the same course.
THE FREEDOM OF THE SEAS
CONSIDERED narrowly as a controversy between the United States
and Great Britain the main features of the origin and develop-
ment of maritime law can be summed up in two quotations. The
Ambassador of the French Revolution, Citizen Genet, complained
"that the English take French goods out of American vessels,
TRADITIONS 61
which is," he said, "against the law of nations, and ought to be
prevented by us." "On the contrary," Jefferson held,
we suppose it to have been long an established principle of the
law of nations, that the goods of a friend are free in an enemy's
vessel, and an enemy's goods lawful prize in the vessel of a friend.
The inconvenience of this principle . . . has induced several nations
latterly to stipulate against it by treaty, and to substitute another
in its stead that free bottoms shall make free goods. ... As far as
it has been introduced, it depends on the treaties stipulating it, and
forms exceptions in special cases to the general operation of the law
of nations. We have introduced it in our treaties with France, Hol-
land, and Prussia ; the French goods found by the latter nations in
American bottoms are not made prize of. It is our wish to establish
it with other nations. But this requires their consent also, as a work
of time ; and in the meantime they have a right to act on the general
principle, without giving to us, or to France, cause of complaint.25
The American attitude toward the problem has changed little,
the fundamental points of which to notice particularly are: (1)
Our government became interested in the problem at an early date.
(2) Jefferson acknowledged an international law based on prece-
dent, whose principles resulted from "state practice." (3) This
customary law of nations, as he understood it, was not satisfactory
to the young American republic. (4) The law of nations could be
altered by treaty agreement. (5) Jefferson's proposed reforms
tended to strengthen the neutral as against the belligerent.
This statement of the American position may be compared with
a statement by Canning in a dispatch to Sir Charles Stuart in
1827 refusing to ratify a treaty with Brazil which included a
"free ship, free goods" clause.
The rule of maritime law which Great Britain has always held on
this subject, is the ancient law and usage of nations; but it differs
from that put forth by France and the Northern Powers of Europe,
and that which the United States were constantly endeavoring to
establish. England had braved confederacies and sustained wars
rather than give up this principle; and whenever, in despair of get-
25 Writings of Thomas Jefferson (ed., Ford), VI, 387. Also see Potter, Pitman
B., The Freedom of the Seas in History, Law, and Politics, for further historical
data.
62 AMERICAN FOREIGN RELATIONS
ting the British Government to surrender it by force, recourse had
been had to proposals of amicable negotiations for the purpose of
defining, limiting, or qualifying the exercise of the right of search,
Great Britain had uniformly declined all such overtures from a con-
viction of the impracticability of qualifying, limiting, or even de-
fining in terms that would be acceptable to the other party, the exer-
cise of the right without impairing, if not sacrificing, the right itself.
The contrast is obvious. Admitting that her rule of "interna-
tional law" was opposed to that put forth by the other maritime
nations of the day, Canning stated that England would not nego-
tiate. "International law," according to Canning, did not rest on
any Jeff ersonian idea of the consent of the governed ; its validity
was not derived from its success in meeting the needs of the com-
munity of nations; it was not a matter of agreement: it was
Macht-politik.
Although American policy has on the whole been more con-
sistent with Jefferson's statement than British policy has been
with Canning's — for the British Government has often, in fact,
negotiated in this matter — neither government has been wholly
consistent. The greatest difficulty of any student of maritime law
is to reconcile conflicting statements of principle and to decide
which of many contradictory state practices may be safely ac-
cepted as precedent.
The difficulty goes back to antiquity, for the rights of men upon
the sea have been the subject of ardent debate since the earliest
days of civilization. The Greeks have left us few formal statements
of their laws, but Plutarch's Life of Pericles in a number of pas-
sages shows that the idea of maritime law, even if more honored in
the breach than in the observance, was developed among the Hel-
lenic states.
The Corinthians were joined by the Megareans, who brought their
complaint that from every market place and from all the harbors
over which the Athenians had control, they were excluded and driven
away contrary to the common law and the formal oaths of the
Greeks.
Yet Pericles
introduced a bill to the effect that all Hellenes . . . resident in Eu-
TRADITIONS 63
rope and Asia . . . should be invited to send deputies to a conference
at Athens ... to deliberate . . . concerning the sea, that all might
sail it fearlessly and keep the peace.
The conflict becomes more striking when we reach the more pre-
cise texts of the Romans. The legal theory, as expressed in the
Justinian "Corpus Juris Civilis," was explicit. "By the law of
nature, then, the following things are common to all men, the air,
flowing water, the sea, and, consequently, the shores of the sea."
The sea is subject only to the jus gentium and open thereby to
free public use. The Emperor Antoninus summed up the legal
theory in the dictum : "I am indeed Lord of the world, but the law
is lord of the sea." "State practice," however, did not conform very
closely to legal theory. Diodorus Siculus says that the Tyrrhen-
ians, "having a great navy, were long masters of the sea." Cicero
in a letter to Atticus uses the phrase, "he who ruled the sea, ruled
the world." And Pliny wrote that Pompey in suppressing the
pirates "restored the imperium of the sea to the Roman people."
Dionysius of Halicarnassus made the extreme statement of state
practice, as compared with the legal theory of Antoninus, when
he wrote : "Rome is ruler of the whole sea, not only that within the
pillars of Hercules, but of the whole navigable ocean."
Mr. Potter recounts the same contradictions in British thought
and practice. Edward I instructed his naval officers to uphold "the
sovereignty which his ancestors the Kings of England were wont
to have in the sea so far as concerns the amendment, declaration
and interpretation of the laws by them made to govern all manner
of nations passing through the said sea"; in 1580 the Spanish
assertion of right to exclude the English from the Indies was pre-
sented by the ambassador, Mendoza, to whom Queen Elizabeth
replied : "The use of the sea and air is common to all, nor can a
title to the ocean belong to any people or private persons, for as
much as neither nature nor public use and custom permit any
possession thereof." But during her reign the British courts held
that "the Queen hath the whole jurisdiction of the sea between
England and France."
It is not necessary to linger over the famous "battle of the
books," the Mare Liberum of Grotius and the Mare Clausum
64 AMERICAN FOREIGN RELATIONS
of Selden. It has little bearing on the controversy of our day,
since it dealt principally with ancient and medieval claims of
sovereignty over the seas, and only to a slight degree with the
rights and duties of belligerents and neutrals in naval warfare.
This modern problem did not loom large in discussions of inter-
national law until the French revolutionary wars, which disturbed
the end of the eighteenth century and the first decades of the
nineteenth century, coincidentally with the birth of the American
republic.
The early history of the question nevertheless throws consider-
able light on the development of the modern dispute. The two ex-
treme positions between which the thought of the world has oscil-
lated are might and right. The freedom of the seas can be con-
ceived as that measure of liberty which is granted to others by
supreme naval power — comparable to the civic liberties granted
to a municipality by an absolute monarch; the idea can also be
conceived as representing certain natural and inalienable rights
which cannot be taken from the weak by the strong without viola-
tion of the law of nations. In practice, such theoretical extremes
are seldom encountered: even the Roman emperors at the height
of their sea power recognized that there was some law before which
they should bow ; but rarely, if ever, has any government based its
right upon the sea on so vague a foundation as immanent justice.
More generally the idea of legal rights has been deduced from
usage, formal concessions, agreement. Governments have based
their arguments, sometimes on the basis of might, sometimes on
that of right, according to circumstances. It seems a safe gen-
eralization, as true in the modern era as in antiquity, that when-
ever a country has found itself in possession of power in the rise
and fall of nations, it has preferred to base its arguments on might.
Various writers have attempted to make a distinction between
"Naval Powers" and "Continental Powers." The former are those
who devote the larger part of their military budgets to warships ;
the latter are those who rest primarily on land armaments. The
generalization is helpful as far as it goes. It explains the diver-
gence of views between the landlocked Swiss and the seafaring
Dutch. It marks the historical contrast in interest between Russia,
TRADITIONS 65
which never has been strong at sea, and amphibious France, which
has brave naval traditions and has often challenged Britain's su-
premacy. But it is too simple a distinction, for it does not explain
the manifest inconsistencies of the English, who since the days of
Elizabeth have been, save for one or two short intervals, the Naval
Power par excellence.
This distinction between Naval and Continental Powers, between
those who are relatively strong and those who are relatively weak
at sea, helpful as it is, must be supplemented by another distinc-
tion, which is harder to formulate. Obviously in England, which
we can take as a type of the Naval Power, there is a difference be-
tween those who think "neutrally" and those who think "bellig-
erently," between those who think of the sea as the road to a vast
market for profitable trade and those who think of it as an arena.
The sea has been a source of wealth to the English not only in the
fruits of peaceful trade, but also in the spoils of war. Sir Francis
Drake and Sir Henry Morgan, unloading the loot of the Spanish
Main, contributed to the concept of the word "sea" in British
minds as much as the British trading ships which returned from
the Orient heavily laden with teas and spices. But it is many years
since any such loot has been unloaded on English docks. Sometimes
ships have set sail from English ports to carve out new domains for
the Empire, to conquer India, to wrest colonial realms from the
French in America, more recently from Germany in Africa. But
no longer do they sally forth on such imperial missions ; they set
out with rich cargoes and return with rich cargoes, and the Cun-
ard Company pays its dividends regularly.
Is war or trade the predominant British maritime interest?
There is no unanimity and there never has been.
If all the Englishmen of his day had agreed with him on naval
policy, the anonymous author of the Libell of English Policye
(1435-6) would not have written:
Now then, for love of Christ and of his joy,
Bring yet England out of trouble and annoy
Take heart . . .
Set many wits without a variance.
66 AMERICAN FOREIGN RELATIONS
To one accord and unanimity
Put to good will for to keep the sea
First for worship and profit also.
"One accord and unanimity" on behalf of more warships has not
yet been reached. The fundamental questions : "Is the mercantile
marine more important than the navy or less?" "Which should
be the determining factor in determining maritime policy?" have
not been definitely answered.
An apt illustration of this fundamental opposition happened
during the American Revolution. The Dutch did an exceedingly
profitable trade with the rebellious colonies, using their West In-
dian island of St. Eustatius as an entrepot for the shipment to the
American coast of munitions, military stores, and civilian com-
modities of every character from the European continent. This
touched England on the military nerve, and also on the nerve of
the pocketbook — the Dutch were making profits that ought to be
hers! — and it was impossible to stop the business by search and
seizure.
The same problem arose simultaneously in the sphere of English
operations against France and Spain. The chief trade of Russia
and other northern states was in naval stores, wood for vessels and
masts, etc. This trade with both France and Spain was interfered
with by the British navy, and the indefinite meaning of contraband
made the controversy insoluble. Accordingly Catherine of Russia
in the beginning of March, 1780, issued a declaration of the prin-
ciples for regulating maritime warfare on which she intended to
insist. It stipulated for free navigation of all neutral ships "from
port to port, and on the coasts of nations at war," and that all
enemy property except contraband should be free in neutral
vessels. The French answer, heartily supporting Catherine's dec-
laration as to free ships making free goods, for the first time con-
tained the formula "The Freedom of the Seas" in a public docu-
ment ; the French, however, still adhered to the principle "enemy
ships, enemy goods," a point which was not covered by the dec-
laration. The British reply insisted upon the "Law of Nations"
that "the goods of an enemy, whether contraband or not, when
found on board a neutral ship are legal prize," and upon the con-
TRADITIONS 67
verse principle that "lawful goods of a friend on board an enemy's
ship are free."
Pitt made the classic objection in 1801 to similar principles
adopted by the Second Armed Neutrality ; his celebrated perora-
tion displays the whole position of England when she is a bellig-
erent.
Shall we allow entire freedom to the trade of France? Shall we
allow her to receive naval stores undisturbed, and to rebuild and refit
that navy which the valor of our seamen has destroyed? Will you
silently stand by and acknowledge these monstrous and unheard-of
principles of neutrality, and ensure your enemy against the effects
of your hostility ?
British orthodox sea writers have always treated this Armed
Neutrality as "an anti-British League," though obviously such a
coalition will form against any Power that attempts to control the
sea. A majority of the Dutch provinces passed resolutions in favor
of adhesion to the convention, and four days later England de-
clared war on Holland and thus took her out of the ranks of the
neutrals. It was easier to bottle up her small navy than to deal with
her as a neutral with Russia supporting her neutral rights ; it was
more effective to seize St. Eustatius and to confiscate Dutch mili-
tary property than to try to pick off the individual vessels that
scurried across from that island with aid to the rebellious colonists.
The whole stress at this period was on belligerent "rights," but
the history of the British attitude toward the freedom of the
seas cannot be understood without considering the profound
opposition of interests between the merchant marine and the Ad-
miralty. Admiralty writers of course give supremacy to the Sea
Lords. "We now realize," writes Sir Francis Piggott in The Dec-
laration of Paris, "that the merchant service is but a branch of
the Royal Navy"; from such a premise it follows that the mer-
cantile marine should run errands for the navy, train sailors, and
keep still on national policies. Thus the compromise on sea law
arrived at in 1856 in the Declaration of Paris was a grave mistake ;
the merchants liked it but it put limits on the navy.
In times of danger the country naturally gives more and more
68 AMERICAN FOREIGN RELATIONS
power to the fighting forces; when Waterloo brought an end to
the long and desperate struggle with the French, the navy was in
the ascendancy. All through that conflict the freedom of the seas
had been reduced by one Order in Council after another ; fighting
for her existence, Britain showed small consideration for what the
unarmed neutrals chose to call their rights, and even the armed
neutrality of the Scandinavian countries was ineffective in check-
ing the action of the belligerents. These were the formative days
of our country, and in trying to defend our rights we became in-
volved in informal hostilities with France and formal war with
England.
When general peace had been reestablished after the Napoleonic
wars, the neutrally-minded point of view in England, that of trade
rather than of war, began once more to assert itself, and England
during the Crimean War reversed the position she had taken in
the French War that ended at Waterloo. As early as October 25,
1853, the Allied French and English fleets had entered the Bos-
porus. On January 2, 1854, Sweden and Denmark presented iden-
tical declarations of neutrality for the coming conflict in the form
of a memorandum to the Powers. The Anglo-French fleet entered
the Black Sea January 5, 1854 ; England and France declared war
against Russia March 28, 1854. Among the comprehensive prin-
ciples contained in the memorandum was the principle that free
ships were to make free goods, this being considered in conformity
with the Law of Nations.
The interesting feature of this historical incident is that Lord
Clarendon in the British reply to the memorandum did not, says
Sir Francis Piggott,26
adhere to the traditional British belligerent policy of seizing enemy
goods on neutral ships ; he adopted the one course which was in direct
opposition to the traditional policy of the country, and apparently
without consulting the French Government. The Note had received
the best attention of Her Majesty's Government, and he was glad to
express the satisfaction with which they have learned the neutral
policy which it was the intention of the Scandinavian Powers "to
26 The Declaration of Paris, 1866, p. 15.
TRADITIONS 69
pursue" and the measures "adopted for giving effect to that policy."
Her Majesty's Government did not doubt "that if war should un-
fortunately occur the engagements taken will be strictly and hon-
ourably fulfilled," and would use their best endeavours "in support
of the neutral position that these Powers proposed to maintain."
Sir Francis, a confirmed supporter of the Admiralty point of
view, comments,27
Either Lord Clarendon had forgotten the history of our troubles
with the neutrals in 1780 and 1800, or he had deliberately ignored
them in favor of the new opinions which had begun at the time to gain
ground — that our policy during those periods was wrong and the
neutral contentions right. It seems probable that the new policy was
deliberately adopted. It is not surprising that it was vigorously at-
tacked by those who believed that England's position in the world
depended, and rightly depended, on the principles on which her bellig-
erent action was based.
After the Crimean War the British Government was prepared
to do what Canning earlier had said "Great Britain had uni-
formly declined to do," namely, to enter into amicable negotiations
for the purpose of defining, limiting, or qualifying the exercise of
the right of search, and in the Declaration of Paris of 1856 agreed
definitely to limit the rule of maritime law which she had always
held.
If we accept the simple distinction between Naval and Conti-
nental Powers, this action is inexplicable. Britain was unquestion-
ably supreme at sea; logically she should have accepted no
limitation on her "freedom of action." The ratification of the Dec-
laration of Paris can only be explained when the neutrally-minded
trading interests of Britain are borne in mind ; in fact, the Declara-
tion of Paris did not go far enough to satisfy the British mercantile
world.
The House of Commons appointed a Select Committee on Mer-
chant Shipping under the chairmanship of Mr. Horsfall. Its re-
port in 1860 condemned the Declaration of Paris as an ineffective
half step: either there must be complete immunity for all mer-
27 Op. cit., p. 18.
70 AMERICAN FOREIGN RELATIONS
chant ships or a return to the "ancient law and usage." The com-
mittee favored the former alternative, stating its belief that "in
the progress of civilization and in the cause of humanity, the time
had arrived when all private property, not contraband of war,
should be exempt from capture at sea." Thus the mercantile ele-
ment of the greatest Naval Power lined up with the American con-
tention at a time when the American navy was hardly existent.
The political situation in England when the Declaration of
Paris was under discussion is worth notice. Immediately after the
Declaration of Paris had been published, Lord Palmerston went
to Liverpool and delivered a speech in praise of this diplomatic
achievement. It was of course a "campaign speech" ; the govern-
ment needed the support of the great shipping interests centered
in Liverpool; the speech was intended to get that support and
shows what the government thought the shipping interests wanted.
Lord Palmerston said :
We had with France made changes and relaxations in the doc-
trine of war which, without in any degree impairing the power of the
belligerents, tended to mitigate the pressure which hostilities in-
evitably produce upon commercial transactions. ... I cannot help
hoping that these relaxations of former doctrines . . . may perhaps
be still further extended ; and in the course of time the principles of
war which are applied to hostilities by land may be extended without
exception to hostilities by sea, and that private property shall no
longer be exposed to aggression on either side.
The outbreak of the American Civil War revived English in-
terest in the law of the sea. No action had been taken on the report
of the Select Committee on Merchant Shipping and on March 11,
1862, Mr. Horsfall, its chairman, introduced a motion: "That
the present state of international maritime law as affecting the
rights of belligerents and neutrals is ill-defined and unsatisfactory
and calls for the early attention of Her Majesty's Government."
The two days' debate that followed, as reported in Hansard,
throws considerable light on the conflict of interest between the
British merchant marine and the Admiralty. John Bright argued
strongly in favor of the rights of neutrals; he wanted complete
immunity of private property at sea, he wanted the function of
TRADITIONS 71
warships limited to fighting other warships, and looked forward
to the day when men would learn war no more. Having stated his
own dream, he turned on the Prime Minister and quoted his Liver-
pool speech. Lord Palmerston, in an obviously embarrassed
speech, recanted; "further reflection and deeper thinking," he
said, had made him alter his opinion, and "he hoped that the
honorable member" would "also come round to those second
thoughts, which are proverbially the best," Disraeli took part in
the debate, opposing Bright, but attacking Palmerston with equal
vigor, and accusing him of having given up, by acceptance of the
Declaration of Paris, "the cardinal principle of our maritime
code."
The main thread in this tangle is not far to seek. The navy's
"right" of search and seizure was to a certain extent limited by
the Declaration of Paris, but in exchange the British mercantile
marine received two concessions, which seemed to the government
more than to compensate for this loss. The Declaration of Paris
consisted of four points : (1) abolition of privateering; (2) neu-
tral flag covers enemy property, except contraband; (3) neutral
property under enemy flag, except contraband, is not lawful
prize; (4) a blockade must be effective. The concessions made by
the British navy are in (2) and (3). The concessions made to the
British mercantile marine are in (1) and (4).
Consider the last point first. British commerce had suffered all
through the French wars by "paper blockade," Napoleon's "Ber-
lin decree" and other interdictions of commerce by edict. Only by
command of the sea can a belligerent establish an "effective"
blockade. This fourth point had the practical effect of making it
illegal to blockade the British Isles, but not illegal for the British
navy to blockade anybody else.
The first point, the abolition of privateers, was the thing most
earnestly desired by British merchants. Always this legalized pi-
racy had been the special pest of British shipping. The bare pos-
sibility that there might be privateers at sea had, at the outbreak
of the Crimean War, driven normal trade away from British to
neutral shipping. There had been an active diplomatic corre-
spondence between London and Washington on the subject. The
72 AMERICAN FOREIGN RELATIONS
English feared that the Tsar might issue lettres de marque to ad-
venturous American skippers, and insurance rates on British ships
in the Pacific trade went up sharply. Mr. Mason, our Minister at
Paris, in an interesting dispatch to the Secretary of State, dated
March 22, 1854, refers to the concern of the French and English
on this subject and their hope that the American Government
would prevent its citizens from privateering under the Russian
flag. Mr. Mason grasped the opportunity for a little Yankee
horse- trading. He said that our laws on the subject were correct,
but that it might be practically impossible to enforce them, if pub-
lic opinion, which was touchy on the subject, became wrought up
"by vexatious searches, captures and seizures." He suggested that
the best way to prevent American privateering would be to accept
the American doctrine of "free ships, free goods."
It was primarily to protect British shipping interests from the
danger of privateers that the British Government agreed to the
second and third points in the Declaration of Paris. Lord Palmer-
ston's volte face is perhaps explained by the fact that the Ameri-
can Government refused to accept the Declaration because it
wished to retain the right of privateering.
The period from the Civil War to the outbreak of the World
War was characterized by a growing realization on the part of
all governments, a more vivid realization on the part of the ship-
ping interests of all countries, of the truths set forth in the pre-
amble of the Declaration of Paris : that maritime law in time of
war has caused regrettable disputes, that uncertainty in such mat-
ters would lead to differences of opinion and serious difficulties
and conflicts between neutrals and belligerents, and that it would
be advantageous to all concerned to establish a uniform doctrine
in so important a matter. Every war that occurred during this
period emphasized these truths.
No change of circumstance had occurred to alter our funda-
mental view as set forth in Jefferson's letter to Genet. We had not
built up a great navy to tempt us to dream of supremacy at sea
and the possibility of imposing our will on other maritime na-
tions. We did not like the "ancient usage" ; we proposed to change
it by agreement. Our ultimate goal was the immunity of private
TRADITIONS 73
property at sea, but our main position had consistently been that
of Jefferson, that the law of the sea should be based on the consent
of the governed. Whenever circumstances seemed propitious, we
had proposed negotiations to expand the neutrals' domain of free-
dom on the seas.
It was a logical development of the policy of Jefferson during
the French revolutionary wars, of Pierce during the Crimean
War, that our government should cordially cooperate in the con-
ferences at The Hague and in the London Conference of 1908-9
for the clarification and amendment of international law.
The evolution of British policy during this period was equally
clear. The Declaration of Paris marked the mid-point in the "neu-
trality epoch" in the life of Great Britain. From the fall of Na-
poleon to 1914 England had been neutral in all major European
conflicts, with the exception of the Crimean War. The mercantile
interest, represented by the Horsfall Select Committee, defended
in the Commons by men like Bright, had waxed strong. As events
moved toward the Crimean War, it was evident that neutral opin-
ion would have decisive weight ; the memories of the Armed Neu-
tralities of the Napoleonic era were fresh. Even before war was de-
clared, the Scandinavian countries issued a manifesto on behalf
of neutral rights; the United States was known to share these
views ; the attitude of Austria and the German states was uncer-
tain and important ; British merchants did not wish to have their
commerce unnecessarily interfered with. In these circumstances,
the British Government decided to waive certain of its accustomed
claims as a belligerent for the duration of this war, in order to
conciliate neutral opinion abroad and the mercantile interests at
home. After the war, contrary to the policy of Canning, the Brit-
ish Government agreed to "amicable negotiations for the purpose
of defining, limiting and qualifying" certain aspects of "the an-
cient law and usage of nations." This was an important turning
point in British policy. Once the precedent of negotiation on
these matters had been established, the extreme position that might
makes right was abandoned. It was a definite step toward the
Jeffersonian ideal of international agreement.
The movement of public opinion in England which had made it
74 AMERICAN FOREIGN RELATIONS
possible, if not necessary, for the government to take this step con-
tinued to grow in strength. The Horsfall Select Committee on
Merchant Shipping, and the debates in Parliament of 1861 and
1862, showed to what an extent the shipping interests of England
were emancipating themselves from the idea that they were merely
a branch of the navy.
During the last half of the nineteenth century and the first
decade of the twentieth, there was a growing sentiment in Eng-
land in favor of limiting belligerent and expanding neutral rights
in naval warfare by treaty and international conferences. It is
noticeable that while the Declaration of Paris was accepted with-
out debate in the Commons, it was severely, if unsuccessfully,
criticized in the Lords. When the Declaration of London was sub-
mitted to Parliament in 1909, it was the Lords that killed it. On
the whole, the merchant marine is stronger in the Commons, and
the Admiralty predominant in the Lords.
To an extent not generally realized in either country, the di-
vergence of views between Washington and London on this ques-
tion of the freedom of the seas is due to this conflict of interest
within the British realm. It has been comparatively easy for the
United States to be consistent. We have never enjoyed naval su-
premacy, nor have we been subject to its temptation. Our ad-
mirals have never enjoyed the political prestige which history has
given the British Admiralty. We have inevitably looked at the
problem from the standpoint of neutrality, and our desiderata
have been the same as those of the mercantile interests of Great
Britain. Whenever they have had the upper hand in the govern-
ment of London, we have marched in accord, as at the conferences
of The Hague and London; whenever the Sea Lords have con-
trolled British policy our interests have clashed.
This was once more forcibly illustrated in the first phase of the
World War. While we were neutral, the intensity of the conflict be-
came so great that inevitably the civilian element in the British
Government was dominated by the military and naval authorities.
The efforts of Sir Edward Grey in the Foreign Office to conciliate
neutral opinion, as Lord Clarendon had done in the Crimean War,
were thwarted by the insistence of the Admiralty.
TRADITIONS 75
The Declaration of Paris was not formally repudiated, but it
was rendered meaningless by Orders in Council obliterating the
distinction between contraband and innocent cargoes. The word
"blockade" was re-defined ; the freedom of the seas ceased to exist.
The neutrals had no rights, except such as the belligerents saw fit
to tolerate.
There would be small reason to hope that the American ideal of
the freedom of the seas would ever prevail if such wars as the last
were to be considered normal. In such times of passionate effort,
law will have little restraining influence, unless it is defended by
sufficient force. If the world is to be frequently rent by such con-
vulsions, the seas will never be free to any but the most powerful ;
and there will be no alternative to the acceptance of Great
Britain's supremacy, but an effort to outbuild her.
The future is not so dark as that. The almost universal hope is
to make peace the norm rather than war. If the habit of neutrality
sets in once more in England as it did in 1815, we shall find British
mercantile interests once more in predominance, and again argu-
ing for the revision of maritime law in the direction of freedom.
We are familiar with what happens to liberty at home when
the drums begin to beat: espionage acts supplant freedom of
speech ; enemy trading acts suppress freedom of commerce ; con-
scription suppresses freedom of action. It is the same on the
seven seas. Liberty is a child of peace, and the most dignified argu-
ment the pacifists have is that Mars is the inevitable enemy of
freedom.
The amount of liberty which the peaceful trader will enjoy
upon the seas may be defined by an international conference on
international law, but it can be insured in the last analysis
only by the political effort of civilization to organize itself for
permanent peace.
THE OPEN DOOR
THE policy we call the "open door" had its inception in the legiti-
mate desire of the United States to assure for herself trading privi-
leges equal to those enjoyed by any other nation in the same re-
76 AMERICAN FOREIGN RELATIONS
gion wherever situated. Popularly identified with Secretary
Hay's pronouncement in 1899 concerning international relation-
ships in China, it was no new policy even for that country, since
Daniel Webster nearly sixty years before had instructed the Ameri-
can Commissioner in China to make it clear to the Chinese Em-
peror that the United States "would find it impossible to remain
on terms of friendship and regard" if the Emperor should grant
greater privileges or commercial facilities to the subjects of any
other government than to the citizens of the United States. John
Hay brought the vague principle within the bounds of a definite
formula for action in China; he clarified the doctrine and ob-
tained recognition for it by the other Great Powers.
While the North American colonies were still struggling for their
freedom, the idea of equal and free facilities for commerce was
securely fixed in the minds of the early fathers. During the Revo-
lution the colonies sought recognition by European governments
on the basis of a guaranty to each nation of the opportunity of
unrestricted trade, as opposed to the principle of special privi-
lege practiced by the European Powers in their possessions in the
New World, and to similar policies expressed in secret treaties and
agreements and providing for zones of special economic and com-
mercial privilege. In 1776 John Adams advocated the negotiation
of a treaty with France offering to open to her American com-
merce denied by Great Britain, and contended that this would be
ample compensation for any aid which France might give the
colonies. The treaty concluded February 6, 1778, followed in the
main Adams's original proposals, carrying liberal provisions for
commerce and establishing the United States on a most-favored-
nation footing. The preamble of the treaty looked to attain this
by providing as the
basis of their agreement the most perfect equality and reciprocity,
and by carefully avoiding all those burdensome preferences which
are usually sources of debate, embarrassment, and discontent; by
leaving also each party at liberty to make, respecting commerce and
navigation, those interior regulations which it shall find most con-
venient to itself ; and by founding the advantage of commerce solely
upon reciprocal utility, and the just rules of free intercourse; re-
TRADITIONS 77
serving withal to each party the liberty of admitting at its pleasure
other nations to a participation of the same advantages.28
This reciprocal treatment which the United States was ready
at such an early date to extend to others, she in turn sought in all
quarters to obtain for herself. After the Revolution, the policy of
the "open door" was soon established in Europe. But while free
trading privileges are not difficult of attainment in countries with
stable and effective governments, it is a vexatious problem to gain
similar results in so-called backward states, or in countries where
governments have been committed to a policy of total isolation.
This difficulty was encountered in the Far East. The two most
important governments of the Orient, Japan and China, desired
no trading relations with the outside world, and when their isola-
tion was ended, both entered the family of nations as backward
states. As they were even then important from the standpoint of
international trade, it is not surprising that it is in the Pacific area
that the policy of the "open door" has focused attention, and that
the course of its development can be most easily traced.
The intercourse with the West with which Japan experimented
in the middle of the sixteenth century was interrupted in the early
years of the seventeenth by a reversion to traditional isolation.
American fishermen were denied food, water, and fuel when forced
to land in Japan, and were treated with barbarity ; Japanese forts
used foreign merchant ships as targets. By the middle of the nine-
teenth century these conditions had become intolerable to com-
merce, and the United States therefore instructed Commodore
Perry to obtain the right of entry of American ships for re-pro-
visioning, and a port of entry for commercial vessels. This was
not with any view to trade monopoly by the United States ; accord-
ing to his instructions, it was the hope of the American Government
that any advantages from his mission might "ultimately be shared
by the civilized world."
On March SO, 1854, Perry succeeded in negotiating a treaty of
amity providing peace, treaty ports, temporary commerce — pend-
ing a more detailed treaty and most-favored-nation treatment.
28 The Treaties of 1778, p. 23. Edited by G. Chinard, Institut Fran^ais de Wash-
ington.
78 AMERICAN FOREIGN RELATIONS
America thus opened the door of Japan not only to herself but
to the world. Four years later, Townsend Harris set out to secure
the continuance of Perry's temporary trading arrangements, and,
accredited first as Consul General and later as Minister, obtained
the signature of the Japanese Government to the commercial
treaty which was to serve as a model for Japan for the next forty
years.
Korea was also a hermit nation. As in the case of Japan, it was
through the offices of the United States navy that this country was
opened to world commerce. After one unsuccessful attempt in 1867,
Commander Shufeldt was authorized in 1878 again to try to
negotiate a commercial treaty. Japan had concluded a Korean
treaty of commerce in 1876, and she was opposed to sharing her
privileges under that agreement; but on account of the rivalry
between Japan and China, the latter's influence was exerted with
that of Korea on behalf of the United States, and the desired
treaty was finally signed on May 22, 1882.
Conditions in China prior to John Hay's enunciation of policy
were such that continued European encroachments made it not im-
probable that a process of partition would render impossible un-
restricted trade over wide areas. Japan had defeated China in the
war of 1894-5 ; Germany had a foothold in Kiaochow; Russia had
occupied Port Arthur ; England had secured Wei-hai-wei ; France
was in control of Kwangchowwan in the south ; and even Italy had
been trying to gain a position on the Chinese coast. Each of these
occupations, though involving a comparatively limited territory,
connoted an additional "sphere of influence" to those already in
existence in which equal trading rights would be increasingly
difficult to secure.
This was the condition which confronted the United States
when she emerged from the Spanish War in possession of the
Philippine Islands and conscious of her position as a Pacific
Power. The promotion of trade with China became more than
ever desirable, and this could not be developed if nations which had
obtained special privileges were unwilling to share them. There
was also a strategic problem, other important Powers having
secured for themselves coaling stations on the China coast, and
TRADITIONS 79
having entrenched themselves in China with one eye on territorial
aggrandizement and the other on economic exploitation. A re-
cently published letter from Minister Conger at Peking to Secre-
tary Hay dated March 1, 1899,29 clearly recognized this situation.
After expressing the belief that China seemed to be breaking up,
he said :
A glance at the map will show Russia strongly intrenched in Man-
churia, Germany in Shantung, Italy demanding Chekiang, Japan
expecting Fukien, England at Hongkong and the French in Kwang-
tung and Tongking, with the English claiming an extended sphere
along the Yangtze and a general and most important settlement at
Shanghai. There is practically nothing left for the United States but
the province of Chili. This, however, with Tientsin as the entrepot
for all northern China, is destined in the future to be commercially
one of the most valuable permanent possessions in the Orient.
The policy of the other Powers seems to be to obtain possession of
some unimportant harbor or bay, claiming as a perquisite a tem-
porary control of developments in the adjacent province, with a
prior claim, thus established, to the entire province at the proper
time.
If our government should have a like purpose, some point might be
selected on the coast of Chili, and the same tactics employed. . . .
My own opinion is that a permanent ownership of territory (ex-
cept for a coaling station if that is needed) in China is not desirable.
But if all China is to fall into the hands of European Powers, a strong
foothold here by the United States, with something tangible to offer
them, might compel them to keep permanently open doors for our
commerce.
Great Britain had repeatedly sought American cooperation in
a joint declaration of an "open door" principle, but without suc-
cess, the proposal being repugnant to the United States because
it savored of a form of "alliance," particularly as joint action
was contemplated to maintain the policy. So in his notes to for-
eign states on September 6, 1899, Secretary Hay enunciated a
unilateral policy in line with the clearly established principle of
protecting American trade ; he had abandoned the notion that it
29 Dennis, Adventures in American Diplomacy, 1896-1906, p. 208.
80 AMERICAN FOREIGN RELATIONS
might be advisable for the United States to claim a station on the
coast near Tientsin. The note to Great Britain contained the fol-
lowing passages :
The present moment seems a particularly opportune one for in-
forming her Britannic Majesty's Government of the desire of the
United States to see it make a formal declaration and to lend its sup-
port in obtaining similar declarations from the various Powers claim-
ing "spheres of influence" in China, to the effect that each in its re-
spective spheres of interest or influence —
First — Will in no wise interfere with any treaty port or any vested
interest within any so-called "sphere of interest" or leased territory
it may have in China.
Second — That the Chinese treaty tariff of the time being shall
apply to all merchandise landed or shipped to all such ports as are
within said "sphere of influence" (unless they be "free ports"), no
matter to what nationality it may belong, and that duties so leviable
shall be collected by the Chinese Government.
Third — That it will levy no higher harbor dues on vessels of an-
other nationality frequenting any port in such "sphere" than shall
be levied on vessels of its own nationality, and no higher railroad
charges over lines built, controlled, or operated within its "sphere"
on merchandise belonging to citizens or subjects of other nationali-
ties transported through such "sphere" than shall be levied on simi-
lar merchandise belonging to its own nationals transported over
equal distances.80
Being engaged in slicing the "Chinese melon," some European
Powers were far from eager in their response to Hay. In these
circumstances, it required boldness on Hay's part to demand
the assurances of the other Powers that the treaty rights of the
United States with China should remain secure in Chinese terri-
tory acquired, or to be acquired, by foreign nations, and to ob-
tain the unanimous consent required to make the individual
pledges binding. This consent eventually came, however, and the
doctrine, founded on the desire jealously to guard the rights
and increase the opportunity of American traders, served to check
so Ibid.
TRADITIONS 81
further encroachments of other states by making the fruits of
special spheres of influence less valuable.
There is a popular impression among Americans that the
United States is entitled to great credit for what they describe as
her enlightened and helpful policy in China. Unfortunately for
this belief, the policy of the "open door" is not based on altruism ;
it is merely an insistence that citizens of the United States shall
have an opportunity to trade with the Chinese on equal terms with
other nationals. We neither seek preferential treatment nor wil-
lingly suffer others to obtain it; we desire that China should not
be divided into spheres of influence in which Powers alien to China
might control the trading opportunities of our citizens. As the
statesmen of China and other countries see the policy, we have been
concerned with our own interests, not with China's. Although our-
selves non-aggressive, we have at times seemed to the Chinese to
benefit by the "imperialism" of other Powers by demanding "most-
favored-nation treatment" after these Powers have succeeded in
wresting some special privilege from China.
Though the basis of our policy has not been altruistic, it stands
out in compelling relief against the background of European
diplomacy in the Orient. While preserving American interests, it
gives China at the same time an opportunity to set her house in
order. This desire is clearly discernible in the last step in the con-
summation of this policy at the Washington Conference in 1922.
There for the first time the Principal Powers having interests in
China joined with her in an agreement to respect her sovereignty,
independence, and territorial integrity, and to maintain the policy
of the open door. The powers other than China pledged them-
selves not to seek or support their respective nationals in seeking :
(a) any arrangement which might purport to establish in favor
of their interests any general superiority of rights with respect to
commercial or economic development in any designated region of
China ;
(b) any such monopoly or preference as would deprive the na-
tionals of any other Power of the right of undertaking any legitimate
trade or industry in China, or of participating with the Chinese Gov-
ernment, or with any local authority, in any category of public
82 AMERICAN FOREIGN RELATIONS
enterprise, or which by reason of its scope, duration or geographical
extent is calculated to frustrate the practical application of the prin-
ciple of equal opportunity.
China on her part agreed to avoid discrimination in the treat-
ment of foreign subjects and citizens. A cardinal difference was
made when a self-supported policy was turned into an agreement
with other Powers, and when China herself was brought into it.
The arrangement was imperfect only in that Russia was not rep-
resented at the conference, and is not a party to the treaty.
Events since the Washington Conference show that the United
States continues to look with disfavor on secret agreements be-
tween nations providing for zones of special economic and com-
mercial privilege. Ambassador Child reiterated this standpoint
at the Lausanne Conference in 1922 in connection with the secret
treaty between Great Britain, France, and Italy respecting the
natural resources of Turkey. Our own commercial treaty with
Germany, 1923-1925, includes a "most-favored-nation5' clause
without conditions ; in fact, this has always been the heart of our
commercial policy, and, as Tyler Dennett81 says, the Hay pro-
nouncement did not secure more than was already accrued to us
under the "most-favored-nation" clause in existing treaties. The
peculiar merit of the declaration lay in its halting of the partition
of China.
3i Americans in Eastern Asia, pp. 647-8.
CHAPTER THREE
DOMESTIC CONTROL
FOREIGN AFFAIRS AND THE PRESIDENTIAL SYSTEM
THE peculiar difficulty of conducting foreign relations lies in
the rise of democracy in an anarchic world society. Because
of the danger of invasion or strangulation from abroad, unity, dis-
patch, and secrecy have seemed necessary, while the development
of constitutionalism and democracy has demanded a reasonable
responsibility of the executive to the people or their representa-
tives. For a long time the notion of executive responsibility to the
legislature was confined to domestic affairs. Queen Elizabeth for-
bade Parliament "to meddle with matters of state," James I and
his son each emphasized the independence of the prerogative in for-
eign affairs, and John Locke admitted that foreign affairs must
be left "to the prudence and wisdom of those whose hands it is in,"
though he insisted that they must be managed for the public good.
Even in the nineteenth century we find the voice of European par-
liaments feeble in the conduct of international relations. "It is
in the cabinet alone," said Palmerston, "that questions of foreign
policy are settled."1 De Tocqueville, taking American democracy
as his text, had "no hesitation in avowing his conviction that it
is most especially in the conduct of foreign relations that demo-
cratic governments are decidedly inferior to governments carried
on upon different principles." "Democracy," he continued,
is unable to regulate the details of an important undertaking, to
persevere in a design and to work out its execution in the presence of
serious obstacles. It cannot combine its measures with secrecy and it
will not wait their consequences with patience. These are qualities
which more specifically belong to an individual or to an aristocracy
and they are precisely the means by which an individual people at-
tains to a predominant position.2
This distinction between foreign and domestic policy could not
last. It was impossible to deny the importance of decisions in f or-
1 Morley, Life of Cobden, II, 231.
2 Democracy in America, New York, 1862, I, 254.
8* AMERICAN FOREIGN RELATIONS
eign policy to the citizen, and as legislatures grew in power it was
equally impossible to prevent their expression of opinion and
eventual control. In the parliamentary system this control is
exercised through the continuing power of parliament to question,
criticize, and eventually expel the minister whose conduct it disap-
proves, while in the presidential system it is in the power of the
legislature or one branch of it to veto important decisions or
commitments.
The advantages alleged for the parliamentary system are: (1)
It assures unity of the legislative and executive branches, which is
especially important in foreign affairs because most treaties and
decisions require the cooperation of both departments. (2) It as-
sures, at least in the case of the British practice of executive disso-
lution of parliament, a policy always responsive to the electorate.
(3) It keeps public opinion interested and instructed. Parlia-
mentary debate is real when ministers participate in it and may
fall as a result of it. Consequently, the press and people follow it
with intelligence, public opinion is ascertainable and executive
policy can be shaped from day to day in its light. (4) It assures
that places of executive responsibility will always be filled by men
who are not only known, experienced, and able, but who are also
adapted to the particular emergency.
In all these respects the parliamentary system is said to be su-
perior to the presidential system with its probability of conflict
and deadlock between the executive and the legislature on im-
portant issues, with its astronomical elections and fixed terms,
which may prolong a policy after the people are opposed to it, its
meaningless legislative debates, upon which little of importance
depends, and its tendency to send available rather than able men
into the presidency and to keep them there irrespective of their
adaptability to an exigency.
In spite of these advantages, it must be noticed that in recent
years criticism of the method of controlling foreign relations has
been widespread in parliamentary countries, especially in Eng-
land. It has been alleged that parliament is often uninformed
until commitments have been made, when it is too late to with-
draw. It has also been asserted that royal influence has fre-
DOMESTIC CONTROL 86
quently had an importance in foreign relations incompatible with
democratic theory. Furthermore, there have been occasions when
unity has not been achieved because of obstruction by the upper
house — for example, the House of Lords rejected the Declaration
of London approved by government and commons — or because
of a change in government after a policy has been embarked upon.
It may be questioned, however, whether any of these criticisms
except the last concerns matters inherent in the parliamentary
system. Parliamentary approval of treaties before ratification is
in fact required in many constitutions and practiced in others with
respect at least to treaties involving money appropriations or the
rights of citizens ; the British Labor government's proposal to lay
all treaties before Parliament prior to ratification was, however,
abandoned by the present Conservative government.
It has been said that the presidential system renders scientific
negotiation easier because of the independence of the executive
from legislative heckling. It is also said that the system of checks
and balances assures a more certain guarantee against secret
treaties and against war unsupported by public opinion. Finally,
the very difficulty of making rapid decisions of major importance
under a system of checks and balances may tend to eliminate this
type of activity in world society. Says Mr. Root, referring to the
remarks of De Tocqueville already quoted :
It is because democracies are not fitted to conduct foreign affairs
as they were conducted in De Tocqueville's day that the prevalence of
democracy throughout the world makes inevitable a change in the
conduct of foreign affairs. Such affairs when conducted by democratic
governments must necessarily be marked by the absence of those un-
dertakings and designs, and those measures combined with secrecy,
prosecuted with perseverance, for which he declares democracies to be
unfit.8
To these arguments the advocate of parliamentary government
may well reply that if greater freedom of negotiation exists under
the presidential system, it is only by incurring the probability of
eventual defeat in the legislature ; that guarantees against secret
» Proceedings of the American Society of International Law, 1917, p. 9.
86 AMERICAN FOREIGN RELATIONS
treaties are just as possible under the parliamentary system; and,
finally, that the immunity from the necessities contemplated by
De Tocqueville depends, not on the desires of a single state, but
on the whole system of international law and organization.
This suggests what is perhaps the real basis for the difference
in the form of control of foreign relations on the two sides of the
Atlantic. American conditions have been different from European
conditions. Europe has been confronted from the beginning of the
modern era with a considerable number of states of somewhat equal
power in close proximity and with numerous contacts. None of
these states has been wholly self-sustaining. They have had to
depend on their neighbors for many economic necessities, but his-
toric and national differences and rivalries have prevented the
development of a strong international community. Thus interna-
tional relations have necessarily been considered primarily from
the strategic point of view. The desire of legislatures and peo-
ples for control has had to be subordinated to the necessities of
defense, both of territory and economic requirements. The par-
liamentary system, at first applicable only in domestic affairs, has
gradually extended into the foreign field, but the possibilities of
rapid and final decision by the executive in matters of war and
alliance have not been wholly eliminated, and probably cannot be
eliminated until international law and organization have been
further developed.
Since the establishment of their independence, the peoples of
the two Americas have been largely self-sustaining and eco-
nomically and geographically separated from dangerous enemies.
Their wide expanse of undeveloped land and abundant mines
and sources of power have permitted an expansion of agriculture
and industry without serious international complications. This
situation has been especially true of the United States, whose peo-
ple have seldom had a real sense of insecurity ; they have not found
it necessary to adapt their system for controlling foreign rela-
tions to strategic considerations to the same extent as has Europe.
Whether this happy situation will continue may be doubted.
After the Spanish-American War, Reinsch saw that it was
disappearing. "With our entrance upon imperial politics the in-
DOMESTIC CONTROL 87
tricacies of our governmental relations have markedly increased."
To the same effect, Woodrow Wilson in presenting the fifteenth
edition of his book on Congressional Government about the same
time wrote :
Much the most important change to be noticed is the result of the
war with Spain upon the lodgment and exercise of power within our
federal system; the greatly increased power and opportunity for
constructive statesmanship given the President, by the plunge into
international politics and into the administration of distant depend-
encies, which has been that war's most striking and momentous con-
sequence. When foreign affairs play a prominent part in the politics
and policy of a nation, its Executive must of necessity be its guide :
must utter every initial judgment, take every first step of action,
supply the information upon which it is to act, suggest and in large
measure control its conduct. ... It may be, too, that the new leader-
ship of the Executive, inasmuch as it is likely to last, will have a very
far-reaching effect upon our whole method of government. It may give
the heads of the executive departments a new influence upon the ac-
tion of Congress. It may bring about, as a consequence, an integra-
tion which will substitute statesmanship for government by mass
meeting. It may put this whole volume hopelessly out of date.
Since that time the United States has grown more dependent
economically. Numerous important raw materials for industry
must be imported and foreign markets are of major importance.
Opportunities for investment in American territory are relatively
less abundant and capital is being exported from the country at
the rate of a billion dollars a year. These conditions render Ameri-
can interests abroad more susceptible of hostile attack, and the
country itself is in more danger of invasion through submarine
and aircraft, not to mention the possibility of subversive propa-
ganda in a heterogeneous and somewhat unassimilated popula-
tion.
This change in conditions has created in many minds consider-
able pessimism as to the future of the American system of con-
trolling foreign relations. The answer to their fears must be that
this system has not been stationary; adaptations to changing
conditions have proved possible in the United States as in other
88 AMERICAN FOREIGN RELATIONS
countries, and as conditions have been changing more rapidly
in recent years than heretofore, further evolution of the system of
control is not impossible.
The Roman republic and the Hanoverian monarchy described by
Montesquieu and Blackstone were both governments of separation
of powers maintained by checks and balances. Both were forced
to achieve unity by the increase of international complications.
One went the way of executive sovereignty ; the other that of par-
liamentary sovereignty. The difficulties in the way of either such
development in the United States are obvious. While presidents
have sometimes acted like dictators in brief emergencies, an in-
tensive reaction of congressional control has always followed. The
jealous control of the purse by Congress is a check which would
inevitably curb an ambitious president if the electorate's opposi-
tion to a third term should wane. Furthermore, the physical separa-
tion of the cabinet from Congress, the comparative equality of
power of the two houses, rendering each a check upon the other,
the "states' rights" sentiment which prevents a gradual subordina-
tion of the Senate, and the position of the Supreme Court as final
interpreter of the constitutional separation of powers — all these
militate against the development of responsible government.
Neither the executive nor the parliamentary method of develop-
ing unity seems likely of achievement in the United States. Instead,
the fundamentals of the present system are likely to continue, with
an increase in informal contacts, a more enlightened public opin-
ion, a more extensive reliance upon experts, and a progressive or-
ganization of the State and other departments for efficiently con-
ducting foreign business.
THE DEVELOPMENT OF FOREIGN AFFAIRS
FUNCTIONAL distribution of foreign contacts and influence is to
be found within the executive departments of governments. The
foreign office, represented in the United States by the State De-
partment, is usually considered the executive department con-
ducting foreign affairs. The Departments of War and of the
Navy are also primarily concerned with foreign relations ; the De-
partment of Commerce is increasingly interested in foreign com-
DOMESTIC CONTROL 89
merce ; both the Treasury and Post Office have made international
agreements with foreign administrations ; the Department of La-
bor is concerned with the vexing immigration problem ; all of the
departments, in fact, except those of the Interior and of Justice,
maintain officials abroad. The permanent foreign agencies and
personnel are as follows :
Agencies Personnel
State Department 450 3641
Treasury 44 105
War 27 147
Navy 12 57
Agriculture 4 12
Commerce 41 297
Shipping Board 5 120
Tariff Commission 1 4
584 4386
These permanent agencies are accredited to foreign governments
through the State Department, but they receive instructions from
their own departments and report to them. It cannot be said in
anything but a formal sense that foreign affairs are concentrated
in the State Department. A similar situation exists in all govern-
ments. More and more officials in every department are making
direct contacts with officials in similar departments of foreign gov-
ernments.
It was in the multiplication of such contacts that effective Allied
cooperation was achieved during the war. "The national adminis-
trations" writes Sir Arthur Salter, "now touched each other not
at one point (the foreign offices) nor at half a dozen (the minis-
ters of the main departments) but at scores (the officials and ex-
perts responsible for the detailed controls). And the contact was
no longer occasional and irregular but continuous."
In this shifting of contacts from a diplomatic to an administra-
tive basis, Sir Arthur sees the possibility of effective international
cooperation in times of peace. "The development in government
which resulted in the late war was largely a process of over-cen-
tralization and over-concentration. The whole strength and ac-
tivities of great nations were controlled and dominated by national
policies; their economic development was directed, even their in-
90 AMERICAN FOREIGN RELATIONS
tellectual thought and education inspired, by a central policy dis-
torted by a single bias." The war broke this tension, he thinks,
and the world, especially through the League of Nations, is mak-
ing "a great effort of decentralization." Disputes, he admits, may
arise even more frequently with this multiplication of contacts,
but "better many localized disputes than a few which affect the
general political relations of the two countries."4 In this he differs
from Mr. Hughes who insists that "unity of control of contact with
foreign governments is absolutely essential."
Thus it appears that the conduct of international relations is
undergoing a transformation. Instead of keeping their houses
closed except for a single doorway — the foreign office of the cen-
tral executive — states are opening windows and doors everywhere.
Cities, states, dominions, legislators, courts, military and naval and
commercial attaches, trade commissioners, agricultural and tariff
experts are moving onto the international scene, making direct
contacts with each other and with the foreign ministers, diplomats,
consuls, admirals, and generals who were there before them.
Parallel with this tendency of many national government agen-
cies to make foreign contacts has been the development of treaty
making and international organization in almost every field of
government ; labor, narcotics, slavery, tariffs, health, game preser-
vation, etc., have all come into the international field. This proc-
ess, being a natural development, is difficult to stop, however much
it may conflict with the traditional conceptions of international
law and diplomacy. Almost every activity of government is nowa-
days found occasionally to have effects, not only within the state's
territory and upon its nationals, institutions, and culture, but also
in foreign territory, upon aliens and upon foreign institutions and
attitudes. Responding to such a situation, agencies of government
engaged in the most diverse activities have found it advantageous
to study the effects of their proposals abroad, the influence of for-
eign policies upon them, and the improvements in method made by
foreign agencies in like business. Convenience has inevitably led
to direct contacts for facilitating such studies, and reciprocal
* Allied Shipping Control, an Experiment in International Administration, pp.
251-256.
DOMESTIC CONTROL 91
modifications of method and policy in the common interest have re-
sulted. The next step has been the creation of permanent interna-
tional rules and international organization.5
EVOLUTION OF THE AMERICAN SYSTEM
OF CONTROL
STATES, like organic forms, gradually adapt their systems for
controlling external behavior to the environment in which they find
themselves, or perish. But traditions, prejudices, and principles
sometimes render such adaptation difficult. States, moreover,
have considerably more power than most organic forms to modify
their environment to suit their peculiar attitudes; thus there is
a reciprocal relation between a state's internal control of for-
eign policy and the international system. The experience of the
United States singularly illustrates this relation. Her system for
controlling foreign relations sprang from the eighteenth century
natural-rights theory, that government is a tool rather than a
director of public opinion and public policy. This theory has been
modified by occasional compromises resulting from necessity, ex-
perience, or changing attitudes. Sometimes these compromises
have been formally expressed, sometimes merely evidenced by
practice, and there has always been opposition to them.
It was a long step from the "militia diplomacy" controlled by
the Continental Congress acting through ad hoc committees, with-
out even a permanent clerk to answer correspondence, to the De-
partment of State and the foreign service of the United States,
trained and organized under the Rogers Act as an efficient admin-
istrative machine responsible to the President of the United States.
Yet features of the militia system still remain, and perhaps some
of them are essential to democratic principles. It may be that the
future of our system for controlling foreign relations, if not of our
whole system of government, depends upon the possibility of
adapting the international environment to the presuppositions of
democracy. A state organized to delay decisions until deliberate
s Details of this international organization under the title, "Other Forms of
World Coordination and the Share of the United States in Them" will be given in
the next volume.
92 AMERICAN FOREIGN RELATIONS
discussion has crystallized opinion may prove unable to survive
when at close quarters with governments able and ready to press
an advantage with all their resources. The United States was long
sheltered by friendly oceans, but today her interests penetrate to
every quarter of the globe, and the protection of the seas is less
certain than it was in the days before the submarine and aircraft.
Unless we can in fact make the world "safe" for it, must we be
forced to abandon democracy, at least in foreign relations?
The evolution of the American system of control of foreign re-
lations falls naturally into four periods; the pre-constitutional
period, the formative period, the period of western development,
and the period of world power.
The first period was characterized by the almost complete im-
potence of the central system for controlling foreign relations. The
natural-rights theory which feared strong government was in part
responsible. Government in the opinion of men like Samuel Adams
should dispense justice rather than determine policy. That this
attitude was extended to the international field is shown by the
numerous resolutions passed in Congress urging the states to ob-
serve the requirements of international law. Thus on November
23, 1781, the state legislatures were recommended to provide for
the punishment of offenses relating to violation of safe conducts,
breaches of neutrality, assaults upon public ministers, infractions
of treaties, and "the preceding being only those offenses against
the law of nations which are most obvious, and public faith and
safety requiring that punishment should be so extensive with all
crimes, Resolved, that it be further recommended to the several
states to erect tribunals in each state, or to vest ones already exist-
ing with power to decide on offenses against the law of nations not
contained in the foregoing enumeration."6 The American states-
men proposed high respect for international law, which was com-
monly considered a branch of natural law. They looked upon it,
according to Sir Henry Maine, as "a main part of the conditions
on which a state is originally received into the family of civilized
e Journal of Congress (Ford, ed.), XXI, 1137. Other similar resolutions are col-
lected in Wright, The Enforcement of International Law through Municipal Law
in the United States, p. 221.
DOMESTIC CONTROL 93
nations." But they saw little else in international relations. If
legislation and courts were provided to assure the application of
the "universal common law," what more was required? The need
of a central authority for directing foreign relations was not
obvious.
A natural corollary was the dominance of the locality over the
nation. If government was merely to administer natural law, the
nearer it was to the people the better. Distant government was
arbitrary government. The Revolution sprang out of agitation
begun in the Massachusetts town meetings. Committees of corre-
spondence organized in the towns made the movement state-wide,
after which standing committees of correspondence promoted con-
tacts among the colonies. Thus the Continental Congress was
simply an organization of these local committees and its own work
was done entirely through committees. To a large extent the spirit
of localism dominated it throughout. Even in the stress of war a
national consciousness was hardly permitted to develop, and had
the will been present, the factor of distance would have greatly
impeded its expression. After the war was over, the rivalries of local
delegates prevented effective united action and the creation of any
permanent organization for controlling foreign affairs. Even in
this field the work was done by special committees created for a
particular object. There was such a want of continuity that papers
dealing with foreign transactions were not collected in one place ;
correspondence was not answered, and the American ministers in
Europe had to act on their own initiative with little information
as to the state of things in America.
Many examples could be cited of the slipshod manner of con-
ducting foreign business. Benjamin Franklin remarks rather
plaintively that the only response to various requests to Congress
for reimbursement of expenditures was one of a year before de-
claring that the matter was under consideration. Congress, with-
out any notification, drew upon John Adams's account in Am-
sterdam to twice the extent of his holdings so that he had to make
a hurried journey of three weeks from England to Holland to
raise the necessary balance in the open market.
A third factor that tended to perpetuate hostility to centralized
94 AMERICAN FOREIGN RELATIONS
authority was the pessimistic view entertained of human nature
that was contributed by the Puritan tradition and accentuated by
the slogans of the Revolution. Fear of usurpation and tyranny
seemed to be universal. Every public authority must be limited by
law and kept to the limits through a system of checks and balances.
As long as Congress was the sole organ of central government, the
system of ad hoc committees seemed the best way of preventing
usurpation. A permanent committee, it was thought, would be
dangerous : even more dangerous would be a permanent adminis-
trative official. This attitude was repeatedly manifested in the Con-
stitutional Convention of 1787. Thus Mason of Virginia favored
depriving the Senate of the power of originating money bills be-
cause "it could already sell the whole country by means of treaties."
Gerry of Massachusetts wanted Congress as a whole to have the
power of making peace because "the Senate will be corrupted by
foreign influence." Madison, on the other hand, feared the President
more than the Senate and wanted the latter to have power to make
treaties of peace without the concurrence of the President, since
the latter "would necessarily derive so much power and importance
from a state of war that he might be tempted if authorized to im-
pede a treaty of peace."7 Butler favored this "as a necessary se-
curity against ambitious and corrupt Presidents," mentioning
"the perfidious policy of the Statholder in Holland and the
artifices of the Duke of Marlbro to prolong the war of which he had
the management."8
These ideas of natural law, localism, and fear of usurpation were
embedded in the Constitution, with its judicially enforced bill of
rights, its federal system guaranteeing states' rights, and its sepa-
ration of powers preserved by checks and balances. They were in
the minds of men in the period before the Constitution and con-
tributed to prevent centralized control. The astonishing condi-
tions which resulted in respect of foreign affairs cannot be con-
sidered in detail. It is sufficient to notice that the initiative in for-
eign policy was for a time vested mainly in the French Minister
7 Madison, Debates, August 15, 1787, September 8, 1787.
s Farrand, Records of the Federal Convention, II, 297, 640, 541, 548.
DOMESTIC CONTROL 95
in the United States and in the American Minister in France. For-
tunately, Gerard, the French Minister, was anxious to make the
Revolution a success, and, although his methods of influencing
Congress would not always bear scrutiny, his activity was directed
toward thwarting the cabals against Washington and Franklin
which might otherwise have ruined the American cause. Luzerne,
his successor, was equally effective in preventing Franklin's dis-
placement in France. On the other side of the water, Franklin,
Adams, and Jay were ready to make policy themselves in the ab-
sence of instructions and to ignore instructions when they thought
them unwise. Thus they perhaps served the United States as well
as a Foreign Office would have done.
The limitations of such a situation gradually dawned upon Con-
gress, and in 1781, partly owing to the activities of Luzerne, Con-
gress organized a Department of Foreign Affairs. Even then it
frequently considered foreign problems through special commit-
tees and so embarrassed Livingston (the first Secretary) that he
resigned in the summer of 1783. Experience, however, had its
effect, and in the following year John Jay was appointed Secre-
tary and was given greater freedom of action, though his powers
were still inadequate. The states failed to carry out the engage-
ments of treaties, particularly that of the English treaty with re-
spect to British creditors, and Jay had to listen to the jibes of
foreign governments that the United States pretended to be one
state when negotiating treaties but proved to be thirteen states
when fulfilling her obligations. With this conviction abroad, only
too well borne out by the facts, the important negotiations with
Spain in respect of the Mississippi were fruitless, as were those
with England for a commercial treaty. Congress's lack of power
to organize forces, to raise money directly, and to establish a uni-
form commercial policy, were equally embarrassing. Out of these
conditions grew the successful demand for a reorganization of the
government and especially for the creation of an adequate cen-
tral authority to conduct international relations.
The Constitution came into effect in 1788, and the system for
controlling foreign relations began its second period of develop-
ment. The Constitution had practically eliminated the influence
96 AMERICAN FOREIGN RELATIONS
of the states in treaty and war making, concentrating nearly all
foreign relations power in the central government. It had not im-
posed any obvious general limitations upon the exercise of these
powers. The treaty power, the war power, the taxing power, the
power to regulate commerce, the power to enforce treaties and
international law, and the power to receive and accredit diplo-
matic representatives, were given in general terms. Neither states'
rights nor private rights promised seriously to impair the power
of the government to conduct foreign policy. The doctrine of
separation of powers, however, persisted. The fathers of the Con-
stitution were convinced of Montesquieu's dogma, and applied it
to the control of foreign relations. Some thought this power be-
longed to the executive, some to Congress, but in fact they com-
promised and gave authority to receive foreign ministers and to
act as Commander-in-chief of the Army and Navy to the Presi-
dent. Powers to declare war, to organize the army and navy, to
regulate commerce, to define offenses against the laws of nations,
to pass laws necessary and proper for executing all federal powers,
and to raise and appropriate money — these were given to Con-
gress. The powers of most immediate importance in conducting
foreign relations, those to make treaties and to appoint foreign
ministers, they gave to the President acting with the advice and
consent of the Senate. Even the courts were not forgotten in this
distribution, and to the federal judiciary the Constitution en-
trusted the eventual enforcement of treaties, which, together with
the Constitution itself and acts of Congress, were declared the
supreme law of the land, "anything in the Constitution or laws
of any state notwithstanding." These broad provisions required
interpretation and during the period now under consideration this
interpretation proceeded largely from executive initiative.
^JEoreign relations were still looked upon from a legal rather
than from a political point of view. The main function of the gov-
ernment in this field was thought to be the enforcement of its
rights and the fulfilment of its obligations under international
law. The provision for judicial enforcement of treaties, aimed
especially at the state confiscation laws contrary to the peace
treaty with England, was thus of great importance. Nevertheless,
DOMESTIC CONTROL 97
other activities were necessary. Treaties had to be made in order
to define rights of commerce and neutrality, and to this end it was
necessary to develop a procedure for cooperation between the
President and the Senate. After Washington's unsatisfactory at-
tempt to act with the Senate as an executive counsel during the
negotiation of an Indian treaty, the system was adopted of inde-
pendent presidential negotiation and subsequent submission of
the signed instrument to the Senate for its consent to ratification.
This procedure was first utilized in the negotiation of the Jay
treaty in 1794, though it is interesting to notice that the real
initiative in suggesting it came from a small group of Federalist
senators who were anxious to maintain peace with England, but
feared that a public discussion of the conditions of the treaty
would defeat their plans. The Jay treaty also furnished the first
occasion for a Senate amendment to a treaty and for the presenta-
tion by the House of Representatives of the view that a treaty
could not limit its own discretion in the exercise of its constitu-
tional powers. Washington sharply denounced this view in his
message refusing the House request for papers on the Jay nego-
tiations.
In spite of these signs of friction in the treaty-making ma-
chinery, the President was generally successful during this period
in maintaining his initiative and achieving his policy in treaty
making. Jefferson strengthened the treaty-making power by
annexing Louisiana, though he had to quiet his own constitu-
tional doubts to do it. The Senate, it is true, defeated several
treaties by unacceptable amendments, but in no case on a policy
which the executive regarded as of major importance. It was not
until the final administration of this period, that of John Quincy
Adams, that executive initiative in negotiations was seriously
called in question. This was on the occasion of Bolivar's invitation
to the Panama Congress. Although the Senate and House both
eventually agreed to send a delegation to this congress, their debate
indicated considerable objection to the policy to be followed, and
delayed action for so long that the delegates of the United States
did not reach Panama until the congress had adjourned. The ex-
ecutive also maintained his initiative in the making of unilateral
98 AMERICAN FOREIGN RELATIONS
decisions of international importance. In 1793 Hamilton and
Madison engaged in a pamphlet debate on the power to recognize
neutrality, a subject not specifically mentioned in the/ Constitu-
tion. Madison took the position that it was associated with the war
power and belonged to Congress, but Hamilton regarded it rather
as of a diplomatic character, belonging to the executive. The latter
view has in fact prevailed, and has applied also to the recognition
of new governments and states. The cabinet was unanimous in sup-
porting Washington's independent right to receive Citizen Genet
and thus to recognize the revolutionary government of France.
John Quincy Adams when Secretary of State successfully insisted
that recognition of the Latin American republics was an executive
prerogative.
Even in war making the peace-loving Jefferson used the navy
in defense against Tripolitan pirates without express authoriza-
tion of Congress, though with some constitutional qualms. It ap-
pears that his conscience was unnecessarily active, since the fed-
eral convention had expressly modified Congress's power "to make
war" in the original draft to a power "to declare war," in order
that the President alone might be free to use the forces for defense.
Notwithstanding the fact that the actual use of commercial pres-
sure short of war and recourse to formal war itself required action
by Congress, the executive was always successful during this pe-
riod in gaining the support of Congress when he thought it neces-
sary. Adams began hostilities against France in 1798 and later
stopped them, both times carrying Congress with him, as did
Jefferson in his embargo and non-intercourse policies, and Madi-
son in the War of 1812, although in the latter case Congress
undoubtedly brought considerable pressure to bear upon the Presi-
dent in favor of war. During this period two important formula-
tions of policy were made, contained in Washington's farewell ad-
dress and the Monroe Doctrine.
The main preoccupation of the period was with the enforcement
of legal rights and the fulfilment of legal obligations. The Presi-
dent's capacity to settle claims by negotiation and to submit them
to arbitration on the basis of broad treaty provisions was estab-
lished by the Jay and other treaties. Some doubt was raised as to
DOMESTIC CONTROL 99
the President's power to use force in fulfilment of the interna-
tional law of neutrality. To obviate this difficulty and to assure
the jurisdiction of the courts, Congress passed the first neutrality
act in 1794. Legislation was also passed to assure the fulfilment
of international obligations with respect to foreign ministers.
In general, it may be said of this period that foreign relations
were approached in a legalistic spirit ; that they were important,
and that Presidents were chosen because of their experience in
diplomacy, and that they displayed competence and leadership.
There was friction, it is true, but except for John Quincy Adams's
policy with reference to the Panama Congress the President's
policy always prevailed.
In the next period, from Jackson to the Spanish- American War,
the situation was different. The country was devoting its attention
to the development of the west. Foreign policy, with certain
notable exceptions, was of slight importance. Leadership in gen-
eral passed to Congress, because the great men of the period
were more apt to be in the Senate or the House than in the presi-
dency. When foreign policy came to the front at a time of the
occupation of the White House by a strong-minded man, the
executive was likely to establish a temporary dictatorship ; as, for
instance, in Folk's policy leading to the Mexican War, Lincoln's
conduct of foreign affairs during the Civil War, and Cleveland's
demarche on Venezuela.
In the making of treaties, while the procedure adopted in the
earlier period was continued, the Senate more frequently exercised
its power to defeat or radically amend the negotiated instrument.
It occasionally took the view that international commerce ought
not to be regulated by treaty since power over commerce was vested
in Congress. It also defeated several annexation treaties ; in the case
of Texas, however, annexation was subsequently effected by joint
resolution. It is also interesting to notice that Polk departed from
the usual practice of independent executive negotiation in the case
of the Oregon treaty and threw the responsibility for a compromise
upon the Senate by asking the latter's consent before signature.
Toward the end of this period the Senate took up its characteristic
100 AMERICAN FOREIGN RELATIONS
position in regard to general arbitration commitments by defeat-
ing the Hay-Pauncef ote treaty. J
There was also an increased congressional initiative in the mak-
ing of national decisions. Congress occasionally passed resolutions
suggesting recognition of foreign states, as in the cases of Texas
and Cuba, and clashed with the executive in attempting to with-
draw recognition of the Maximilian government in Mexico.
Congress also attempted, but without great success, to limit the
independent power of the President to use forces abroad for pro-
tective purposes and to control the making of war. The Mexican,
Civil, and Spanish wars were each initiated by the President prior
to congressional declaration. In the first case actual responsibility
for the war undoubtedly rested on the President, who was later
censored by congressional resolution. The Supreme Court, not-
withstanding a vigorous dissent by four of its members, recognized
Lincoln's blockade proclamation as a proper exercise of power and
as beginning a state of war in, spite of the absence of congressional
declaration.9 Congress forced the Spanish War by authorizing in-
tervention in Cuba, but its actual declaration occurred several days
after President McKinley had begun war by a blockade proclama-
tion, and was made retroactive to that time.
Many congressional decisions which actually raised diplomatic
controversies were on subjects clearly within the competence of
Congress, such as the regulation of commerce and immigration.
Several times, however, the exercise of these powers ran counter
to the interests of foreign governments or, as in the Chinese ex-
clusion acts, even to their treaty rights. During this period Con-
gress formally endorsed certain policies originated by the execu-
tive, including the right of expatriation and the Monroe Doctrine.10
| The problems connected with the enforcement of international
law to a considerable extent concerned boundaries, and arbitra-
tion of them was often resorted to by means of special treaties. A
number of financial claims were submitted to arbitration by the
e The Prize Cases, 2 Black, 635.
10 It may be questioned whether the congressional resolution of 1895 supporting
President Cleveland's policy in regard to the Venezuelan boundary was an endorse-
ment of the Monroe Doctrine as a whole. See Foster, A Century of American
Diplomacy,, p. 477; Wright, Control of American Foreign Relations, p. 283.
DOMESTIC CONTROL 101
President alone. Most notable of all was the Alabama arbitration
provided by the treaty of Washington, which had been negotiated
by a commission to which the Senate had consented after it had
rejected an earlier proposal to that end. Arbitration was used
particularly in controversies with Great Britain, the only major
Power with which we continued to have territorial contact. In set-
tling controversies with Spain or Mexico, even those of a legal
nature, the mailed fist was frequently used, overtly or covertlyT]] &
It may be said of this period that the idea of foreign relations
changed from an emphasis on the maintenance of international
law to the enforcement of national policy. American dealings were
mostly concerned with Indian tribes, Mexico, Spain, Caribbean
countries, China, and islands of the Pacific. These were not dan-
gerous antagonists ; it therefore seemed natural for Congress to
think it could simply decide what it wanted to do, and expect the
executive to do it with the army and navy if necessary. Even
toward England this attitude frequently appeared, but it subsided
before being forced to an issue.
The final period has witnessed the definite entrance of the
United States into world politics with the acquisition of the Philip-
pines, the assertion of a definite policy in the Far East, the insist-
ence on dominating the isthmian canal and its approaches, and
the participation in fact, if not always in theory, in international
transactions of world importance. The result has been an increase
in the opportunities for the exercise of presidential influence. Yet
the attitude of Congress assumed during the preceding period has
continued, and clashes between the executive and the Senate have
been frequent, sometimes disastrous.
[The Senate has often delayed treaties or attached reservations
to them, and has defeated many which the President regarded as
of major importance, with the result that the President has often
resorted to executive agreements. The Roosevelt agreement for
financial administration of Santo Domingo, and the Knox agree-
ments of similar character in Nicaragua and Honduras were made
after the Senate had indicated its disapproval of the policy in-
volved. The Root-Takahira and the Lansing-Ishii agreements
were also executive agreements, as was the "Gentlemen's Agree-
102 AMERICAN FOREIGN RELATIONS
ment" in regard to Japanese immigration, though this latter was
eventually terminated by Congress in 1924. An offset to this initia-
tive by the President has been the tendency of Congress or the
Senate to pass resolutions defining general policy on arbitration,
disarmament, the Monroe Doctrine, etc. Sometimes Congress has
even attempted to control policy in detail, as by restricting execu-
tive participation in international conferences, or by concretely
defining American policy, as in the opium conferences. The Sen-
ate's right to share in the negotiation as well as in the ratification
of treaties was expounded by the Democrats in connection with the
Algeciras Conference, and by the Republicans in connection with
the Versailles Treaty. Since the Senate's success in defeating the
latter, it has become even more assertive, and the executive has
displayed an unusual caution. The President has appointed Sena-
tors as negotiators, has respected Senate resolutions of instruc-
tion, has appointed only "unofficial observers" to international
conferences unauthorized by Congress, and has bowed before
Senate reservations to treaties!^
In making decisions on national policy there have also been fre-
quent clashes. The President has maintained his prerogative in
the matter of recognition and the use of forces abroad for de-
fensive purposes in the face of continued efforts at congressional
interference expressed in congressional resolutions, hearings, and
calls for documents on such subjects as Mexico, Haiti, Santo Do-
mingo, Nicaragua, Ireland, Russia, China, and oil.
The President's policy has generally prevailed during the pe-
riods of American neutrality. In the first years of the World War,
congressional resolutions calling for withdrawal of protection
from Americans who travelled on armed merchant vessels and for
an embargo on munitions shipments to belligerents were opposed
by the President, and failed. A resolution favored by the President
in 1915 for purchasing belligerent ships in American ports and
another in 1917 for arming American merchant vessels against
submarines also failed; nevertheless, the President initiated this
latter policy, and a month later asked Congress to recognize
the state of war which Germany had "thrust upon us." The Presi-
dent had resisted considerable popular and congressional pressure
DOMESTIC CONTROL 103
to enter the war after the sinking of the Lusitania in 1915 and
was reflected on a "he kept us out of war" platform in 1916, but
Congress immediately responded to his war message. It would ap-
pear that by this time both branches of the government had been
convinced that war was necessary. During the war the President
conducted policy with little opposition. Full cooperation with the
Allies, intervention in Russia, recognition of new governments in
central Europe and peace proposals were developed under his
authority. As the enemy weakened, party opposition in Congress
began to develop. The President's loss of the elections just before
the armistice weakened his position at home and, upon his first re-
turn from the Peace Conference, the Senate's round robin op-
posing provisions in the League of Nations Covenant weakened
it in Europe. Vigorous opposition to the Treaty by a small group
in the Senate finally defeated it by seven votes.
Congressional initiative in foreign policy has sometimes been
effective, as when Congress forced the Spanish War. In 1927 Con-
gress passed a resolution for arbitration with Mexico which has
contributed to the development of more friendly relations, but its
recent attitude has not always been conciliatory ; it has definitely
taken to itself the control of the tariff and immigration, both of
which had occasionally been objects of diplomatic negotiation, and
in doing so has not hesitated to trample on the susceptibilities of
other states.
The maintenance of international law has called for consid-
erable legislation, especially for strengthening the neutrality laws,
and Congress has responded when required, except in regard to
the protection of resident aliens. Legislation authorizing the
President to embargo arms shipments to American countries or to
countries where we enjoy extraterritorial privileges, is partly
expressive of the preservation of international law but has been
used by Presidents as an instrument of policy in Mexico and, in
conjunction with the other Treaty Powers, in China. The Senate
has shown an increased inclination to insist on a voice on each in-
dividual submission of claims to arbitration.rAs^ John Bassett
Moore has pointed out, the President is not so tree today to settle
claims by arbitration as he was a century and a quarter ago. The
104 AMERICAN FOREIGN RELATIONS
so-called general arbitration treaties include in fact such extensive
exceptions that they give little encouragement to the use of this
method. This is true of The Hague conventions and the Root
treaties of 1908. It is notable that on several occasions, especially
the Maine affair, the Panama episode of 1903, the Canal tolls con-
troversy, and the Mexican land and oil legislation, the United
States has refused to arbitrate disputes when that course has been
suggested by the other party/? $/ ^ {
It may be said that during this period the United States has
more often than in the earlier periods approached international
relations from the point of view of negotiation and international
bargaining. She has been less legalistic than in the second period
under the constitution and less dictatorial than in the third pe-
riod, though tendencies in both of these directions persist. She has
more often than before had to deal with powerful states, such as
Great Britain, Germany, France, and Japan, and has usually
sought to achieve her ends by compromise or bargaining. She has
shown a greater inclination to participate officially or unofficially
in general international conferences of a political character. In
fact, though her participation in world politics has not been sys-
tematic or continuous, except in the New World, which she domi-
nates, her voice has eventually been heard on most of the major
world problems. Thus she spoke on the Far East at Peking
(1900), Portsmouth (1905), and Washington (1922); on the
Near East at Lausanne (1923) ; on Morocco at Algeciras (1906) ;
on the World War settlement at Paris (1919) ; on European
financial rehabilitation at London and Paris (1925) ; on the limi-
tation of armaments at Washington (1922) and Geneva (1927) ;
on the development of international law at The Hague (1899,
1907).
|| It is not surprising that the embarrassments of a deadlocking
system of treaty making should be increasingly felt, and that
special attention should be given to the improvement of the tools
of diplomacy.! The foreign service has been reorganized on an effi-
ciency basisTTand the State Department has been enlarged and
divided into specialized divisions. It is also worth noticing that this
period has witnessed a great increase in public interest in foreign
DOMESTIC CONTROL 105
affairs and in the development of direct contact by many other de-
partments of the government with foreign relations, in spite of
consistent State Department efforts to centralize such contacts in
its own hands in the interests of effective negotiation.
THE LAW OF THE CONSTITUTION
THE evolution of the system for conducting foreign relations
has been traced through American history. Adaptations of
the original system to special emergencies and to permanent
changes in conditions have taken place in spite of the fact that its
basic principles as established by the Constitution have remained
unaltered. The need for further adaptation, either of the system
or of the world in which it works, was never more marked than it
is today. A number of tendencies toward change are active. Among
them may be noted (1) the modification of legal powers, (2) the
development of constitutional understandings, (3) the extra-gov-
ernmental organization of public opinion, (4) the utilization of
expert services, (5) the reorganization of the State Department,
and (6) the development of permanent policies.11 Which of these
tendencies makes for desirable adaptations ? What are their possi-
bilities ?
The spirit of American constitutionalism has been predomi-
nantly legalistic. With heroic faith, constitutional lawyers have
persistently attempted to make the machine of state run smoothly
by defining precisely the legal competence of each organ of gov-
ernment. This effort has been even less successful in the control of
foreign affairs than it has elsewhere. The controversy begun by
Hamilton and Madison in 1793 as to whether undefined powers in
this field belonged inherently to the executive or the legislative
branch of government was continued with the same inconclusive-
ness between Senators Spooner, Beveridge, and Bacon in reference
to the Algeciras Conference in 1906, and is still going on.12 In prac-
11 Dealt with in Section I, Chapter 2, "Traditions."
12 Works of Alexander Hamilton (J. C. Hamilton, ed.), VII, 76; Writings of
James Madison (Gaillard Hunt, ed.), VI, 138; Congressional Record, 59th Con-
gress, 1st sess. (vol. 40, pt. 2, pp. 1417 et seq.), essentials printed in Corwin, The
President's Control of Foreign Relations, pp. 7, 28, 169-204. Apart from the argu-
ments based on the inherently executive or legislative character of the conduct of
106 AMERICAN FOREIGN RELATIONS
tice, the President has had a distinct advantage. He alone has im-
mediate official contact with foreign governments, and can conse-
quently take the initiative and need not be forced by Congress. The
latter's powers in fact amount to suggestions which may or may
not be followed, and to a veto on important decisions, exercised
especially through the Senate's power over treaties and Congress's
power over appropriations.
The President can in ordinary times do a great deal without giv-
ing Congress an opportunity to act, and in times of emergency
Congress usually finds itself obliged to support the policies he has
begun. Thus the President can initiate and negotiate all treaties
through agents and instructions unknown to the Senate or Con-
gress. He can make executive agreements on all matters within his
independent power of enforcement without consulting the Senate
at all. He can utilize the forces to repel invasion, enforce treaties
and protect citizens abroad, thus practically committing the coun-
try to war. He is the representative authority of the United States,
alone competent to correspond officially with foreign governments.
He nominates and commissions ambassadors, ministers, and con-
suls, though he must get Senate consent to their appointment, and
receives foreign ambassadors and ministers ; he has thus the sole
power to recognize foreign governments and states. The Presi-
dents have also assumed power to recognize the existence of neu-
trality, or of peace upon the termination of war, though in the
foreign relations, arguments have been drawn from particular clauses of the Con-
stitution. For instance, does Congress's power to declare war and to terminate all
relations with a foreign country by navigation, commercial, and immigration legis-
lation give it power to determine all lesser modifications of relations with a for-
eign state? Or does the President's sole power to receive foreign ministers and to
send American ministers abroad, which makes him the sole authoritative ear and
voice of the United States, give him power to determine all relations with foreign
states, except where Congress has express power, when his oath of office obliges
him to await and execute the decisions of Congress? Does "the power of the Presi-
dent by and with the advice and consent of the Senate to make treaties, provided
two-thirds of the Senators present concur" give the Senate power to advise and
consent by resolution to every step before, and during, as well as after, the nego-
tiation? Or does it, considered in relation to the President's exclusive diplomatic
powers, contemplate a separation of treaty making into two parts: negotiation,
which is in the exclusive control of the President, and ratification, for which he
must get the Senate's advice and consent? The arguments may be studied in many
debates, but there is no consensus of opinion.
DOMESTIC CONTROL 107
case of the termination of war with the Central Powers, President
Harding followed the congressional resolution of July 2, 1921*
Executive declarations and precedents have been the main factors
in building up permanent foreign policies.
In spite of these extensive powers, the ability of a Senate mi-
nority to kill negotiated treaties has been an important element in
the management of our foreign affairs, and it has become increas-
ingly important since with more complex international relations,
treaties have become not so much luxuries as necessities. When it
was possible if inconvenient to get along without any treaties, the
two-thirds rule was a security against precipitancy ; but when, as
in the case of a war or termination of a commercial convention with
an important customer, it is necessary to make some treaty, mi-
nority rule is developed.
The Senate has exercised its power mainly in adherence to
traditional policies, in the interest of its own congressional pre-
rogatives, and in the interest of states5 rights. Thus it has fre-
quently made reservations insisting on the Monroe Doctrine and
the policy against "entangling alliances," and has amended or re-
jected treaties which it thought ran counter to those policies. It
has always approached multilateral treaties with great caution,
generally delaying them for a long time, often appending reserva-
tions, and sometimes rejecting them altogether. It has been un-
willing to delegate either to the President or to an international
body the power to decide whether a particular dispute should be
arbitrated, though it has consented to general submission of dis-
putes to conciliation. It has been reluctant to annex territory or
authorize protectorates and financial receiverships by treaty, and
has rejected or discouraged treaties affecting the powers of Con-
gress over the tariff, immigration, preparedness, and war making,
though it has ratified a few tariff and immigration treaties, sev-
eral guarantee treaties, treaties limiting the power to go to war,
and treaties limiting armament. The same variation is observable
in the treatment of treaties encroaching on the normal sphere of
the states of the Union. Many treaties authorizing alien landhold-
ing or inheritance within the states have been approved, but some
have been rejected.
108 AMERICAN FOREIGN RELATIONS
It is probably in the development of international arbitration
and participation in international organization that the President
and Senate have differed most. The Senate's attitude has made
progress in these matters exceedingly slow in spite of the efforts
to expedite procedure by Presidents and Secretaries of State. It
has resulted in the United States lagging behind the general world
advance in these directions.
Irritation between the two departments has often resulted from
differences on foreign policy. Presidents and Secretaries do not
like to have a difficult negotiation frustrated by Senate veto. Wash-
ington once left the Senate with an oath after discussing a pro-
posed negotiation with it. John Hay compared the Senate to
the matador in a bull fight, with the treaty in the role of bull. Wil-
son went to a premature grave from Senate defeat of his peace
plans. Of some 800 treaties negotiated by the executive from 1789
to 1928, 600 have actually come into force, over 40 have been re-
jected or indefinitely delayed by the Senate, about 40 have been so
amended by the Senate that the President either refused or was un-
able to ratify them, 12 have been delayed by the Senate for periods
of five to 20 years, 85 have come into effect with Senate amendments
or reservations accepted by the other party, and some 30 have
never been submitted to the Senate at all, having been withdrawn
by the President before the Senate had acted or having fallen
through because of action by the President or the other party to
the treaty after the Senate had consented without qualification.18
The Senate's attitude has not only irritated the executive, it has
also irritated foreign governments. Great Britain rejected with
indignation the King-Hawkesbury treaty of 1803, the slave trade
treaty of 1824 and the first Hay-Pauncefote treaty of 1900 after
the Senate had amended them. The European opinion of the
Treaty of Versailles debacle in the United States is well known.
Foreign states now recognize that they have no complaint under
international law if the Senate rejects or amends a treaty. The
treaty power of the United States is clearly set forth in the Con-
is These figures have been compiled by Hoyden Dangerfield and are analyzed in
his thesis on The Senate's Influence on the Conduct of American Foreign Rela-
tions, University of Chicago, 1918.
DOMESTIC CONTROL 109
stitution, and foreign governments cannot hold the Senate bound
by presidential signature alone. Their objection in recent years
has been rather on the score of discourtesy. In 1804, objection was
made on principle. Lord Harrowby, the British Foreign Minister,
is reported to have characterized the Senate practice of "ratify-
ing treaties, with exceptions to parts of them" as "a practice which
is new, unauthorized and not to be sanctioned." A century later,
Lord Lansdowne complained of amendments to the Hay-Paunce-
fote treaty that "His Majesty's Government find themselves con-
fronted with a proposal communicated to them by the United
States Government, without any previous attempt to ascertain
their views, for the abrogation of the Clayton-Bulwer treaty."14
Though disliking it, foreign governments now seldom complain
of the Senate's practice which, according to one writer, makes
"diplomatic affairs with the United States like a two volume novel
in which the hero marries the heroine at the end of the first volume
and divorces her triumphantly at the end of the second."15 The for-
eign press, in references to the Kellogg renunciation of war pro-
posal, wonders superciliously "whether the readiness of the United
States Government to sign such a treaty commits the American
people in the same degree as other Powers would be committed by
the signature of their governments."16
The House of Representatives has sometimes displayed a will-
ingness to support the President against the Senate in treaty
making. By a large majority it urged speedy ratification of the
World Court Protocol. But it has continued to deny the right of
the President and Senate to limit its discretion in respect of ap-
propriations, commercial legislation, and war making by con-
cluding a treaty. Clearly, if the House objection is valid, it would
apply equally to all the delegated powers of Congress, which, as
Calhoun explained in 1844, would mean that the exercise of the
treaty power "had been one continual series of habitual and un-
interrupted infringements of the Constitution."
This opinion was in fact opposed by Washington in refusing to
i* Wright, Control of American Foreign Relations, p. 44.
is Lippmann, Poreign Affairs (N. Y.), January, 1926.
is London Times, April 14, 1928.
110 AMERICAN FOREIGN RELATIONS
transmit to the House papers relating to the negotiation of the
Jay treaty. It has never been formally admitted by either Presi-
dent or Senate, and the House has not in fact acted on it, though
the attitude of the House may have deterred the President and
Senate from making treaties from fear that the House would block
their execution. Such action by the House would undoubtedly give
ground for international complaint. "The making of a treaty,"
says Mr. Root, "is a solemn assurance to all nations that the sub-
ject matter is within the treaty making power. A refusal of Con-
gress to pass the necessary resolution would simply be a breach
of the treaty."
It has been suggested that in spite of their legal rights foreign
governments should appreciate the position of the House and
assume a tolerant attitude. Every nation, says Justice McLean,
"may be presumed to know that, so far as the treaty stipulates to
pay money, the legislative sanction is required. And in such a case
the representatives of the people and the states exercise their own
judgment in granting or withholding the money." The United
States herself did not observe such a tolerant attitude when the
French Parliament failed to make an appropriation in fulfilment of
the claims settlement convention of 1831 ; in fact, President Jack-
son threatened reprisals. It would clearly be unwise to rely on the
observance of such an understanding by others. As Mr. Hughes has
pointed out, "it is a very serious matter for the treaty making
Power to enter into an engagement calling for action by Congress
unless there is every reason to believe that Congress will act ac-
cordingly."
In addition to their attitude on treaties, Congress and the Sen-
ate have sometimes objected to presidential war making, recogni-
tion and participation in international conferences, and have at-
tempted, especially since the war, to control the President's dis-
cretion in such matters, with the result, according to Mr. Wicker-
sham, that "the conduct of foreign relations will be almost impos-
sible of satisfactory direction if the Senate shall continue in future
to interfere with and hamper the executive as it has done the last
four years."17
17 Foreign Affairs (N. Y.)» December, 1923, p. 187.
DOMESTIC CONTROL 111
Thus, in spite of a multiplicity of precedents and juristic efforts
at definition, important differences still exist between the Presi-
dent, the Senate, and the House with respect to their constitutional
powers in foreign affairs. Occasions for friction have increased
with the advance in treaty making from an average of one a year in
the eighteenth century to about fifteen a year in the twentieth,
in addition to a parallel augmentation of foreign transactions of all
kinds. The seriousness of the situation is increased by the apparent
rigidity of the Senate's attitude. Charles Cheney Hyde, former
solicitor of the Department of State, believes that "Any construc-
tive proposal designed to make a successful appeal to those pos-
sessed of the treaty-making power of the United States must
reckon with the following conditions : first, that this nation has a
passion for independence ; secondly, that it will not agree to be
drawn into a war between other states ; and, thirdly, that it will
not delegate to any outside body the right to determine what is the
nature of a controversy or how it ought to be adjusted. These are
facts."18 From this Professor Hyde assumes that the United States
must limit her participation in international organization accord-
ingly. Others have argued from the same premises that the Con-
stitution must be amended to eliminate the two-thirds rule in the
Senate.
Substitution of a majority of both houses for two-thirds of the
Senate in treaty ratification would accord with the practice of
most continental European governments. It would obviate the
complaints of the House and eliminate the ever-present possibility
of inability to execute a treaty, valid at international law, because
of the refusal of the House to agree to appropriations or necessary
legislation. This would seem reasonable, in view of the constitu-
tional provision that treaties are the supreme law of the land, and
on this score was suggested in the Federal convention of 1787. It
would also render deadlocks less frequent, because one political
party is much more likely to control a majority of both houses
than two-thirds of the Senate. The main objection of the fathers
to submission to the House was based on the necessity of secrecy,
is American Journal of International Law, April, 1928.
112 AMERICAN FOREIGN RELATIONS
but secrecy has frequently been ignored by the Senate in recent
years. Their insistence on the two-thirds rule in the Senate was in
part to prevent the sacrifice of any section of the country — sec*
tional interest in the northeast fisheries and in Mississippi navi-
gation was especially in mind — but today this argument would
apply with even more force to legislation. Sectionalism may, in
fact, create bitter feeling through the power of a minority to pre-
vent treaties or legislation in the national interest. The state senti-
ment of which the Senate has been deemed the special protector
would be urged against the change, as also would the argument
that permanent commitments binding governments of both parties
in the future should not be entered into without the consent of a
substantial number of both parties. Yet the principle of continuity
of policy preserved by the State Department would afford some
security against partisan treaties. In any case, the desirability of
preventing deadlocks when treaties are as necessary as legislation
should overrule these objections.
The effect of the change would be to make the treaty-making
power the same as the legislative power, except that the President
would have the sole initiative and, retaining the ultimate decision
on ratification, would have an absolute veto. Samuel W. McCall,
former representative and Governor of Massachusetts, has vigor-
ously urged this change, and it has been endorsed by John W.
Davis, who suggests that "it contributed neither to national in-
fluence or prestige or safety that the process of ratifying or
rejecting treaties should degenerate into an effort to discover some
qualifying formula acceptable to a minority. There is grave dan-
ger in forgetting that, whether in matters domestic or foreign, the
business of government is to govern."19
There is, however, an insuperable objection. Unless two-thirds
of the state legislatures should decide to call an amending conven-
tion, it would take two-thirds of the Senate to propose such an
amendment and it is not conceivable that that body would ever
propose the reduction of its unique prerogative.
10 Quoted by Wickersham, Foreign Affairs (N. Y.), December, 1923, p. 190.
DOMESTIC CONTROL 113
THE DEVELOPMENT OF CONSTITUTIONAL
UNDERSTANDINGS
LEGAL definition has not solved the problem of controlling for-
eign relations in the United States. Formal amendment of the
Constitution is difficult and its results uncertain. Attention has
consequently been turning to the possibility of developing less
formal and more flexible standards of action. American students
have asked whether it may not be possible for conventions and
understandings to develop among the organs of the United States
Government as they have developed in England.
"Political constitutions in which different bodies share the su-
preme power are only enabled to exist by the forbearance of those
among whom this power is distributed." This generalization by
Lord John Russell, which has been more recognized in England
than in the United States, has been developed in detail by Pro-
fessor A. V. Dicey, who distinguishes the conventions from the law
of the British Constitution.20 Russell explains how the Crown exer-
cises its prerogative and the Houses of Parliament their privileges.
He believes that these conventions in England have grown up so
as to assure the ultimate triumph of the will of the political sover-
eign, that is, the majority of the voters for members of the House
of Commons. In the eighteenth century the British Constitution,
though perhaps organized to preserve liberty, as Montesquieu,
DeLolme, and Blackstone thought, was a jarring and jangling
instrument. There was little smoothness in the relations of George
III with his ministers and his parliaments. Perhaps the Constitu-
tion of the United States is now in that condition. Perhaps the law
of the Constitution will work if better constitutional manners are
adopted by the departments at Washington. Though Washington
society may have outgrown Jefferson's pell-mell banquet and
Jackson's Peggy O'Neil cotillion, perhaps Washington politics
has not.
Among these suggested understandings is that of prior con-
sultation between the executive and Congress before either takes
a step which would eventually require cooperation by the other.
20 The Law of the Constitution, chap. 14.
114 AMERICAN FOREIGN RELATIONS
"Whenever," reported the Senate Foreign Relations Committee
in 1898, "affirmative action of either the executive or the legisla-
tive branch of the government may involve a call upon the assist-
ance of the other, the branch about to take action should, if pos-
sible, first obtain indications of the other's desires."21
The early efforts of Presidents to consult the Senate as a body
during the progress of treaty negotiations proved a failure ; subse-
quently, consultation has been conducted through individual Sena-
tors or the Senate Committee on Foreign Relations, though formal
request for Senate advice has been made by written message of the
President during the course of about seventeen negotiations, seven
of them before 1794. The Jay treaty was in fact initiated through
the informal activity of a small group of Federalist Senators, but
the Senate itself was not formally committed. In the succeeding
years, ad hoc committees of the Senate frequently consulted with
the President informally. If they attempted to meet him formally
and of right they were likely to be rebuffed, as was the case when a
committee was dispatched by the Senate to consult President Madi-
son in regard to the appointment of a minister to Sweden. After
the War of 1812 these ad hoc committees, which in fact frequently
contained the same personnel, became a permanent committee on
foreign affairs. This body has sometimes met the President during
the course of negotiations, as it did when President Wilson first
returned from Paris in 1919.
Leading members of the Senate have often consulted indi-
vidually with the President or Secretary of State. Senator Ba-
con of Georgia once referred from his own experience to the
"frequent practice of Secretary Hay, not simply after a proposed
treaty had been negotiated, but before he had ever conferred with
the representatives of the foreign Power, to seek to have confer-
ences with Senators to know what they thought of such and such
a proposition ; and if the subject matter was a proper matter for
negotiation, what Senators thought as to certain provisions ; and
he advised with them as to what provisions should be incorpo-
rated." Senator Bacon referred particularly to the Alaskan
boundary and the general arbitration treaties; on the latter he
21 Senate Document 56, 54th Congress, 2d Session, p. 5.
DOMESTIC CONTROL 115
thought the Secretary had conferred with every Senator either in
writing or in person.22 Occasionally, Senators have taken a con-
siderable initiative in treaty making. Thus Senator Borah, who
has introduced several resolutions on the outlawry of war, is said
to have exercised an important influence on the opening of negotia-
tions with France for a multilateral treaty renouncing war as an
instrument of policy.
Sometimes the President has appointed important Senators as
treaty negotiators to assure favorable reception of the instrument
in the Senate. This practice was followed in connection with the
mission which negotiated the treaty ending the Spanish War and
in connection with the appointment of the delegation to the Wash-
ington Conference of 1922. It was criticized by Senator Hoar of
Massachusetts as an unconstitutional effort to deprive the Senate
of its discretion,23 but in 1923 Mr. Wickersham thought that recent
experience indicated
that the only practical means of securing any treaty or international
agreement between the United States and a foreign nation under
present conditions is through a conference or commission in which
one or more Senators, preferably one from each political party, shall
be members, which shall meet in Washington, keeping closely in touch
with other influential members of the Senate, and which shall not
commit itself to any agreement until it has been canvassed with
enough members of the Senate to make its approval reasonably cer-
tain.
This appears to describe with accuracy the process by which
American approval and ratification of the Washington Conference
treaties were obtained.
Informal relations of a similar character have existed between
the executive and the House of Representatives on foreign matters
within the latter's purview. Representatives Rogers, Porter, and
Burton have kept in close contact with the State Department in
their respective tasks of preparing the acts reorganizing the for-
eign and home services of the Department and the American case
22 Congressional Record, June 23, 1906, XL, 2130.
23 For further reference to this point, cf. Section III, "The United States and
the League of Nations," p. 251.
116 AMERICAN FOREIGN RELATIONS
at the opium and arms traffic conferences. The latter two Repre-
sentatives, in fact, respectively headed the American missions to
these conferences.
A regularization of contacts between the executive and legisla-
ture has been suggested through the organization of a special com-
mittee or cabinet on foreign affairs containing the President, Sec-
retary of State, and leading members of the Senate Committee
of Foreign Relations and the House Committee on Foreign Af-
fairs. Perhaps Secretaries of other departments interested in the
problem at issue could be added on occasion, and permanent offi-
cials of the State Department might be present at the meetings
of this proposed special committee. A modified form of this sug-
gestion has been incorporated in Representative Porter's bill for
reorganizing the Department of State. An Advisory Council is
proposed in the Department of State composed of the Secretary
of State, the Under Secretaries and Assistant Secretaries of State
to meet on call of the Secretary and to "consider questions relating
to the foreign affairs of the United States." The Secretary is fur-
ther authorized to invite the chairmen and ranking minority mem-
bers of the Committee on Foreign Relations of the Senate and the
Committee on Foreign Affairs of the House to participate in such
meetings.
Another proposal for direct contact is that the right of debate
in Congress be extended to members of the Cabinet. Continuous
opportunity to present the executive's policy and to answer
questions on foreign relations would, it is hoped, disarm opposi-
tion before it had crystallized, or modify executive policy in re-
sponse to an insistent congressional attitude at an early stage of
proceedings. Such a modification of practice would seem entirely
possible within the Constitution as it is, and, if it worked success-
fully, would almost inevitably lead to responsible government. But
unless the cabinet members came gradually to recognize that,
when Congress was determined, they must respond to it rather
than to the President, friction might be increased rather than
diminished. The tradition of separation of powers and presidential
independence and control of the Cabinet is so firmly rooted that
the initial operation of such a system would probably be stormy ;
DOMESTIC CONTROL 117
at the same time, through its power of the purse, Congress might
eventually be successful in imposing its will, as did the Parliament
of England, provided the House and Senate could maintain a
united front. But that is a big proviso ; the Senate is jealous of its
singular prerogative.
A second constitutional understanding which has been generally
observed requires that all departments of the government cooper-
ate to give effect to responsibilities existing under general inter-
national law and under international commitments validly entered
into. Doubtless it is desirable that if action by the House or states
is necessary, they should be consulted before a treaty is made ; but
if they are not so consulted, they ought to act in fulfilment of the
national obligation. In fact, the House has quite generally ob-
served this convention. It has enacted a mass of legislation to as-
sure fulfilment of the national duties under general international
law and has always appropriated or legislated, although sometimes
under protest, as required by treaty. States have not been so mind-
ful of international responsibilities, and notorious cases exist
where the failure of state courts and police to provide adequate
protection for aliens has involved the United States in diplomatic
controversy and pecuniary obligations. A reciprocal understand-
ing would doubtless require the President to do his best by diplo-
macy or even force to make effective a national policy properly
enacted by Congress. He has generally done so, but always with
the reservation that he alone can judge of the expediency of
action at a given time, and that resolutions dealing only with for-
eign policy and not clearly within the constitutional powers of
Congress can be ignored.
A final understanding should require that where two organs of
the government have concurrent powers, the commitments of one
should preclude the other from acting contrariwise. Most treaties
encroach upon the delegated powers of Congress, but Congress
should refrain from subsequently violating them ; if it does so, the
courts are obliged under national law to sustain the legislation.24
s* Since treaties and acts of Congress are both declared the supreme law of the
land by Art. 6 of the Constitution, the courts have held the most recent to prevail
as municipal law: Head Money Cases, 112 U. S. 580; Chinese Exclusion Cases.
118 AMERICAN FOREIGN RELATIONS
Since the Senate is a constituent both of Congress and of the treaty
power, legislation adverse to treaties is not likely. In many cases
Congress has expressly excepted existing treaty rights from gen-
eral legislation, but it did not do so in the case of the Chinese ex-
clusion legislation of 1888. While the immigration act of 1924
clearly ran counter to the "Gentlemen's Agreement" with Japan,
it is not so clear that it violated any treaty right of Japan, though
the Japanese Government argued that the principle of the uGen-
tlemen's Agreement" had been incorporated by reference in the
commercial treaty of 1911.
State legislation is of course void if contrary to ratified treaties,
but sometimes informal contact with state authorities has been
considered desirable, as in the case of President Roosevelt's dis-
cussion with the Mayor of San Francisco on the Japanese school
question in 1906 and Secretary Bryan's visit to the Governor of
California on the Japanese land question in 1913.
The President should doubtless recognize reciprocal under-
standing and refrain from negotiating in a contrary sense when
Congress has properly asserted a policy by legislation. There
seem to be few if any cases of treaties contrary to previous legis-
lation of Congress ; the courts have held that in such a case the
treaty would be law. The conventional respect which the treaty
power should pay to the normal policy of the states is more doubt-
ful. It is clear in law that state legislation in pursuance of their
reserved powers constitutes no bar to treaty making, but in a num-
ber of instances the executive has declined to negotiate on subjects
which by established practice are within the states' domain.25
The growth of understandings of the kind here considered is of
undoubted importance, yet it may be questioned whether they can
produce really smooth action under a system of separation of
powers. British constitutional conventions grew up after the
House of Commons had won an acknowledged position of domi-
nance, when it was willing to observe conventional limitations upon
the exercise of its sovereignty ; because of their eventual subordi-
nation, the Crown and Ministry had an obvious interest in observ-
25 Hay den, American Historical Review, "The States' Right Doctrine and the
Treaty Making Power," April, 1917, p. 566.
DOMESTIC CONTROL 119
ing this position of the House. In the United States, however, the
theory of equality between the President and Congress is as strong
as ever because it is firmly buttressed by the dogma of separation
of powers supported by the written Constitution and by the
sanctions of the Supreme Court. Neither President nor Con-
gress is ready to respect constitutional understandings when to do
so might create a precedent against possession of the power in ques-
tion. The alertness of each in defense of prerogative militates
against the growth of understandings. "So-called constitutional
understandings," writes John Bassett Moore, "are logically much
more of the essence of things under the British system than under
the American system." Thus while we may expect constitutional
understandings and informal contacts to render the American sys-
tem more smooth-working in normal circumstances, we cannot rely
on them to prevent deadlocks in crises in which major differences of
opinion exist.
EXTRA-GOVERNMENTAL ORGANIZATION
OF PUBLIC OPINION
AMERICAN constitutional theory is based on the limitation of the
power of all governmental organs through judicially enforced con-
stitutional prescriptions and political checks and balances. It does
not deny that somewhere eventual plenitude of power within the
limits of international law is in existence. This plenitude of power
it ascribes to the people. "Although the nation is sovereign," writes
David Jayne Hill, "the government is not. Complete sovereignty
resides in the people as a whole, and not in any or all of the public
officers." For even though the people can act in a final sense only
through the complicated amending process, they are periodically
given the opportunity to elect the executive and both houses of
Congress, to organize political parties and voluntary associations,
and to make known their opinions through petition and the press.
Thus it is entirely in accord with American theory that unity in
foreign policy should be achieved through submission of all po-
litical organs, President, Senate, and House, to a united public
opinion except in so far as states' rights and guaranteed private
120 AMERICAN FOREIGN RELATIONS
rights expressly prevent such submission. In foreign affairs these
latter constitutional limitations are not often important, and a
united policy has been achieved by the expression of public opin-
ion. In the winter and spring of 1927 a campaign was waged in
the press, through numerous organizations and by private corre-
spondence with Congressmen and the President looking to the pre-
vention of intervention in Mexico and of a reprisals policy in
China after the Nanking shootings. These peaceful policies pre-
vailed upon the executive, after the Senate had passed a resolution
favoring arbitration with Mexico and the House had declared for
negotiation with China. The importance of popular agitation in
bringing about this result is difficult to assess. Certain special in-
terests doubtless wanted intervention in both cases, but it is not
clear that the government ever had an aggressive design. Apart
from active efforts in emergencies, public opinion may act con-
tinuously by furnishing pressure or restraint on official conduct ;
but whether it is regarded in an active or a passive role, it labors
under great difficulties in foreign affairs, and its influence in the
United States is probably less than is often supposed. "The fact
is," writes Dewitt Poole,
that on the great bulk of international problems, especially in their
initial stages, there can be no public opinion at all. But there emerge
from these problems from time to time broad and comparatively sim-
ple issues which the people must decide and with respect to which, it
has been found, their fundamental common sense asserts itself as it
has proved to do with respect to their domestic concerns. Those who
are charged with the conduct of the foreign relations of a democracy
are deprived in large part of the current guidance of public opinion.
They must proceed with their daily work in accordance with their
best judgment and in the light of tradition and precedent, taking care
to direct public attention to important matters as they develop and
to supply the data about which public opinion may crystallize.26
Another difficulty in the way of popular guidance of foreign
policy is presented by the inaccessible character of the informa-
tion upon which foreign policy must be based. How can the
public acquire such facts and background on the problem as would
26 The Conduct of Foreign Relations, p. 142.
DOMESTIC CONTROL 121
entitle its opinion to consideration? International incidents may
arise anywhere in the world and an intelligent treatment requires
concrete knowledge of the situation in that locality. The average
citizen can hardly have this information and in his busy life he
is not likely to look it up after the incident has arisen. Even if
he is inclined to do so, where can he look for the facts, and what
standards of judgment shall he apply? Unless the public bases its
opinions upon workable standards and accurate information, its
influence will be unfortunate, except in the broadest matters calling
merely for ordinary honesty and understanding of human nature.
Furthermore, the difficulty of supplying these conditions ren-
ders the public peculiarly susceptible in foreign affairs to sub-
versive influences. The yellow journal, the armament manufac-
turer, and the concession seeker may find it easier to propagandize
the public than to corrupt the government. The danger of foreign
influence in popularly controlled diplomacy has been especially
emphasized. With the intensification of the interpenetration of
national interests and the development of a ubiquitous press, it
is useless to hope for the elimination of foreign influence in the
formation of public opinion. It has never been entirely absent. The
influence of the French minister in the Continental Congress has
been referred to. Washington warned against foreign influence in
his farewell address, but it was none the less important in the fol-
lowing election. In time of war, foreign appeals to public opinion
have been especially important. Propaganda campaigns during
the World War in both neutral and enemy countries were second
if not equal in importance to the military and economic campaigns.
In spite of President Wilson's appeal for "neutrality of thought,"
Americans were early persuaded to partisanship by one side or the
other. After the American entry into the war, the United States
took the lead in propaganda, and made direct and successful ap-
peals to public opinion in the enemy countries over the heads of
their governments ; peace suggestions, in fact, began by public ad-
dresses of statesmen in each country intended for consumption by
the enemy.
Public opinion is, however, wary of foreign influence, and such
appeals, if lacking in dexterity, may prove boomerangs. Citizen
122 AMERICAN FOREIGN RELATIONS
Genet's appeals to the people in 1793 before his official reception,
reacted against him, as did President Wilson's appeal to the Ital-
ians on the Fiume question in 1919. But moderate presentation
of the foreign attitude in pending international questions seems a
necessary condition of democracy in international affairs. A peo-
ple can hardly judge soundly of its own foreign policy unless it
knows how the foreign nations affected will react to the various
alternatives. The advantage of having an international forum
within which such opinions may be authoritatively expressed seems
obvious.
The danger that the people may be ignorant of the facts, lack-
ing in standards of judgment and propagandized by subversive in-
fluences, may account in part for the proverbial efforts of foreign
offices to insulate themselves from the public. "It sometimes hap-
pens," writes Mr. Root,
that governments are driven into war against their will by the pres-
sure of strong popular feeling. It is not uncommon to see two govern-
ments striving in the most conciliatory and patient way to settle
some matter of difference peaceably, while a large part of the people
in both countries maintain an uncompromising and belligerent atti-
tude, insisting upon the extreme and uttermost view of their own
rights in a way which, if it were to control national actions, would
render peaceable settlement impossible.27
This is not always true of peoples — Bryce thinks their judgment
has usually been sound — nor are governments always guided by
the desire for peace. "When foreign affairs were ruled by autocra-
cies or oligarchies," as Mr. Root elsewhere says, "the danger of
war was in sinister purpose. When foreign affairs are ruled by
democracies the danger of war will be in mistaken beliefs."28
The change, Mr. Root thinks, is one for congratulation. You
cannot prevent a king from having a bad heart, but you can pre-
vent a people from having erroneous opinions. It remains to be
seen whether this hypothesis will stand the test of experience, but
the fact is that the public can no longer be kept from influencing
foreign affairs. In the early decades of the republic the leaders of
27 American Journal of International Law, 1907, I, 1.
28 Foreign Affairs (N. Y.), September, 1922.
DOMESTIC CONTROL 123
opinion gave much thought to foreign affairs, but with the rise of
the west this interest flagged ; even today the average American,
especially in the middle west, probably thinks much less about
international affairs than would a person of corresponding posi-
tion in any European country. "This good-natured indifference,
except in grave emergencies," says Mr. Hughes, "our geographi-
cal position, the extent of the country, and the wide range of
domestic opportunity, have developed a sense of self-sufficiency."
Popular interest, however, will continue to grow with the rapid
development of American financial, trade, and cultural contacts
everywhere, and with popular interest the demand for popular
control will develop.
"A democracy which undertakes to control its own foreign re-
lations," says Mr. Root, "ought to know something about the sub-
ject." General education in this field is both difficult and impor-
tant, but in the United States the post-war years have witnessed
a considerable response to this need. University courses dealing
with international affairs have trebled in number since the war ;
there has been an outpouring of books on foreign relations, diplo-
matic history, and international law ; periodicals such as Foreign
Affairs, Current History, and the American Journal of Interna-
tional Law, and the information service of the Foreign Policy As-
sociation are supplying materials for a sound background; and
associations and organizations devoted to an impartial discussion
of international relations and the supplying of authentic informa-
tion have sprung up in almost every great city. As yet, however,
these agencies for furnishing adequate standards of judgment
and accurate current information have not penetrated very far
down in society.
Elementary education and the press are still almost the only
reliance of the masses of voters. Both are inadequate. Elementary
education can pay but slight attention to international affairs,
and that little is likely to be biased by local political influences. It
is of the utmost importance that the facts in school textbooks
should be accurate and that their selection and the standards of
judgment they suggest should be adapted to the present condi-
tions of the world. Efforts to make them tools of national preju-
124 AMERICAN FOREIGN RELATIONS
dices or perpetuators of unhistoric sentimental traditions can only
have the effect of unfitting the rising generation for an adequate
control of policy.
Even more important is the press. Its tendency to be sensa-
tional, jingoistic, and inaccurate has long been recognized. It lives
by its circulation, and, as Bryce points out, "praise of one's coun-
try is always agreeable, but dispraise of other countries is more
welcome than praise of other countries." The sensational press,
for instance, undoubtedly had an influence in bringing on the
Spanish War in 1898. But the creation of a professional spirit
among journalists, the maintenance by the leading papers of
competent correspondents abroad, and gradual education of the
public to an interest in accurate information unadorned by mis-
leading headlines and editorial adjectives, are factors making for
improvement.
The government is rising to the need of educating the public.
The Senate often debates treaties in public. The secrecy which
seemed so essential to Washington and Jay in the 1790's and even
to Senator Spooner in 1906 is found to be less often necessary.
The Department of State has a division of current information
which prepares press releases and arranges press interviews with
the Secretary of State on current problems. A request of the con-
ference of teachers of international law and relations which met in
Washington in the spring of 1928 that current information be
issued in serial form and that reports and documents as far as pos-
sible be made readily accessible to teachers and students met with
a favorable response. With appropriations necessary to supply
increased editorial, printing, and distributing services, the De-
partment would provide much more material than is now possible
in order to keep the public informed.
There are of course limits to publicity. President Wilson ex-
plained that "open covenants openly arrived at" did not exclude
"private discussions of delicate matters, but that no secret agree-
ments should be entered into, and that all international relations,
when fixed, should be open, above board, and explicit." The pub-
lication of documents dealing with pending controversies might
make compromise or adjustment more difficult. Notes sent in con-
DOMESTIC CONTROL 125
fidence by foreign governments cannot be published without their
consent. Dispatches and advice from officials dealing with foreign
events and personalities might seriously impair the usefulness of
those officials if published while they remained in service. Instruc-
tions to treaty negotiators clearly cannot be disclosed in full to
the other party if there is hope of obtaining a bargain more fa-
vorable than the minimum acceptable.
But it is generally agreed that the public is entitled as soon as
possible to the texts of completed agreements and enough of the
preliminary documents to understand them. The publication of
treaties is required by law in the United States, and these are now
made available immediately after negotiation. The chief of the
division of publications of the State Department is charged with
preparing Papers Relating to the Foreign Relations of the United
States as soon as practicable after the close of each year.29 This
series began in 1862, and is expected to include all important cor-
respondence relating to major policies, decisions, as well as, ac-
cording to a ruling of March, 1925, matters of importance to the
science of international law and to treaty negotiations. Unfortu-
nately, this publication fell ten years in arrear during the war, but
it is to be brought down to at least five years of date. To an increas-
ing extent the Department publishes documents of current in-
terest on its own initiative or in response to congressional resolu-
tions. Documents dealing with Panama Canal controversies, Haiti,
and Santo Domingo, Mexico, Russia, Palestine, and oil negotia-
tions have been published in recent years either by the Department
or by Congress. More of such material would assist in creating a
"well informed and intelligent public opinion" which the Depart-
ment officially recognizes is "of the utmost importance for the con-
duct of foreign relations."30
Even if the public is educated and informed, it cannot act un-
less it is organized. Opinion must be crystallized and presented.
The legislative body is the natural place for this, but in the United
States Congress cannot act directly on the executive as it can in
29 The selection is made by Joseph V. Fuller, Special Assistant in the Division
of Publications.
so Memorandum prepared by Tyler Dennett, editor for the State Department,
and approved by Secretary Kellogg, March 26, 1925.
126 AMERICAN FOREIGN RELATIONS
Europe. The need of public opinion in the United States is to in-
fluence both Congress and the executive simultaneously in order
that they may act together.
Elections come infrequently, and an issue of foreign policy is
seldom presented unequivocally to the electorate. Whether the
election of 1920 should be interpreted favorably to the pro-League
or the anti-League republicans is still obscure, and probably it al-
ways will be. In all countries politicians try to keep foreign policy
out of elections. The national weakness which results from de-
veloping sharp internal dissension on subjects of foreign negotia-
tion is too obvious to need comment. Each party hopes eventually
to obtain power, and fully realizes that its foreign policy must in
fact be shaped by the turn of events and fundamental conditions
in even larger measure than by election results. President Wilson
did not hesitate to ignore the canal tolls plank in the platform on
which he was elected in 1912, after a study of the situation had
disclosed the strength of the British claim and the consequences of
neglecting it. In the United States foreign policy was prominent
in the campaign of 1796 when the country was divided between the
pro-French and pro-British parties, in the congressional election
of 1810 when the "War Hawks" won out, in 1844 when "fifty-four
forty or fight" played a part, in 1900 when imperialism was one
of several issues, in 1916 when Wilson was elected because "he kept
us out of war," and in 1920 when the League of Nations was dis-
cussed.31 But party platforms were usually equivocal on these issues,
results were often inconclusive, and the successful party frequently
did the opposite from what was expected. Adams started a French
war, then stopped it, Polk compromised on Oregon, and Wilson
went to war against Germany — these are a few examples to show
that the result of submitting foreign policy to elections has not
been satisfactory. In cases in which elections can be called
promptly on a current issue, as in England, public opinion can
express itself through them on policies, but where they are at fixed
intervals and numerous issues are involved, as in the United States,
the vote is invariably for party or persons and not for policies.
si For a discussion of the international issue in this election, see Section III,
Chapter 1, "The United States and the League of Nations," pp. 231 ff.
DOMESTIC CONTROL x*,
Party organizations are steadily active and may seem more use-
ful than elections as organs for expressing public opinion on for-
eign policy. Parties usually strive to bring about unity between the
executive and the houses of Congress, and if a single party con-
trols all three branches this can often be done in domestic con-
cerns ; but the two-thirds rule on treaties is an obstacle in f oreigr
affairs, for the minority party must also be brought in line. Fur-
thermore, because of the different terms of President, House, anc
Senate, there is no assurance that they will all be controlled by the
same party. They often are not so controlled, in which case anothei
occasion for deadlock exists. Party policy is also in large measure
shaped by the politicians, who, for reasons which have been stated
generally steer clear of foreign policy. For the same reason it is
always doubtful how far party policy represents the views of the
rank and file of the party.
Thus in the United States public opinion on foreign affairs can-
not operate effectively through legislatures, elections, or parties
In this respect the cabinet government of England has a greal
advantage ; there a widespread public sentiment can with consider-
able speed overturn a government through pressure on Parlia-
ment to force an election ; government is itself the organization oi
public opinion. In the United States public opinion, if it is to be
effective, must organize itself outside of the government. The resull
has been the growth of numerous voluntary associations, many oi
them with large memberships, some educational and informa-
tional, some propagandistic. Through these, public opinion is
organized, but its organization is less systematic, less effective, and
less responsible than that organized in the government itself.
It is difficult to ascertain the influences back of these voluntary
organizations. Are they special pleaders, professional propa-
gandists, or do they represent a substantial informed opinion? Tc
what extent are they the tools of foreign influences? The disin-
terested effort to create an intelligent opinion of such organiza-
tions as the Council on Foreign Relations, the Chicago Councii
on Foreign Relations, the Foreign Policy Association in Ne\\
York City with branches in nine cities, the Institute of Pacific
Relations, the League of Women Voters, is important. Many oi
128 AMERICAN FOREIGN RELATIONS
the peace foundations engage in a strictly educational work, and
efforts were begun at the centennial of the American Peace So-
ciety in Cleveland to organize almost a hundred subsidiary so-
cieties. Military, naval, and hereditary patriotic societies have
been equally diligent in organization. There are also business and
professional associations like the chambers of commerce, labor
unions, academic and learned societies, and bar associations, all
of which occasionally pass resolutions on foreign questions. There
are numerous semi-social bodies — Rotary and Kiwanis clubs,
women's clubs, lodges, organizations of foreign origin groups.
Finally, there are special interest groups, armament makers, oil
producers, sugar growers, manufacturers of different commodi-
ties, importers, exporters, shippers, bankers, missionaries, many
of which are organized and some of which maintain regular lobbies
in Washington. It is the consensus of all such groups and interests
which makes public opinion, but with their diffuse organization,
such a consensus is difficult to determine. Further development of
extra-governmental organs of a responsible character and recog-
nized influence may furnish the only means of assuring genuine
government by opinion in the United States.
The precise form which such organization will take cannot be
predicted, but it seems probable that there will be a steady co-
ordination of effort in this direction. Its importance was empha-
sized by Mr. Wickersham in 1923 :
The fact is that the treaty making machinery of the United States
has become so complicated as to be almost unworkable. Only by the
exercise of great powers of conciliation or of domination by the
President, or by awakening and directing upon the Senate a vigorous
public opinion, can any progress be made in international relations.
A body of 96 men of such diverse characteristics and opinions as the
members of the Senate is almost hopeless as an executive force. But
it is ideal for purposes of obstruction. If the United States is to move
forward in helpful cooperation with the other nations of the world
towards the attainment of international peace, it will only be through
the expression of a widespread and strongly expressed public opin-
ion, which the Senate may apprehend is to be translated into votes.82
82 Foreign Affairs (N. Y.), December, 1923.
DOMESTIC CONTROL 129
UTILIZATION OF EXPERT SERVICES
UNDER the most favorable circumstances, public opinion can guide
foreign policy only with respect to broad principles and concrete
decisions of major importance. Most decisions in foreign, as in
domestic, administration will always have to be made by officials
who are in direct contact with situations. Routine decisions made
from day to day have a cumulative importance in shaping the gen-
eral direction of policy, though few problems in a foreign office
under present conditions of world organization are routine in the
sense that they reproduce circumstances previously acted upon.
If ordinary decisions are made with understanding and foresight,
crises will be avoided. The more able the activity of a foreign office,
the fewer political issues are presented for decision ; it follows that
its best work is least known.
Even when crises exciting public attention arise, the advice of
officials is likely to be followed by political authorities. Frequently
a clear presentation of the situation by informed officials points
the wise path so clearly that political differences can hardly de-
velop. Thus the officials directly concerned with the conduct of
foreign affairs may be, and usually are, of great influence, and
their character and training are of corresponding importance.
Such officials are often thought of in two classes — those who
advise or decide on "high policy," and those who investigate or
administer. Poole estimates that there are seldom more than twenty
persons in the first class in a modern state, say, fifteen at home, in-
cluding the chief of state, prime minister, foreign minister, leading
foreign office officials, a few other cabinet officers and a few parlia-
mentary leaders. Abroad, he would admit about five heads of the
important embassies. Among the fifty states there are therefore
about a thousand individuals exercising a direct and continuous
influence on the course of foreign relations in time of peace, and
only about a hundred among the five Great Powers, which alone
affect "high policy" in the narrow sense. He points out that today
these are drawn from statesmen and politicians rather than from
career diplomats.
The officials of the second class, those who supply information
and carry out policy, are more numerous. They are distributed
130 AMERICAN FOREIGN RELATIONS
among the fifty foreign offices and in diplomatic missions and
consulates, to which must be added the increasing number of
agencies established by departments of commerce, agriculture,
etc., and by international organizations. These officials in the main
are career diplomats and consuls.
There is perhaps a danger in emphasizing the distinction be-
tween these two classes. Policy differs from administration only in
degree. A hundred men do not run the world except in a limited
sense ; even the entire body of persons with direct contact in inter-
national affairs, perhaps some thirty thousand individuals, do not
run the world ; they respond in large measure to the opinions and
interests of much more numerous groups in the countries for which
they act.
Policy differs from administration in that the sources of judg-
ment and decision are less precise, but legal principles and tradi-
tion impose limitations upon decision in both cases. Public opinion
also limits the statesman ; it limits the administrator to a less extent
because administration is more limited by precise statutes, and
regulations and instructions are more limited than policy forma-
tion. Nevertheless, when all the factors are weighed, even in the so-
called formulation of policy, there frequently remains but meager
opportunity for the exercise of personal judgment. Yet even in
the most detailed administration the element of personal judgment
is not entirely eliminated. The difference is one of degree, and
statesmen have thus more choice of alternatives than administra-
tors.
Yet modern conditions are decreasing the range of choice for all
officials having to do with foreign relations, in foreign offices and
field services alike. The freedom of field services is being limited by
the increased speed of communications through the development of
the telegraph and telephone, which have greatly centralized policy
formulation, and officials abroad are therefore under much more
precise instructions today than they were in the days when these
instructions had to be carried exclusively by couriers and the mails.
Parallel with the centralization of the foreign office service has been
the development of foreign contacts by other departments. Thus
in the United States, the Secretary of State may find his freedom
DOMESTIC CONTROL 131
limited by the views of the Secretaries of Commerce, Treasury,
Navy, and others. More and more matters have to be decided by the
President with his cabinet, and the growth in influence of public
opinion means that matters of major importance can no longer be
freely decided even by the supreme executive authority, with the
result that the latter often has to bow in matters of public interest
to the legislative body or to unofficially organized public opinion.
In addition to this tendency for responsibility to be pushed back
to the people is the mechanizing effect of an increase in the mass of
business. The result of this increase in the frequency of decisions
is that precedents can be found more often than formerly, and the
necessity of getting business done means that they are likely to
be relied on. Apart from national traditions, international law and
international organization are also becoming rapidly solidified,
and governments, in considering problems, are confronted by many
treaty or other international limitations. The increasing mass of
decisions to be made, together with this rapid growth in the web of
custom, distributes the work of deciding many of the questions, and
leaves only those of major importance to be considered by states-
men at the helm. It is an unwritten rule of the State Department
that an official shall never send any matter to his superior if he has
authority to dispose of it himself. It is only by this means that the
Secretary of State can handle the million and one pieces of corre-
spondence which nominally go through his hands each year.
Thus modern conditions are bringing about a dual movement.
The field officer is being bound more by the foreign office, and the
latter by the executive government, which itself is becoming more
responsive to public opinion organized in legislatures or otherwise.
At the same time all officials are becoming increasingly enmeshed
in a mass of law, precedent, and tradition whose interpretation and
application must be left to lesser officials and to the man on the
spot.
With this situation, "high policy," in its sense of free decision
by central authority on matters of international relations, is tend-
ing to disappear. Policy is becoming the resultant of numerous de-
cisions, each of apparently minor importance, made often by
minor officials in consideration of traditions, precedents, law regu-
132 AMERICAN FOREIGN RELATIONS
lations, and instructions, under the general guidance of public
opinion as interpreted by statesmen. The organization is coming
to dominate personalities, with the result that the danger of inter-
national clashes will become greater unless these great national
organizations are geared together at many points. A world of im-
personal juggernauts each relentlessly going its course without
attention to the others would certainly result in catastrophe.
There are limits to this process of mechanization. The use of
conferences and the development of international organization is
evidence of the continuing need felt for personal contacts. Per-
sonality is in fact an essential element in the success of all ad-
ministration and business, since human organizations are not me-
chanical systems, and the more complex they become the more
their human basis must be alert and intelligent. There is grave
danger in a complicated organization whose members do not un-
derstand it. "The notion," writes Mr. Hughes, "that a wide-
awake, average American can do anything is flattering to the
American pride, but costs the government dearly."
The United States has in the past often had able Secretaries
of State, able ambassadors and ministers and able diplomatic
secretaries and consuls. She has sometimes had Presidents with
experience in international affairs. But these attributes have been
accidental, and until recently there has been little in the system
for naming these officers to assure the appointment of able and
trained men for functions in the international field.
In England the parliamentary system is an assurance that the
minister of foreign affairs will be a man of known ability and ex-
perience in that field. The foreign office and foreign service have
long been filled by examination and promotion and are thoroughly
competent if somewhat aristocratic professional services. Foreign
policy in England has been greatly influenced by the permanent
officials of the foreign office and sometimes by the Crown itself.
There is a strong tradition of continuity in foreign affairs which
has militated against influence by the public and Parliament and
which has augmented the influence of the Crown and permanent
officials who know traditions and precedents. As has been noted, the
influence of precedent is inevitably greater where the mass of
DOMESTIC CONTROL 133
business is large, and until recent times Great Britain and Euro-
pean countries in general have had relatively much more foreign
office business than has the United States. They have also been
under greater pressure to maintain continuity of policy in order
to avoid political dispute and disunity in international bargaining.
Too rigid an adhesion to tradition is not desirable, especially
in a rapidly changing world, and this is the danger of control by
permanent officials. Diplomats abroad are less likely to be over-
respectful of tradition, though, if the diplomatic service is purely
professional, as it inclines to be in European states, the diplomats
may lose touch with the essential interests and currents of opinion
at home.
In the United States there can be a great increase in the influ-
ence of permanent officials without this danger. Though it has
been suggested that Alvey A. Adee, who served as second Assistant
Secretary of State for over forty years until his death in 1924, may
have been too favorable to precedent and secretiveness, the value
of his experience and wide knowledge has been generally recog-
nized. A strong Department and foreign service would do much to
eliminate friction among the political organs of government by
guiding the judgment of each to a common conclusion. It would
keep in touch with public opinion systematically and with Con-
gress as well as with the President.
The problem of developing such services involves both organi-
zation and personnel. Let us consider the latter first. In spite of
sporadic efforts by Secretaries of State and Presidents, notably
Cleveland, the foreign service was a harvest for the spoilsman
until the consular service was put under the merit system by the
Consular Service Reorganization Act and by Roosevelt's executive
order of 1906, followed by a similar treatment of diplomatic sec-
retaries by Taft's order of 1909. An act of 1915 provided for ap-
pointments to grades rather than posts in the two services, thus
permitting greater freedom of transfer among posts. Designa-
tion for service of not over three years in the State Department
was also authorized. .The strain of the war and the report on the
foreign service by the National Civil Service Reform League in
1919 finally produced the Rogers Act, approved in 1924, which
134 AMERICAN FOREIGN RELATIONS
organized the consular and diplomatic services as the "foreign
service of the United States" in nine grades, increased the salary
scale, and provided a system of recruitment, promotion, and re-
tirement.
The Act was strongly endorsed by the Department itself and
brought an undoubted improvement. The amalgamation of the con-
sular and diplomatic services, however, has not proved an unmixed
blessing. Foreign service officers normally start in the consular
branch, but many hope to be transferred to the diplomatic branch,
which still enjoys greater prestige. The problem of promotions
and transfers is not easy, and there have been allegations of
favoritism and clique control. The Rogers-Moses Act now pending
in Congress proposes to create a new Assistant Secretary of State
who shall not have been in the foreign service for two years and
whose sole function will be to attend to promotions. With him are
to be associated a member of the foreign service personnel board
and three other officials appointed annually by the Secretary of
State, not more than one of whom may be a foreign service officer.
At present three foreign service officers constitute the executive
committee of the foreign service personnel board in charge of pro-
motions. There is a further provision that five years' consular
service shall be required for appointment in the diplomatic
branch, which would result in the transfer of a number of diplo-
matic secretaries to consular offices.
While the Rogers Act does not apply to chiefs of diplomatic
missions, President Coolidge's executive order giving it effect sug-
gested promotion of career officers to chiefs of mission. In fact,
seventeen such appointments have been made. Much is to be said
for leaving the President free to appoint as chiefs of important
missions representative citizens who have made their mark in busi-
ness, literature, or politics. The United States has undoubtedly
benefited by having such men as Lowell, Phelps, Hay, and Choate,
to name only four of a gallery of distinguished American ambassa-
dors, in diplomatic posts. When advised by career secretaries, the
inexperience of such men in diplomatic technique is not a disad-
vantage, while their knowledge of American public opinion, the
prestige they derive from practical achievements, and their judg-
DOMESTIC CONTROL 135
ment of human nature give them an advantage over professional
officers.
The niggardly policy of Congress toward the salaries of diplo-
mats, foreign service officers, and State Department officials is
slowly being remedied. Complaint on this score has been made
from the time of John Adams to that of Walter Hines Page. The
policy probably originated in the thought that diplomacy and all
its works were contrary to democratic simplicity, a thought re-
flected in the non-use of the title "ambassador" until 1893, in spite
of the fact that it is used in the Constitution and in the regulations
in regard to dress and ceremonial. Ambassadors still receive only
$17,500 and ministers $10,000 a year, but the Rogers Act au-
thorizes an additional representation allowance. The process of
buying embassies and legations, the rent of which was a personal
charge on the ambassador or minister in the past, was begun under
the Lowden Act of 1911 and stimulated by the Porter Act of 1926,
Congress appropriating $10,000,000 for such purchases.
Diplomatic secretaries were formerly recruited exclusively from
the wealthy, because the salaries, ranging from $1,200 to $3,000,
provided under the act of 1915, furnished but a small percentage
of the necessary costs. The Rogers Act, increasing the salary range
from $3,000 to $9,000 for foreign service officers, is still inade-
quate for the diplomatic branch; for the consular branch, the
scale is not greatly different from that existing previously and
compares favorably with that of the British service. Provision for
adequate retirement allowances under this act assures the elimina-
tion of deadwood and provides opportunity for promotion of those
in the ranks.
The prof essionalization of the foreign service under the Rogers
Act drew attention to the situation of the home service of the de-
partment. Division chiefs were often instructing foreign service
officers with twice their salary. A foreign service officer could not
afford to be "promoted" to be Assistant Secretary of State. Rep-
resentative F. M. Davenport told Congress on January 5, 1928,
that "a responsible officer of the State Department has long been
in the habit of getting up at five o'clock Monday morning to do
the family washing" in order to make ends meet. The salaries have
136 AMERICAN FOREIGN RELATIONS
been insufficient to keep the best men in the service, the turnover in
1927 being 19 per cent. Chiefs of division have been in large meas-
ure recruited from the foreign service — fifty-one men from the
field were on duty in the Department in 1928 — but under exist-
ing legislation such men cannot remain in Washington over four
years, and this situation produces kaleidoscopic changes.
Conditions of service have steadily become worse with the cen-
tralizing tendency resulting from more rapid communication and
the increase in the mass of business. In 1914, 209 officers and em-
ployees with an average salary of $1,476 handled 400,000 pieces of
correspondence. In 1927 with the cost of living doubled, 692 offi-
cers and employees with an average salary of $1,860 handled
1,180,000 pieces of correspondence. The space occupied was about
the same ; there was overcrowding, overwork, under-payment, dis-
satisfaction, a high turnover, and inevitable delays.
The Porter bill, now before Congress, aims at improving this
state of affairs by organizing the "home service" of the State
Department in classes with salaries equivalent to those now en-
joyed by the foreign service. It is also proposed to recruit, pro-
mote, and retire these classes according to the general civil service
laws. Although this would probably improve conditions, the civil
service laws may be too rigid to permit of bringing in experts of
the type needed in much of the State Department's work. The
Porter Act would authorize the appointment by the President with
the advice and consent of the Senate of two Under Secretaries and
six Assistant Secretaries of State at salaries of $13,500 and $12,-
000 respectively ; provision for other appointments outside of the
civil service requirements by this means might possibly be desirable.
An opportunity to bring in competent men, especially in such pro-
fessional branches as the solicitors' office and the editorial depart-
ment, without too much red tape would seem desirable. But an in-
crease in the room available, in the size of the staff, and in the
salary scale are the main needs.
The Secretary of State is responsible for the activity of the De-
partment and the foreign service, and the advantage of having
a Secretary who has had experience in diplomacy has often been
commented upon, though doubtless it is not desirable that pro-
DOMESTIC CONTROL 137
f essional diplomats should have the position. Such experience was
the rule up to the time of Jackson, but has been rare since. The
Secretary also has to make frequent contacts with the Senate in
the matter both of appointments and treaties, and prior senatorial
experience is therefore an asset. From 1811 to 1892, with brief
interregna covering less than one and a half years, the Secretary
had always been a Senator, except for Evarts, who became a
Senator later in his career. Since that time the practice has been
less regular, though Secretaries Sherman, Knox, and Kellogg had
been in the Senate prior to their appointments to the secretary-
ship. Friction with the Senate has been reduced during the regimes
of Secretaries who had been members of that body. Occasionally
ex-Secretaries of State have entered the Senate; Knox and Mr.
Root are examples. Such a practice mitigates friction, and it is pos-
sible that a constitutional amendment making ex-Presidents and
ex-Secretaries of State life members of the Senate might be of
great advantage in the management of foreign affairs.
The President is becoming increasingly concerned with for-
eign affairs, and the selection of a man with some experience in this
field would seem beneficial. In the early days the Presidents had
usually had diplomatic experience or had been Secretary of State ;
this was true of John Adams, Jefferson, Madison, Monroe, and
John Quincy Adams. In the middle period Presidents usually came
from Congress. Only Van Buren and Buchanan had had diplo-
matic or State Department experience. In the last generation
there has been a tendency to elect state governors to the presi-
dency; none has had diplomatic experience, with the possible
exception of Taft, who went on a special mission to the Vatican,
and only Harding had been in the Senate.
It is perhaps more important from the standpoint of the
adequate conduct of foreign policy that the President should
understand the Senate and Congress than that he should under-
stand foreign affairs ; the latter can be left to an able Secretary.
The relations between the President and Secretary of State de-
pend on personalities ; the President can be his own foreign minis-
ter if he wishes, as were Roosevelt and Wilson, but in view of the
increasing burden of the President's office, the tendency will
138 AMERICAN FOREIGN RELATIONS
probably be for him to leave matters to the Secretary. It would
seem, however, that the maintenance of good relations with the
Senate might well be his province. The President has the power as
party chief and distributor of patronage to keep his party to-
gether, and there is no field where political pressure could better
be used than in the conduct of foreign relations. With the multi-
plication of contacts with foreign relations by departments other
than the State Department, it is important that the President
should act as a coordinating agency.
The United States is slowly moving toward reliance upon ex-
perts in government, and in foreign affairs this movement has
made rapid progress in the period since the war. Much remains to
be done, especially in the home service of the State Department,
and public opinion should keep Congress alive to the need. With
the departments of war receiving an average appropriation of
about $2,000,000 a day, it would seem that the Department of
Peace, as Secretary Hughes christened the State Department,
might receive more than $2,000,000 a year. Yet when the $9,000,-
000 average receipts by the Department in passport, visa, and
other fees is subtracted from the average $11,000,000 appropria-
tion, this is all it receives. "The American people," said Repre-
sentative Davenport in Congress,
are not niggardly about an adequate expenditure for defense, and if
three millions burden upon the taxpayer [the estimated net cost of
the Department for 1928] are sufficient to insure skilful international
leadership, enough is enough. But if it shall appear that inadequate
appropriations, in view of the vast interests at stake, are injurious
to the functioning of the great Department of Peace, neither will the
American people begrudge those additions which make for the skilful
and unhampered leadership of foreign affairs.
THE REORGANIZATION OF THE
STATE DEPARTMENT
EVEN the ablest personnel cannot work effectively without division
of labor and definition of authority. The changed conditions
brought about by the centralization of foreign service instructions
DOMESTIC CONTROL 139
in the State Department as well as by the decentralization through
the development of foreign contacts by other departments suggest
a reconsideration of the Department of State and its relations to
other executive departments.
The State Department may be said to have originated in the
committee of secret correspondence selected by Congress on No-
vember 29, 1775, though this was only one of many committees
doing foreign business. The committee for foreign affairs named
in 1777 was more important and the department for foreign af-
fairs established in 1781 under Robert R. Livingston was the
first organization having any semblance of a foreign office. An
act of July 27, 1789, reorganized the department of foreign af-
fairs under the President after the adoption of the Constitution,
and on September 15, 1789, its name was changed to the Depart-
ment of State because of the addition to its duties of several
domestic matters, such as correspondence with the governors of
the states, custodianship of the laws and great seal of the United
States, and certain functions connected with the election of the
President.
The Secretary of State has a recognized precedence over the
other Secretaries in the Cabinet and is in the succession to the
presidency after the Vice-President. The Department is more
closely under the President and less under congressional control
than are other departments. "The Department of State," said
Senator Spooner in 1906,
is not required to make any reports to Congress. It is a department
which from the beginning the Senate has never assumed the right to
direct, or control, except as to clearly defined matters relating to
duties imposed by statute and not connected with the conduct of
foreign relations. We direct all the other heads of departments to
transmit to the Senate designated papers or information. We do not
address directions to the Secretary of State, nor do we direct re-
quests, even, to the Secretary of State. We direct requests to the
real head of that Department, the President of the United States,
and, as a matter of courtesy, we add the qualifying words, "if in his
judgment not incompatible with the public interest."88
88 Congressional Record, February 6, 1906, XL, 1419. -
140 AMERICAN FOREIGN RELATIONS
From a modest beginning in 1789 with the Secretary of State,
four clerks, one French interpreter, and two messengers, handling
a few hundred pieces of mail matter a year, and costing the gov-
ernment about $8,000, with an additional $40,000 to spend for
two or three missions abroad, the Department has grown to such
an extent that it now possesses a personnel of almost 600 at home
and 3,600 abroad handling yearly over a million pieces of mail
matter, and costing about $1,000,000 at home and $10,000,000
abroad, of which some $9,000,000 is returned in fees. With this
growth in size there has been a gradual diff erentiation in function.
Edward Livingston attempted a functional organization in 1832,
but apparently his efforts simply drew attention to the political
plums in his domain. In 1855 Congress legislated on the foreign
service but Attorney General Gushing said it would be unconsti-
tutional to limit the President's discretion in appointments to
offices created by the Constitution, as were those of ambassadors,
other public ministers, and consuls.
Certain functional differentiations in the Department did, how-
ever, emerge slowly. The recognition of the second Assistant Sec-
retary of State after the Civil War as a permanent official was
especially important. This office was occupied for sixty years by
William Hunter and Alvey A. Adee in succession, and this has
given continuity to the organization. Consular and diplomatic
bureaus were differentiated to some extent on geographical lines,
and various administrative bureaus were developed, such as those
dealing with indexes and archives, citizenship and foreign trade,
but serious attention was not given to the problem of scientific or-
ganization until after the Spanish War.
New international responsibilities developed out of the control
of the Panama Canal and the policing of the Caribbean; out of
possession of the Philippines and the adoption of a more positive
policy in the Far East; out of the more consistent participation
in international conferences and political negotiations of general
interest ; out of the great increase in American trade, investment,
and travel abroad ; and out of immigration into the United States
and its checking by legislation. The result has been a great strain
on the Department, and steps have been taken to reorganize the
DOMESTIC CONTROL
foreign service, the Department itself, and interdepartmental re-
lations generally.
The foreign service problem has been considered in part, but
the departmental reorganization arising from the recent efforts to
improve foreign service personnel may be noted. An Assistant
Secretary of State, two boards, a division, and an office in the
department are now devoted almost entirely to the foreign service.
The foreign service personnel board, modification of which is pro-
posed by pending legislation, recommends appointments, promo-
tions, and transfers, and for this purpose is in touch with the
board of review for efficiency ratings and with field inspectors.
The foreign service administration division looks after expendi-
tures and requirements of the agencies abroad and the instruction
of officers in detail matters. The foreign service buildings office
looks after the purchase of buildings and the housing of foreign
agencies in general.
The statutory organization of the foreign service by the Rogers
Act raised a legal problem in view of the legal opinion that the
President's discretion to recognize constitutional offices and to
name appointees for them with Senate consent cannot be impaired
by Congress. Earlier acts designating posts and grades of diplo-
matic officers and consuls, including that of 1893, which first sug-
gested the appointment of ambassadors, have been interpreted as
recommendatory rather than mandatory. The Rogers Act, how-
ever, creates new offices — the foreign service of the United States
— not mentioned in the Constitution. Congressional regulations
in regard to examination, appointments, salaries, promotion, and
retirement from these purely statutory offices are therefore man-
datory. The discretion of the President and Senate in appointing
ambassadors, other public ministers, and consuls is theoretically
unaffected, but in practice, since Congress appropriates salaries
for "foreign service officers," but not for diplomatic secretaries and
consuls, the President is obliged to nominate the latter from the
list of foreign service officers. These officers have thus two or per-
haps three commissions, one received by examination and promo-
tion under the act controlling salary, and another received by ap-
pointment of the President with the advice and consent of the
142 AMERICAN FOREIGN RELATIONS
Senate as diplomatic secretary or consul. They perform official
functions under this latter warrant. The same individual may have
a commission as both diplomatic secretary and consul.84
Apart from the foreign service, the Department has rapidly de-
veloped divisions and bureaus to carry on its political, technical,
and administrative work, especially during and since Secretary
Knox's period.
The political work is the major interest of the Secretary of
State, of the Under Secretary, of three Assistant Secretaries de-
voted respectively to Europe and the Near East, to Latin Amer-
ica and to the Far East, and of six geographical divisions devoted
respectively to Western Europe, Eastern Europe, the Near East,
Latin America, Mexico, and the Far East. These divisions study all
reports from their areas and take a prominent part in formulation
of policy and in negotiations. Their chiefs often come in direct con-
tact with foreign diplomats in Washington. The Western Euro-
pean division considers relations with the League of Nations, and
the Assistant Secretary for Europe and the Near East has had an
important part in the negotiations on the renunciation of war.
The Eastern European division keeps close track of developments
in Russia, though in large measure from unofficial sources, since
the United States has not recognized the Soviet Union.
The technical work is done in close contact with the political
work of the Department. The solicitors' office, which is also asso-
ciated with the Department of Justice, is in continuous contact
with the geographical divisions, foreign diplomats, and the Sec-
retary of State. Claims, citizenship, extradition, treaty inter-
pretation, and drafting, in fact, almost every political problem
and many administrative problems that come before the Depart-
ment, eventually involve some question of international law,
American law, or foreign law which must be considered by the
solicitor assisted by a corps of twenty lawyers. The final stages
of negotiation and drafting of treaties have been in the hands of
this office, though the newly formed treaty division will take over
some of this work. The economic advisers' work is rendered of great
importance by the increasing economic character of international
a* Lay, The Foreign Service of the United States.
DOMESTIC CONTROL 143
relations. This office grew out of the bureau of trade relations,
which in turn succeeded the bureau of foreign commerce, which was
transferred to the Department of Commerce in 1903. The consular
commercial office under the Assistant Secretary of State who super-
vises the foreign service administration, receives and analyzes eco-
nomic reports from the consuls abroad, notwithstanding the fact
that such material is now published by the Department of Com-
merce.
Also of great importance for the Department's political work
are the two divisions through which the Department keeps in con-
tact with public opinion. The division of current information
gives out press releases and distributes press summaries and cur-
rent information of importance. It also arranges frequent inter-
views for newspaper men with the Secretary and Under Secretary,
but no direct quotation is allowed unless expressly authorized. The
publicity policy of the Department varies with the Secretary, but
in general newspaper men who are known and reliable are taken
into the Department's confidence. There are doubtless matters
which the Department does not discuss with them at all, but ap-
parently these are rare. In general, the Department fears news-
paper recourse to hearsay more than its use of the truth, and
confidential relations with the press permit trial balloons to test
opinion on possible policies as well as propaganda intended for
both domestic and foreign consumption.
The division of publications has charge of the Department li-
brary, the originals of the laws, treaties, proclamations, and
executive orders of the United States, as well as of the diplomatic
archives before August 14, 1906, and includes the geographer.
Its most important work is editing the Papers Relating to the For-
eign Relations of the United States and other publications.
Though the public gets day to day information about the Depart-
ment from the press releases, the opinion of scholars, teachers, and
of the rising generation is in the long run more affected by the offi-
cial record of past transactions put out by the division of publica-
tions. The policy of the division has recently been broadened to
include the publication of treaty negotiations and materials of
value for the study of international law. The highest standards
144* AMERICAN FOREIGN RELATIONS
of historical scholarship are employed in editing this material and
exclusions are as slight as possible. The departmental order ap-
proved March 25, 1925, charged the solicitor or head of the divi-
sion which had immediate supervision of a topic to review the
material prepared by the editor and to indicate omissions required
on the following principles :
(a) matters which if published at the time would tend to em-
barrass negotiations or other business ;
(b) to condense the record and avoid needless details ;
(c) to preserve the confidence reposed in the Department by other
governments and by individuals ;
(d) to avoid needless offense to other nationalities or individuals
by excising invidious comments not relevant or essential to the sub-
ject; and,
(e) to suppress personal opinions presented in despatches and
not adopted by the Department. To this there is one qualification,
namely, that in major decisions it is desirable, where possible, to show
the choices presented to the Department when the decision was made.
On the other hand, there must be no alteration of the text, no dele-
tions without indicating the place in the text where the deletion is
made, and no omission of facts which were of major importance in
reaching a decision. Nothing should be omitted with a view to con-
cealing or glossing over what might be regarded by some as a defect
of a policy.
The publication of these Papers, as has been said, is unfortunately
much in arrears, but the chief of the division, himself a distin-
guished historian, is doing his best to bring them down to date, and
is hampered only by the lack of expert assistants to collect and
select the voluminous materials.
The bureau of indexes and archives records, indexes, and
routes to the interested divisions and bureaus the incoming cor-
respondence and has had custody of the archives since 1906. It
also dispatches the numerous telegrams and codes and decodes
cipher messages. The office of coordination and review gives the
final scrutiny to outgoing correspondence for form, and sees that
each piece has been through the proper hands. The newly formed
protocol division has charge of ceremonial questions.
DOMESTIC CONTROL 145
Finally, there are a number of purely administrative bureaus,
divisions, and offices. The passport division has had an enormous
increase of business since the war, and has established bureaus at
Boston, Chicago, New Orleans, New York, San Francisco, and
Seattle. The visa office likewise has had an increase in activity
through various duties placed on the Department by the immigra-
tion laws. The chief clerk's office is concerned with internal ad-
ministration and includes the interpreter's section ; it is the oldest
distinct office of the Department. There is also a bureau of ac-
counts and a disbursing office.
There appear to be twenty-three divisions, bureaus, and offices
in the Department, in addition to the Secretary, Under Secretary,
and four Assistant Secretaries. Besides adding two Assistant
Secretaries, the pending Porter Act would add another Under Sec-
retary to head an office devoted to business administration, advised
by a board composed of these officials and meeting monthly with
the chiefs of division, bureaus, and offices to consider the business
administration of the Department. It would also authorize the
Secretary to create an advisory council of the high officials to
which the chairmen and ranking minority members of the Senate
Committee on Foreign Relations and the House Committee on For-
eign Affairs might be invited.
The organization seems well conceived and corresponds closely
to that of the foreign offices of other states. It is to a considerable
extent a skeleton organization ; more room, personnel, and money
are necessary to enable it to do its work with efficiency. Still, there
are some advantages in its small size and crowded quarters. The
divisions are not so specialized and separated as to lose contact
with the whole and with each other, and the family relationship
characterizing it in the past to some extent continues. Personal con-
ference and discussions are common; field officers are regularly
brought in to make contacts and usually to head divisions ; and
flexibility is preserved in the assignment of particular business.
The adjustment of interdepartmental relations is not a new
problem in the United States. Cooperative action of the State and
Navy Departments goes back as far as the appointment of John
Paul Jones to negotiate with Algiers in 1792. Legally, the Presi-
146 AMERICAN FOREIGN RELATIONS
dent is the only link uniting the departments. There is no recog-
nized principle of subordination of naval and military forces
abroad to the senior diplomatic officer on the spot, as there is in
England. Coordination may, however, be achieved by executive
orders or instructions of the President, by contacts among the
secretaries of different departments in Washington, by contacts of
officials in the departments, and by informal contacts of officials
abroad.
The navy has taken a prominent part in American diplomatic
negotiations, especially with the Barbary Powers, with Turkey,
in the Far East, and in the Caribbean. Perry's mission to Japan
in 1853 and Shufeldt's mission to Korea in 1882 are outstanding
examples. When the naval commander has been entrusted with
negotiation, instructions have usually been prepared jointly
by the Secretaries of State and of the Navy. In some cases naval
contingents have carried a civilian official instructed by the State
Department to negotiate. This was the usual procedure in the
transactions with the Barbary Powers in the early nineteenth
century. In other cases, naval officers have acted in a diplomatic
sense under the authority of the Navy Department, alone or on
their own initiative, especially in cases involving protection from
immediate danger of citizens abroad. An example of this is found
in the sailing orders of Commodore James Biddle under date of
May 22, 1845, to "hold your squadron at the disposition" of Com-
missioner Alexander H. Everett to visit Japan, but "should he
decline to do so, you may yourself if you see fit, persevere in the
design, yet not in such a manner as to excite a hostile feeling or
distrust of the government of the United States." Biddle sailed
to Yedo (Tokyo) bay the following year and communicated with
the Japanese officials but was unable to make a treaty.
The Department of State has instructed its agents abroad to
"exercise extreme caution in summoning national war vessels to
their aid." Naval displays and landing forces abroad, of which
there have been some seventy instances in American history in
time of peace, have usually been decided upon at Washington, and
the diplomatic and naval officers concerned are instructed in a
common sense by their respective departments. Sometimes diplo-
DOMESTIC CONTROL 147
matic instructions have been radioed by naval code so that
naval vessels in the vicinity might pick them up and act in co-
ordination. Informal conferences of the foreign service and naval
officers on the spot are also common. For example, during the
disturbances in Syria in the fall of 1925, two American destroyers
were in Beirut harbor and their officers met for daily conferences
with the resident American consul. During this episode the Near
Eastern division of the State Department was in regular consulta-
tion with the office of naval intelligence, and this facilitated co-
operation both in Washington and in Syria.
In time of war such coordination may be more difficult. Diver-
gences of policy are apt to arise between the foreign and naval
ministers of belligerents because the naval minister usually urges
measures to cripple the enemy's trade in a way which will in-
evitably complicate diplomatic relations with neutrals, a result
which usually seems less important to the navy than to the foreign
office. Such differences occurred in both Great Britain and Ger-
many during the World War, particularly in Germany, where
the upper hand of one department or the other was disclosed by
the variations in submarine policy. The same situation is interest-
ingly disclosed by the comments which Gideon Welles, Secretary
of the Navy during the Civil War, consigned to his diary in re-
gard to the policy of Secretary Seward. In such cases the Presi-
dent's decision is of course conclusive in the United States.
Similar methods assure coordination among other departments.
The economic adviser and the consular commercial office of the
State Department are in continual contact with the bureau of
foreign and domestic commerce of the Department of Commerce,
the visa office with the commissioner general of immigration of the
Department of Labor, and the solicitor's office with the Depart-
ment of Justice. The State Department was in contact with the
Treasury in connection with the allied debt settlements.
The foreign agents of the Department of Commerce have
rapidly increased in number and their investigations have some-
what overlapped those of consuls, creating something of a spirit
of rivalry. Arrangements satisfactory to both departments seem
to be developing. They are applicable also to the foreign repre-
148 AMERICAN FOREIGN RELATIONS
sentatives of other departments. In order to receive recognition
abroad permanent foreign agents of the other departments must
be accredited through the State Department, although they have
to report direct to their own departments.
Such agents are also to some extent under the control of the
senior diplomatic or consular officer on the spot. An executive
order of April 4, 1924, provided that officers of other departments
engaged in special investigations must report on arrival to the em-
bassy, legation, or consulate general in the area, and when repre-
sentatives of other departments are stationed in the same city as a
representative of the Department of State "they will meet in con-
ference at least fortnightly under such arrangements as may be
made by the chief diplomatic officer" or ranking consular officer
"to secure a free interchange of all information bearing upon the
promotion and protection of American interests." The order also
provides that there shall in general be a free interchange of writ-
ten information and that communications among officers of the
State and other departments shall ordinarily be made through the
supervising consul general. Where urgency requires direct com-
munication, copies of written correspondence must be sent to the
supervising consul general. An executive order of August 10,
1927, designates the precedence of officers abroad: the chief or
charge d'affaires ad interim and counselor of the diplomatic mis-
sion rank first, followed by military, naval, and commercial
attaches; as between consuls and foreign commercial officers, the
latter rank with but after the foreign service officer within desig-
nated grades ; consuls general in their districts rank after briga-
dier generals and between rear admirals and captains of the navy ;
consuls follow colonels and captains of the navy.
With the increasing centralization of all instructions in Wash-
ington, the problem of coordinating the activity of agents of dif-
ferent departments is not insuperable, though it involves continual
contact between departments and more frequent references to the
Cabinet or to the President.
II.
THE UNITED STATES AS AN
ECONOMIC POWER
CHAPTER ONE
COMMERCIAL EXPANSION
THE World War, like the Napoleonic wars, brought to the
United States an extraordinary expansion of foreign trade.
Nations in arms reversed the peace-time roles of production and
consumption; consumption was lavish and production compara-
tively laggard. Supplies were urgently needed from abroad, and
the United States, of all the neutrals, was the chief supplier. In-
stead of checking the trade, her entry into the war enabled it to
gather a new momentum. The excess of merchandise exports over
imports for the calendar year of 1913 amounted to $691,000,000 ;
by 1919 it had reached $4,016,000,000, the apotheosis of the
"amazing interlude." Though we are now back on a normal basis
of trading, the growth in American foreign commerce since pre-
war days continues to be in advance of the growth in world com-
merce.
Seeing that prices have gone up considerably since 1913, com-
parative statistics showing the dollar value of our trade now and in
pre-war years are misleading. The true significance of development
may be gathered from index numbers representing the general
average for quantity of trade, for value according to pre-war
prices, and for statistical value. These have been prepared by the
Department of Commerce.1 (1913 = 100.)
Exports Imports
Quantity Price Value Quantity Price Value
1913 100 100 100 100 100 100
1927 158 124 194 180 130 233
These comparisons wear a more sober aspect than that rep-
resented by statistics based on fluctuating values. They testify,
none the less, to an impressive growth, and one that stands out
against the background of war and its economic aftermath. Ac-
cording to other figures of the Department of Commerce,2 in 1913
1 Foreign Trade of the United States in the Calendar Year 1927, Table 6.
2 Fifteenth Annual Report of the Secretary of Commerce for the Fiscal Year
ended June 30, 1927.
152 AMERICAN FOREIGN RELATIONS
our foreign trade, exports and imports combined, constituted 11
per cent of the world's total trade, as compared with 16 per cent
in 1926-1927. The tables of the League of Nations are carried
down only to 1925, and, in showing the ratios of world trade held
by the trading nations, reveal Great Britain still the leader, but
closely pressed by the United States :
1913 1925
Per cent Per cent
Great Britain 15.24 15.18
United States 11.15 14.57
Germany 13.12 8.17
Britain had probably regained her pre-war proportion by the end
of 1927, but through imports at the expense of exports, a develop-
ment hardly comforting to an exporting country. When price
adjustment has been made, Great Britain is found to be exporting
only 78 per cent of what she exported in 1913,3 though normal de-
velopment should have made the proportion 120 per cent. This
decline, coupled with America's progress, has raised the United
States to world primacy in exports. Whereas in 1927 Great
Britain sold $3,777,000,000 of commodities, the United States dis-
posed of goods valued at $4,808,700,000, or over 25 per cent
more.4
America's foreign trade before the war was in large measure
dependent upon the interchange of commodities with Europe. It
has since shifted from that dependence. By 1925 Asia had become
our chief contributor, and remained so until 1927, when Europe re-
gained its leadership by a small margin. The ratio of our Euro-
pean takings to our total imports, however, was only 30 per cent
as compared with 48 per cent in 1913. On the export side, the pro-
portion of our sales to Europe in 1927 had fallen to 47 per cent of
the total from 60 per cent in 1913.5
3 Home, Sir Robert, Hansard, July 25, 1927. cc. 914-5.
* Department of Commerce: Commerce Reports, June 11, 1928, which shows
that British exports in 1927 increased by 7.1 per cent over the 1926 figure, while
American exports increased by 1.2 per cent. The Commerce Yearbook, 1926, shows
the following comparison with 1925. Great Britain: decrease, 15.66 per cent; United
States: decrease, 2.06 per cent. The influence of the coal strike and the general
strike on Britain's diminished exports in 1926 must be borne in mind.
t> The Memorandum on Production and Trade, published by the League of Na-
tions, contains detailed statistical data of the national shares of world trade.
COMMERCIAL EXPANSION 153
This gradual withdrawal of European domination from our
commerce, like our general trade progress, is often ascribed
to the war. In fact, the war merely forced a process that had
been in steady evolution since 1880. In that year, Europe took
as much as 83 per cent of our exports, and sold us 50 per cent
of our imports. But those exports were in the main agricultural,
and it was not until the century had been turned that manufac-
tures began to enter in quantity into the merchandise side of
America's foreign trade ledger. The reason was not that manufac-
tures had failed to influence the American economy; America's
tardiness in entering world markets was due to her absorption in
internal development. Her iron ore, coal, oil, timber, and other
natural resources awaited exploitation ; virgin territory remained
to be peopled; and a young industrial machine had the task of
supplying home territories as they were settled and exploited.
Because of its scope, this domestic concentration has been likened
to internal imperialism, inasmuch as the struggle absorbed na-
tional attention and left its imprint on national psychology. The
consequent domestic interchange of domestic commodities was so
prodigious that in 1907 it was equal in value to the foreign com-
merce of the entire world.8 Great as was this development — a de-
velopment in the greatest free-trade zone in the world — produc-
tion outpaced home consumption, and, as the United States de-
veloped, she began to seek outlets overseas for her surplus.
Trade with the United States was a simple matter to Europe
as long as we fulfilled the function of purveyor of raw mate-
rials in return for the manufactured goods of northwestern Eu-
rope. This was the relationship suited to the economic exigencies
of both continents. Old in settlement, abundant in population,
northwestern Europe was engrossed with the need of external
sources of raw materials and of external markets for fabricated
wares. The extent of this interest may be appreciated from the
fact that the foreign trade of Europe is generally regarded as
amounting to a half to four-fifths of its total commercial activity.
Great Britain's proportion is one-quarter, while that in the United
« Bogart, Readings in the Economic History of the United States, p. 645,
quoting report of the National Conservation Commission.
AMERICAN FOREIGN RELATIONS
States is as little as one-tenth. Instead of complementing Euro-
pean economy, those industrial products from the United States
seeking disposal abroad were viewed in the light of competitors of
existing European commodities. Unwanted for the most part
in industrial Europe, they were increasingly absorbed by other
continents. Absorption continued almost in an incidental manner,
for relatively little organization or effort, save in a few highly
specialized products, was expended in selling goods overseas, the
United States up till 1913 being more concerned with internal
commerce. Besides, the American business man had comparatively
little experience to guide him. The Chief of the Bureau of Manu-
factures said before the war, "The American business man is
seeking foreign markets, but inexperience makes him enter upon
the task somewhat vaguely."7 By 1913, however, the outward
flow of manufactured foodstuffs, semifinished and finished manu-
factures had so accelerated in volume that altogether they regis-
tered 61.4 per cent of our total exports. In 1913 the banking sys-
tem of the United States was renovated completely for the task
of carrying American economic interests abroad. In 1913 the De-
partment of Commerce came into existence as a separate executive
division. Thus, that year, besides marking the commercial apo-
theosis of Great Britain, marked the economic maturity of the
United States. In the words of a British commentator,8 the war
found the United States "at the very hour when she was ripe and
ready . . . for the external mobilization of her internal wealth."
How successfully this mobilization proceeded in the supplying
af Europe has already been shown in statistics. Besides Europe,
sther countries needed supplies, and our manufacturers developed
what Dr. Julius Klein calls a foreign trade mindedness, an at-
tribute our forbears possessed in full measure prior to the opening
up of the Mississippi Valley. Whereas the war-time increment in
our commercial intercourse with Europe was extraordinary, much
of that with non-Europe was normal development, and has sur-
vived post-war adjustment. Illustrated simply, the increase in
7 Quoted by Commercial Attach^ Louis E. Van Norman, "Selling our Goods
Abroad," North American Review, August, 1926.
8 Peel, Hon. George, The Economic Impact of America, p. 147.
COMMERCIAL EXPANSION 155
American commerce with Europe as compared with that with the
rest of the world from the average of 1910-14 to 1925 was as fol-
lows, according to League of Nations figures :
Imports Exports
Europe +48 +93
All other countries + 250 + 183
When allowance for price changes has been made, the facts emerge
that compared with the pre-war year of 1913, trade between the
United States and Europe is almost stationary, at best showing
only a 25 per cent increase in exports, but that American foreign
trade with the rest of the world has gone up several fold. It would
be incorrect to imply that Europe has ceased to bulk large in our
commercial calculations ; statistics show that it still preponderates
in them. Depression in Europe reacts powerfully on American
trade, for we need the specialized products of Great Britain,
France, Italy, and Germany, while European markets are still the
main recipients of our raw materials, foodstuffs, and certain stand-
ard and semimanufactured wares. The change is relative; other
continents are crowding Europe in our economic vision, since, like
John Wesley, the American exporter looks no longer upon Europe,
but on the world, as his parish. "We are provincial no longer," said
President Wilson in his second inaugural, and he was testifying
as much to economic realities as to political hopes. The economic
reality of today is that foreign trade with all lands is beginning to
dominate our economy, leading Secretary Mellon to say :9 "Busi-
ness in this country cannot progress indefinitely without its foreign
markets."
So is the world dependent upon its commercial ties, which touch
everyday life with myriad foreign influences. M. Durand, the
creation of Mr. Delaisi,10 affords an amusing illustration of the
way one may be oblivious to the interweaving of the outside world
with the most prosaic of individual existence. After a day's ac-
tivities foreign-colored in every facet, M. Durand finally falls
asleep under his quilt, "made of feathers of Norwegian duck," and
dreams of France as "decidedly a great country, entirely self-
B Annual Report of the Treasury for 1922, p. 2.
10 Delaisi, Political Myths and Economic Realities.
156 AMERICAN FOREIGN RELATIONS
supporting and able to snap her fingers at the whole world." The
everyday life of the American is similarly affected. "Every Ameri-
can home, and every American life," says William C. Redfield,11
former Secretary of Commerce, "depends daily upon the continu-
ous labor of masses of our fellow men in other lands for indispen-
sable supplies that we cannot produce." Luxuries of today become
the necessities of tomorrow, and, compared with the scale of living
of the day after tomorrow, the present standard may be regarded
as bare subsistence. We demand the musk from the deer of the
Tibetan highlands ; caviare from Siberian rivers, the orchids from
the swamps of the Upper Amazon. In exchange, we are consigning
illuminating oil to Tibet, agricultural machinery to Siberia, base-
ball equipment to Japan, and wheat flour to Brazil among the
1,183 categories of our exports. Trade is capable of unlimited ex-
pansion, in particular with those countries that buy our manu-
factured goods.
THE UNITED STATES AS A MANUFACTURER
ECONOMIC energy in the United States is concerned increasingly
with finished manufactures, which are making such headway in
our export trade that in 1927 they amounted to 42 per cent of our
total. The possibilities of producing this class of commodities are
greater than are those of producing agricultural commodities, and
the possibilities of factory disposal are in direct proportion to im-
provements in standards of living, whereas the disposal of agri-
cultural commodities is coextensive merely with the needs of bodily
existence. Non-Europe, being in the main non-industrial, is the
logical market for American manufactures. In exchange, non-
Europe supplies us with our major needs from the outside world,
such as rubber, silk, tin, nickel, coffee, and cane sugar, and supple-
ments our own resources in meeting our requirements of wool,
hides, skins, paper, and other commodities of some of which we
are the world's leading consumers. Most of these items hail from
non-Europe, and as we increase our takings of them, we put
more buying power into the hands of our customers for the pur-
11 Dependent America, p. vi.
Exports
T
Manufactured Foodstuffs
Finished Manufactures
1927
Imports
43
O
Manufactured Foodstuffs
Finished Manufactures
1927
Percentage change in the trade of the United States
in classes of commodities.
158 AMERICAN FOREIGN RELATIONS
chase of our fabricated wares. It is on this exchange that American
foreign trade is building its future.
Our manufacturing equipment is well provided for its task.
Ewan Clague's investigation for the Department of Labor has
testified to our advance in productivity. Taking 1914 as 100, he
gives the following as the 1925 index of man-hour production:
steel works and rolling mills, 153; automobile manufacturing,
310; cement making, 157.8; flour milling, 139; petroleum refin-
ing, 177.3 ; rubber tire making, 311 ; and so on in almost all lines
of industry.12 In submitting his remarkable statistics, Mr. Clague
says:
There is taking place in the United States today a new industrial
revolution which may far exceed in economic importance that older
industrial revolution ushered in by the series of mechanical inven-
tions which occurred in England in the last quarter of the eighteenth
century, and which eventually transformed English industrial, po-
litical, and social life. We are at the present time experiencing what
is perhaps the most remarkable advance in productive efficiency in
the history of the modern industrial system.
This is far greater than the advance in the productivity of the
average farm worker, which in the period 1922-26 was 15 per cent
greater than in the period 1917-1921.18 Many reasons have been
propounded for the genesis of this neo-industrial revolution in
the United States, and they may all be contributory, but basic
reasons are that we have tamed the kilowatt into the friend of
man (as Mr. Hoover has put it) and have lowered our production
unit costs by the application of scientific management to industry.
These achievements are mainly the fruit of post-war experience.
The United States spends $200,000,000 a year in industrial re-
search,14 which is the handmaid of scientific management. "I
care not who sees my processes," said an American manufacturer,
asked by a party of Japanese engineers if they could look around
12 Monthly Review of Labor Statistics, July, 1926 et seq.
is Baker, O. E., of the U. S. Dept. of Agriculture, quoted in A Century of In-
dustrial Progress, p. 10. It has been estimated that the invention of farm machinery
between 1830 and 1880 multiplied the production of a farm worker over twelve-
fold. Of. McElroy, Economic History of the United States, p. 67.
i* A Century of Industrial Progress, p. 314.
COMMERCIAL EXPANSION 159
his works; "they will be improved before you get back to the
Orient." Hence our ability to compete abroad.
Our experience is being adopted in other industrial countries
under the name of rationalization, and increasingly under Ameri-
can management. Under its influence world machine production
has increased its capacity by 47 per cent since 1913.15 But most of
it has remained unutilized, the hitch in the rotary movement lying
in lack of consumption, because of which machine output has
advanced by only 8 per cent. The American figures, however, are
much larger, since it is precisely in machine products that the
United States is advancing toward the exporting future we have
outlined. In the United States purchasing power is tapped in
ways as enterprising and as unique as are our productive proc-
esses, being fostered by high or "cultural" wages, employee stock-
holding, standardized products, and the propagation of what
Owen D. Young calls "modified thrift." We have called in future
as well as present purchasing power through instalment buying —
"disfranchised longing" or "Buy now and pay in a year." Never-
theless, home consumption is left further and further behind by
production, the disposition of whose surplus abroad is now com-
manding almost the same degree of organization as is devoted to
its fabrication. Hence the high pressure with which salesmanship
is conducted. Thanks to the establishment of the Federal Reserve
system and the withdrawal of the prohibition against American
branch banking overseas, foreign trade suffers no longer from
lack of direct financing and the services of American banks
abroad. Credit is available to American industry so plentifully
as to arouse European industrial envy. Intensive sales organiza-
tion in the midst of foreign consumers has led to the creation
of little "big-business" Americas in most important cities of the
world. Today practically every important business concern in the
United States is an American international corporation. Most of
them operate through foreign subsidiaries, which a recent estimate
shows have advanced 40 per cent since 1914 in Great Britain. No
fewer than 213 leading American firms have a direct property in-
15 The Economic Forces of the World. Published by the Dresdener Bank, Ber-
lin, 1927, p. 115.
160 AMERICAN FOREIGN RELATIONS
vestment in other countries.16 This economic penetration has pro-
duced an alliance between American finance and American busi-
ness whose ramifications are difficult to compute, inasmuch as
American commerce is becoming identified in the control of pro-
ductive enterprises abroad.
A vivid illustration of the modern keenness to supply foreign
markets is furnished from France. In 1926 the Department of
Commerce undertook to induce the French Government to lift
the then existing ban on imported horse meat. The department was
inspired by an Oregon concern anxious to dispose of an over-
stock. The efforts of the department were successful ; France lifted
the embargo.
The Department of Commerce was elated with its victory and an-
nounced the lifting of the ban through its numerous channels. Other
horse dealers read about it and in a few weeks there converged upon
French ports hundreds of tons of frozen horse meat. The first arrivals
were sold, but the great majority remains in cold storage warehouses
at Havre and Paris with the hope that French taste for horse will
take a sudden turn for the better. The Americans, it appears, did
not realize the limitations of the French market nor did they con-
sider the fact that there was already an extensive domestic business
in horse meat.17
THE PACIFIC IN THE AMERICAN FUTURE
THE opening of the Panama Canal in 1914 supports the conclu-
sion that the war found the United States "ripe and ready" to take
her natural place both as a dominating factor in world commerce
and as a Pacific trader. The Canal exposed the whole of Pacific
Latin America and the Orient to the economic impact of the United
States. Let us look at Pacific Latin America first.18 In 1913 the
United States supplied about 32 per cent of Pacific Latin Ameri-
can imports. Britain's share was 21 per cent; Germany's 19 per
cent. In 1925 the proportion of the United States was 50 per cent,
while Britain's had fallen to 15 per cent, and Germany's to 10 per
i« Clark, Evans, New York Times, April 28, 1928.
IT New York Times, November 20, 1927.
is Mexico, Central America, Colombia, Ecuador, Peru, Bolivia, and Chile.
COMMERCIAL EXPANSION 161
cent. In every country in South America, with the exception of
Paraguay, the United States is the principal supplier.19 In 1913
this was true only of Colombia, Venezuela, Ecuador, and Peru.
Now it is true of Argentina, Brazil, Chile, Uruguay, and Bolivia as
well, and there is only 1 per cent difference between British exports
and American exports to Paraguay.
In 1913 it was an uncommon sight to see the American flag at
the masthead of a merchantman, and it was a practice in certain
countries south of the Rio Grande to use the mark or the pound
sterling as the common denominator in exchange transactions
from local to United States money. The change in these respects
is phenomenal. In pre-Canal days our life was far removed from
Latin America's comprehension; its news of the United States
was borne by no American organization. Today, using 40,000
miles of cable, compared with 29,000 miles of line between Eu-
rope and Latin America, two American news agencies are sup-
plying news of the United States to over a hundred leading Latin
American newspapers, while a third agency provides four hundred
less important newspapers with a mail service.
The Far Pacific20 in pre-war (or shall we say pre-Canal?) days
represented 12 per cent of American imports and 7 per cent of
American exports; the proportions are now 30 per cent and 15
per cent. With the acquisition of the Philippines, the Pacific has
been bridged by conquest, which has extended the American coast-
line seven thousand miles across the ocean. This highway involves
a longer haul than does the Atlantic, but the liners of the At-
lantic are being duplicated on the Pacific and reducing its dis-
tances. Though it has been frequently asserted that cargo vessels
have passed the limit of economic size, the shipyards are con-
tinually overriding this opinion. At the twelfth International Con-
gress on Navigation, held at Philadelphia in 1912, a proposal was
mooted to limit the size of vessels to a draft of 31 feet. It was over-
whelmingly rejected, the objectors foreshadowing that in fifteen
years ships with a displacement of 75,000 tons and a draft of 41
feet would appear on the high seas. Their faith would seem to have
19 National Foreign Trade Council, Our Trade with Latin America, p. 5.
20 From New Zealand westward to India and northward to Japan.
162
AMERICAN FOREIGN RELATIONS
been well founded, since the Leviathan has a displacement of 65,-
000 tons and a draft of 39 feet. The time may not be far distant
when Leviathans will appear on the Pacific, and when that ocean
will be the main ocean of American activities. Already the magnet
of the Pacific is affecting our distribution of population, which is
growing rapidly on the Pacific coast and around our southern
ports.
Exports
1913 1927
Imporis
1913 1927
Oceania e> Africa
Asia
Laiin America
North America
Europe
Percentage change in the geographical distribution
of the trade of the United States.
COMMERCIAL EXPANSION 163
It has been computed that an increase of China's per capita im-
ports to equal that of Japan would mean an increase of $6,000,-
000,000 over her present total of $600,000,000.21 These prospects
in their American relation may be illustrated by two quotations
from the Orient. One is from the Japan correspondent of British
Industries,22 the organ of the Federation of British Industries:
"Though immense strides have been made in the extension of hy-
dro-electric enterprises in Japan in recent years, British interests
have been unable to make much headway against the Americans."
The next is from the Peking correspondent of the New York
Times23
Although China's seemingly endless civil wars have driven many
foreign firms to withdraw from the field, those European firms which
hang on hoping for eventual stabilization all look upon American
firms and the American business man as the bugbear of the future.
This fear that the United States will some time win and hold the bulk
of China's foreign trade (Japan always excepted) is shared alike by
British, Germans, French and the Belgians, and is the more re-
markable because in the days before the World War "American busi-
ness'5 in the Orient was derided as a joke. These men marvel at the
rapidity with which this invasion of foreign markets is already under
way by Americans, who, they say, have for generations had the
mental viewpoint of pioneers who conquered the unpeopled wilderness.
Now, with an abrupt shift, they are essaying victory in the most
thickly settled parts of the world where trade plums are to be found.
Two other Pacific territories whose buying potentialities are
reputedly great are Russia and Canada. Asiatic Russia, from
Kamchatka to the Urals, awaits mineral and agricultural exploi-
tation; some day it may be found to be important as a store-
house for the raw materials required by future American enter-
prise. As it is, American trade with Russia, in spite of political
obstacles, has nearly doubled since pre-war years ; our exports are
three times in excess of the 1913 consignments. As for Canada,
America's trade development with that country may be reckoned
ziRoorbach, G. B., Proceedings of the Academy of Political Science (N. Y.)i
Vol. XII, No. 4, p. 89.
22 May 15, 1928. 28 June 3, 1928.
164 AMERICAN FOREIGN RELATIONS
among the most outstanding of its post-war commercial achieve-
ments ; its total value is now three times that of the 1913 total.
THE GOVERNMENT AND BUSINESS24
THE Federal government has extended its interest to business in
correspondence with our new economic outlook. In pre-war years
embassies and legations gave but perfunctory attention to visitors
on commercial errands; today, they are clearing houses of eco-
nomic information and service. Travelling agents from the
Treasury, the Department of Commerce, the Department of Agri-
culture, the Tariff Commission and a hundred other organs are
always busy on special investigations bearing on our foreign com-
merce. A worldwide system of trade stimulation has sprung up
whose "alert cooperation with American foreign trade," to quote
the National Foreign Trade Council, "is almost entirely new since
the war." This is directed by the Department of Commerce
through its Bureau of Foreign and Domestic Commerce, which
collects and distributes data for the purpose of developing the
manufacturing industries of the United States and of creating
markets for their output at home and abroad. In 1926 it had 46
foreign offices, with an American personnel of 130, and $3,000,000
to spend on promoting American business abroad,25 as compared
with $173,000 in 1913. It also provides abundant statistics of
commercial and business trends and a valuable credit information
service. The all-pervasiveness of this branch of government service
corresponds to the elevation of trade in diplomatic consideration.
"As diplomatic questions today are mainly economic," said Consul
General Lay of Buenos Aires, in a statement on his reasons for re-
signing his post, "this places the Department of Commerce in
control of the substance of diplomacy, and leaves the Department
of State with social representation only."26 Even President Cool-
idge has said, "The business of the United States is business," while
Mr. Hoover makes it the duty of government to "chart the chan-
24 Also see Section I, "American Foreign Policy," Chapter 3, "Domestic Con-
trol," pp. 143, 147.
20 Van Norman, op. cit.
2« Journal of Commerce (N. Y.), April 2, 1928.
COMMERCIAL EXPANSION 165
nels of foreign trade and keep them open," for which purpose
William R. Castle, Jr. (Assistant Secretary of State), speaking to
a convention of exporters, says, "Mr. Hoover is your advance
agent and Mr. Kellogg is your attorney."27
In this connection, the government is endeavoring to stimulate
the American merchant marine by subsidy. Before the Civil War,
when American trade was an important factor in world trade, the
American merchant marine almost equalled the British in tonnage.
American trade carried in American bottoms in 1830 amounted to
90 per cent of the total. The carrying trade fell away as the result
of American economic self -absorption. When Commodore Vander-
bilt was asked why he had deserted the sea for the railroad, he re-
plied : "That's simple. Six per cent speaks louder than 3 per cent."
Government subsidies in recent years brought about a rejuvena-
tion of shipbuilding, and American trade carried in American
bottoms rose from 8.7 per cent in 1910 to 42.7 per cent in 1920.
Since then, there has been a decline; the 1926 figure was 32 per
cent, and at the close of 1927 it was found that the United States
had dropped to eighth place in world shipbuilding activity. Our
shipping is by no means maintaining the same headway as our
commerce.
27 National Foreign Trade Council at Houston, April, 1928.
CHAPTER TWO
THE UNITED STATES AS A
CREDITOR NATION
S with American trade expansion, the change of America's set-
. ting in the world order from a debtor to a creditor nation
was on the highroad of development in 1914. In that year, the
railroads, the major reason for American indebtedness to the out-
side world, had attained their maximum trackage. The war left
the United States in a unique situation as a creditor nation and an
export surplus nation. She had been the greatest debtor nation in
history, having called on European capital for the credit necessary
to her own growth. The adventure had yielded profit to the
creditor and such opulence to the debtor as to enable her well before
1914 to supply her own capital needs. American money, in fact,
had already spilled over American boundaries, principally into
Canada and Mexico, but rarely beyond neighboring territories.
The export of credit was cramped by a banking system that
was created for domestic development. By 1914 the major part of
these disabilities had been removed by the creation of the Federal
Reserve system, but enough remained to make the United States
profoundly disturbed by the impact of the war upon the domestic
machinery of business. Her reliance on the financial mechanism of
Europe, however, had been outgrown by natural processes. She
had come of age, but did not realize it.
From a variety of estimates, it is gathered that in 1914 not more
than $2,500,000,000 of foreign securities were held in the United
States. On the New York Stock Exchange less than a dozen for-
eign government and foreign municipal obligations were listed.
On the other side of the account, the United States was a debtor to
European holders of American securities in at least $4,500,000,-
000, leaving a difference of $2,000,000,000. The war dammed up
the stream of capital from Europe, which turned all its resources
inward, and asked American help for more, in payment for which
it consigned gold and promises to pay. The pre-war debts owed by
the United States were in large part liquidated. On February 18,
UNITED STATES AS A CREDITOR NATION 167
1916, Reginald McKenna, British Chancellor of the Exchequer,
made the first appeal to the banks of the Empire to gather in
British holdings of American securities for the purpose of sup-
planting gold consignments in the squaring of Great Britain's war
accounts with the United States. As time went on, pressure was
applied in both Great Britain and France, the two most important
holding countries, and by 1919 the total amount returned to this
country had been estimated by Professor John H. Williams,1 of
Harvard, at $2,000,000,000. Thus the balance of payments
turned heavily in favor of the United States. Added to her own
resources, this inflow gave her the requisite power to assume the
role of a creditor nation, which was greatly fortified by the cen-
tralization, and by the same token the expansion, of bank credit
through the Federal Reserve system.
Foreign investment mindedness in the United States had its
origin in the supply of private funds by means of which American
credit was extended to the Allied belligerents. The Liberty loan
campaigns mobilized the country's financial resources.
But the habits of a creditor were not easily learned. After the
war we did not maintain the pace of investment in behalf of over-
seas countries, such as the course of history had forecast. One of
the results of war is a redistribution of financial power. The Na-
poleonic wars partly established British financial influence through
the financial resuscitation of war-prostrated Europe. France, after
1870, found international finance ready and waiting to help restore
her to normality. The dominant Power after the World War was
the United States, but she did not start the task of reenergizing
Europe in the measure of her resources and of European needs un-
til the appeasement of Europe had for practical purposes been ac-
complished, in 1923. While the Allies fought their "sort of war"
over the peace, American finance held aloof, although it demon-
strated on several occasions, notably through the Loan Committee
set up by the Reparation Commission, that it was waiting for the
opportunity of cooperation.
Finance had enough to occupy its attention while the ex-bellig-
erents were wrestling with the political problem of Germany.
i Harvard Review of Economic Statistics, June, 1921, p. 191.
168 AMERICAN FOREIGN RELATIONS
America's enlarged commercial horizon had become her financial
horizon. In 1919, though over half a billion dollars was invested
abroad, one-fourth found its way to Canada, while much of the
remainder was distributed in comparatively small lots among bor-
rowers not in need of rehabilitation. One or two of the loans, in-
deed, were speculative undertakings, such as a Chicago loan to the
Chinese Government subscribed for the most part by war-enriched
Middle Western farmers, with unhappy results. Meanwhile, Bel-
gium's condition was becoming desperate, and a loan from the
United States was arranged in 1920 to refund short-term credits
totalling $50,000,000, which had been extended for wheat pur-
chases. This loan provided the United States with her start in the
large-scale financing of European reconstruction. Joseph R.
Swan, President of the Guaranty Company, New York, describes
the operation in these words :2
After long and careful deliberation, a loan bearing 7.5 per cent
interest, payable by lot at 115 over a period of 25 years, was agreed
upon. Every resource of publicity was used, and finally, urged on by
the feeling that the sympathy of the American public would respond
to Belgium's appeal for aid, in June, 1920, a nation-wide banking
group, composed of the strongest banks and bankers in the country,
was organized to issue $50,000,000 bonds. The subscription books
were kept open for three days, a very unusual procedure ; every re-
source the banker could command was used to induce subscription,
and finally the books were closed with a subscription of $53,000,000.
The loan was oversubscribed and a very vital step forward in our
entry into the field of international finance was accomplished.
Subsequently, Belgium got an industrial loan, and Italy was
helped substantially, but these transactions did not touch more
than the fringe of European reconstruction, or deflect the course
of American investment toward those fields where new American
trade was in course of consolidation. The Bankers Trust Com-
pany of New York, in a circular entitled The Dominion of Can-
ada, issued about this time, alludes to the great amount of Ameri-
2 Proceedings of the Academy of Political Science (N. Y.)> Vol. XII, No. 4.
UNITED STATES AS A CREDITOR NATION 169
can capital filtering into Canadian enterprises; about six hun-
dred American-owned plants, it is stated, were then operating in
Canada as compared with about a fifth of that number in 1914.
Canadian and American finance had simultaneously developed a
close relationship; many Canadian capital issues were sold jointly
by syndicates composed of houses of both countries. In 1921, 4<8
out of the 73 issues on the American market were for Canadian
account, amounting to nearly two-thirds of the new capital
sent to Europe. In addition, Latin America was beginning to
enter into the investment picture, taking even more funds in
1921 than debilitated Europe. It was the same in 1922. Can-
ada and Latin America absorbed more funds than Europe, while
the Far East was not far behind. In 1923 financial cooperation
with Europe got under way. The League of Nations prepared
a scheme to raise a loan for the rehabilitation of Austria of which
the United States furnished $25,000,000. Hungary was next re-
trieved from ruin. Germany was set upon her feet by the great
Dawes loan, of which over half, or $110,000,000, was contributed
by American investors, whose savings, encouraged by the sub-
sidence of political animosities, began to permeate Germany even
down to the humblest municipality anxious to erect a municipal
gymnasium.8 In time most European countries obtained access to
the American money market. Borrowing took place to balance
budgets, to transfer floating debts to the United States, to liqui-
date successive bank note issues, to restore bank reserves, and to
bring the nations back to the gold standard. Then Europe re-
quired funds to reconstruct war-dislocated industry, to institute
schemes of rationalization — all either bringing life to moribund
plants or energizing European commerce. Meantime credits to
non-Europe deepened and widened. The expansion of these under-
takings abroad is illustrated in the following table of American
loans in which a comparison is made with the British figures for
the same period :
s See Section IV, Chapter 1, "Reparations," for details of these financial opera-
tions.
170
AMERICAN FOREIGN RELATIONS
FOEEIGN CAPITAL ISSUES COMPARED WITH TOTAL
CAPITAL ISSUES OFFERED IN THE UNITED
STATES AND IN THE UNITED KINGDOM4
United States
Foreign
Foreign Total per cent
issues (a) issues (b) of total
Million Million
United Kingdom (c)
Foreign
Foreign Total per cent
issues issues of total
Million Million
1920
1921
1922
1923
1924
1925
1926
1927
$ 685
631
682
414
928
1,085
1,135
1,376
3,635
3,082
4,273
4,304
6,593
6,220
Total $6,836
7,735
$41,186
16
18
16
10
17
17
18
18
218
445
599
622
593
424
546
674
$4,121
$ 1,406
831
1,044
931
988
1,062
1,231
1,530
$ 9,023
16
54
57
67
60
40
44
44
(a) Source: Finance Division, Department of Commerce. Figures are for par
value minus "refunding to Americans."
(b) Source: Commercial and Financial Chronicle, par value minus "estimated re-
funding."
(c) Source: Midland Bank, converted at the average annual cross rate of the Fed-
eral Reserve Board. The bank's figures are at price of issue, exclusive of all
refunding issues.
These figures are not strictly comparable, inasmuch as the British
table is based on issue prices, whereas the American table gives
nominal value. The American figures, accordingly, should be re-
duced by about 4 per cent. The Department of Commerce also
provides range estimates of long-term investments at the end
of 1927. The list,5 which makes allowance for bond redemption and
sinking fund payments, is as follows :
Latin America $4,322,000,000 — $ 5,222,000,000
Europe 3,171,000,000 — 3,671,000,000
Canada and Newfoundland 3,037,000,000 — 3,537,000,000
Asia, Australia, and the rest of world 970,000,000 — 1,070,000,000
$11,500,000,000 — $13,500,000,000
The foregoing figures are assumed to consist of nominal capital
in the case of securities and of original outlay or of present capi-
* Department of Commerce: Commerce Reports, May 14, 1928.
e Department of Commerce: International Balance of Payments of the United
States in 1907.
UNITED STATES AS A CREDITOR NATION 171
talized earning power in the case of investments in physical prop-
erties. To them must be added $11,000,000,000 of war debt, which
would bring the aggregate American investment abroad up to
roughly $25,000,000,000, as compared with Britain's total of
$20,000,000,000, which, incidentally, was the 1913 total, although
British investment has decreased in real value by the advance of
prices.
This upcurve in the financial accommodation of foreigners has
raised New York to fourth place in the world's international
security markets. As becomes a nation that exports 50 per cent
of its savings, England is in a class by herself. On January 1,
1927, the London Stock Exchange quoted no fewer than 820 for-
eign and colonial government issues ; Paris, 265 ; Berlin, 153 ; and
New York, 138. If not approaching London, New York is rapidly
ranking with the bourses of Paris and Berlin in spite of the drain
of America's internal requirements. At the end of 1927, the total
foreign issues of all kinds quoted on the New York Stock Ex-
change constituted 12 per cent of the total listings, of which 6%
per cent were foreign government bonds and 4% per cent foreign
corporation bonds. Our foreign commerce bears about the same
relation to our domestic commerce, but as the Stock Exchange
does not reveal the full extent of capital employment abroad, the
similarity is coincidental. According to the compilations of the
Commercial and Financial Chronicle,6 the new capital issues in the
United States for external purposes represented 20 per cent of
the total flotations in 1927. The Department of Commerce, in the
table we have given, places the proportion at 18 per cent, as com-
pared with 44 per cent in Great Britain. The ratio of foreign
to home investment is tending to rise, but in all likelihood the dis-
tance between the two classes will be approximately maintained,
for the reason that the economic exploitation of the United States
should continue for many more generations to afford ample op-
portunity for intensive capital employment. Investment in both
classes should advance together, and, in the present exigencies of
the capitalistic system, domestic exploitation will build up wealth
for future export.
6 January 21, 1928, p. 302.
172 AMERICAN FOREIGN RELATIONS
The wonder is not that American foreign investments have in-
creased so fast, but that they have not increased faster, first,
because of the amplitude of funds, secondly, because of the conse-
quent low yield of home issues, and, thirdly, because of the grow-
ing scarcity of gilt-edged securities to take the place of the public
debt now in course of extinction. High-class dividend-paying
stocks listed on the New York Stock Exchange at the end of 1927
were in many cases yielding not more than 3 per cent to 4 per cent
net on their quoted values. The average dividend of foreign se-
curities underwritten in the United States for the years from 1924
to 1927 inclusive were respectively 6.08, 6.10, 6.17, and 5.77.7
The international loans floated under the auspices of the League
of Nations are even more profitable, yielding an average return
of 7.79 per cent, besides an average appreciation up till the
middle of 1928 of $123.30 per $1,000.8 Logically, this state of
things is tantamount to the exercise of pressure toward the ex-
port of capital. As matter obeys the law of gravity, so capital re-
sponds to the attraction of the highest interest. It may be that the
amounts given in the official tables are under-estimated because
of the difficulty of computing private issues, corporation financing
in behalf of foreign subsidiaries, and individual purchases of for-
eign internal loans. Who could assess the extent of the American
financial interest in foreign corporations? For instance, in 1927
the Italian Super-Power Corporation was formed. According to
report,9 the General Electric Company "would own substantial,
but not controlling, interests in nearly every important Italian
electric company," with representation in the management and
directorate. There must be financial aspects of this connection that
escape official estimation. Then, serious difficulties would arise in
reckoning the extent of the American ownership of Canadian
bank stock, of the American interest in French internal bonds, or
of the American financial share in multitudinous other phases of
the world's economic activity.
Even with the figures at hand the record testifies to the remark-
7 Department of Commerce : The Balance of International Payments of the
United States in 1927, p. 21.
s Winkler, Max, Report issued by the Foreign Policy Association, June, 1928.
» New York Times, January 20, 1928.
UNITED STATES AS A CREDITOR NATION 173
able change in the financial habits of the United States. It is er-
roneous to suppose that subscriptions to foreign bonds are fur-
nished only by wealthy persons and large institutions. Dwight W.
Morrow10 has answered the question "Who Buys Foreign Bonds?"
In an inquiry conducted by J. P. Morgan & Co., five loans were
investigated with the cooperation of bankers in different parts of
the country who had sold bonds valued at $91,031,800. Eighty-
seven per cent of the total number of buyers took $5,000 or less of
these loans, and this class subscribed 51 per cent of the total
amount investigated. "The answer to the question about who buys
foreign bonds is clear," concludes Mr. Morrow. "The purchasers
are people all over the United States." The Liberty loan cam-
paigns account for this transformation in our investment habits ;
in rapid succession government bonds valued at more than $20,-
000,000,000 were issued and more than 22,000,000 persons pur-
chased them. "It is estimated that today there are, in round figures,
upward of 15,000,000 investors in the United States, an average
of one person in every eight."11 These investors, as Mr. Morrow's
figures reveal, are showing increasingly less concern over the fact
that their savings are destined for employment abroad. With their
wealth flowing overseas, Americans must inevitably be concerned
with events overseas, since the safety of American investments to-
day is directly affected by such happenings as a conference on the
Chinese tariff in Peking, the discussion on the priority or otherwise
of German reparation payments over the service of private loans,
a revolution in the Balkans, the stabilization of the franc, or even
a strike in a South American mine. This is one reason for the space
now devoted to foreign news in the American press.
During the war much of the trade with Europe was extraordi-
nary in the sense that it was neither continuous nor capable of
being built upon. Similarly, during the immediate post-war years,
the financing of Europe was extraordinary, for much of the credit
was extended for the purpose of reclaiming national structures
from credit paralysis. The credit extended to non-Europe, how-
ever, was part of the readjustment in American foreign economy.
10 Foreign Affairs (N. Y.)» Jan., 1927.
11 Stone & Webster and Blodget, Inc., One Thousand Dollars a Second, p. 11.
174 AMERICAN FOREIGN RELATIONS
American dollars fulfilled some noteworthy extraordinary func-
tions, such as balancing Latin American budgets and helping to
rebuild Japan after the 1923 earthquake, but they were princi-
pally supplied to finance industrial enterprises.12 Since 1913 one-
third have gone into corporation issues, half of which are repre-
sented by public utilities, railroads, and banks. The drift toward
corporate financing is borne out in the statistics for 1927, which
show that the money lent to foreign companies almost equalled the
amount invested in foreign governmental, provincial, and munici-
pal issues. Bond issues predominate, and only 6 per cent of Ameri-
can issues since 1913 have been in stocks. American investors are
not yet taking the managerial interest in foreign enterprises such
as distinguishes British investors.
FINANCE AND COMMERCE
WHAT we describe as a money drift is in most cases a goods drift,
the loans being long-term credits, explicitly or implicitly, for com-
modity supplies. In a loan to a Japanese public utility, say, dollars
or gold are not sent to Japan. A credit may be opened in the
United States for the public utility concerned. If it requires elec-
trical equipment, it may be given credit locally to the extent of the
open dollar credit in the United States, the claims on which would
be presented to the American bank by American manufacturers.
This is how the surplus of American plants is helped to find a
market. Japan, in the eyes of our competitors, seems to illustrate
the alliance between commerce and finance in the extension of
American enterprise abroad. British Industries,1* the organ of the
Federation of British Industries, contains the following suggestive
comment :
By close cooperation between finance and industry they [the
Americans] have obtained such a hold over Japanese industrialists
that British representatives on the lookout for orders have frequently
been forced to suspend negotiations because the people with whom
they are negotiating prove to be subsidiaries of, or in some way con-
12 For details of American loans, see special yearly circulars, 1914-1927, of the
Finance and Investment Division of the Department of Commerce,
is May 15, 1928.
UNITED STATES AS A CREDITOR NATION 175
nected with, some leading concern, which steps in with the intimation
that they are bound by financial agreements to give preference to
American machinery or other material.
This is the direct form of the interlocking of finance and com-
merce. In the indirect form it has been illustrated by Hartley
Withers,14 who traces the relation between finance and trade in a
hypothetical loan raised in London by a South American state for
the purpose of building a railway :
It [the state] may spend the proceeds on steel rails made in Bel-
gium or the United States, but the Belgian or American sellers of the
goods in question will take payment in sterling drafts, because ster-
ling credit is all that the borrowing government has got for making
payment for them, and either they, or someone else to whom they pass
the credit on, must buy something in England, for England is the
country, and the only country, where the particular kind of money
that has been borrowed passes current in exchange for goods and
services ; if it is going to be spent at all — as it certainly is — it has to
be spent here finally, however often it may have in the meantime
changed hands abroad, and been converted into foreign currencies.
Post-war experience has shown in other areas how fruitful has
been this partnership between American finance and American
commerce. The financing of Germany led to a 32 per cent increase
in American exports to Germany in 1927. In Latin America, ac-
cording to the National Foreign Trade Council, American trade
"rests on a solid triangle of investments." These examples, rele-
vant to the loan qua loan, involve in most cases payment in goods ;
there is also the explicit long-term commercial credit of the ex-
porter, financed by the banks. This method of selling is important
inasmuch as credit is the handmaid of modern commerce, and in
its foreign application has the same use as it has in cultivating
domestic purchasing power. "The day is fast passing," says a
recent resolution of the National Association of Credit Men,
when export markets can be considered only as a field for cash or
secured transactions. Reasonable credit must be extended to the re-
sponsible foreign buyer. Credit has become the foundation of our
i* Commercial and Financial Chronicle, May 16, 1925.
176 AMERICAN FOREIGN RELATIONS
domestic business structure, and in order to build a sound and com-
prehensive trade in foreign markets, we must have the same founda-
tion and protection, solidifying it by vision, judgment, and expe-
rience.
There is another reason for this need for credit for customers
of our goods. It is that there is a political indisposition in the
United States to receive goods for goods to the point where our
imports will outstrip our exports in our merchandise account. This
"political" emphasis on exports is lacking among those creditor
nations who have abandoned mercantilism as a national policy.
Says Benjamin M. Anderson, Jr. :15
The desirable thing would be, of course, such a freedom in the in-
ternational markets that goods could pay for goods, with only short-
term bank credits, in the form of acceptances, used to mediate the
transactions. When exports can be paid for by imports, these credits
are kept easily revolving, and the total needs to grow only with a
growth in the international movement of goods.
Political exigencies frustrate this desirable consummation in the
United States ; hence, we must not only return in loan more than
we receive in interest, we must supply people with the means of
buying our goods if we wish to remain at one and the same time a
creditor nation and an export surplus nation.
The argument of the necessity of the hand-in-hand operation of
national finance and national commerce must not be strained
too far. There are benefits to a manufacturing nation accru-
ing from the general activities of international finance. A. P.
Winston16 observes that a nation's lending does not necessarily
enable it to sell materials. He cites the railways in intramural
China as proof of this contention. China, however, is a peculiar
case; much of the financing of Chinese railroads was not eco-
nomic, but political. French capital was used for this purpose, for
example, not in the interests of French economy or of Chinese
development, but to bolster up Tsarist imperialism, and much of
the supervision provided for was as much political as economic. In
is Chase Economic Bulletin, Vol. 7, No. 4, p. 28.
16 American Economic Review, September, 1927. "Does Trade Follow the
Dollar?"
UNITED STATES AS A CREDITOR NATION 177
fact, the French manufacturers in 1914 complained that French
financiers pursued their operations in the East regardless of the
commercial interests of France. Though this type of financial ex-
ploitation is not common, it is true that money borrowed in one
market is often spent in another, but this is of moment to the
United States, no matter whether, as Hartley Withers suggests,
goods must ultimately be bought in the lending country in can-
cellation of the debt. The United States is sometimes benefited by
being included in this triangular system of settlement. A notable
example is furnished by the South Manchuria railway. This rail-
road has drawn largely from the London money market, but has
not borrowed a cent from the United States, yet it spends not less
than $2,000,000 yearly in this country. If we have to spend this
$2,000,000 in Great Britain, it is ours by trade, and we reap the
advantage of the transaction. Finance may blaze the trail in its
own way, but it will inevitably lay the foundation for the trade
best fitted for the markets it opens up ; and it is primarily in the
opening up process, by whomsoever financed, that American com-
merce is nowadays interested. It follows that American self-in-
terest coincides with the abstract ideal of international relations
in encouraging the application of the open door to foreign em-
ployment of capital.
Our remarks in the chapter on commerce show that economically
we require the products and markets of non-Europe more than
those of Europe. Our tariff policy has intensified our economic em-
phasis on non-European imports. It follows that there is a commer-
cial impetus in the financial development of non-Europe.
Just as the New World provided Europe with the greatest
capital market in history, so the vast Pacific expanses in Australia,
Canada, western China, Siberia, and Latin America may one day
constitute for American capital, and therefore commerce, its
natural theater of operations. A forward movement in this direc-
tion is still impeded by two difficulties. These account for the fact
that, strange as it may appear in the light of the above catalog of
recent American and British lending operations, post-war foreign
investment, reckoned according to pre-war values, has not yet
reached its pre-war volume.
178 AMERICAN FOREIGN RELATIONS
The first difficulty lies in the modern political disturbances in
the economically backward areas, caused partly by internal dis-
sension and partly by the spread and intensification of the idea of
nationality. These disturbances will always keep capital at a dis-
tance, but another factor is nowadays involved — the potential
debtor's charge that international finance is concerned with the ex-
ploitation of sovereignty as well as of territory. This is a problem
for world statesmanship, a problem that grows more pressing with
the opening up of new markets and with the competitive power of
modern industrial nations. There are signs that the Western world
is willing to recognize political forces in certain capital-receiving
countries against extraterritoriality and other such peculiar in-
stitutions as have hitherto been called for in the protection of for-
eign interests. The League of Nations, the Pan American Union,
the Chinese Consortium, and other forms of international organi-
zation are also trying to reconcile the fears of politically weak na-
tions with the need of investment capital for protection. As it is,
however, the suspicions of the economically inferior countries have
gained articulation pari passu with Western progress toward in-
ternationalization. Conditions are different in countries which have
a stable government. Canada is going through the same process as
the United States has gone through; outside capital is opening
up her natural resources, and building up a future Canada capable
of taking a front rank in the comity of economic nations. There
is no cause, and therefore no suspicion, of invasion of sovereignty
in this experience. Sir Robert Home has said : "I am glad to see
American capital developing Canadian resources. It is much better
that those resources should be developed than that they should re-
main in abeyance."
The second impediment to the employment of capital in large-
scale development schemes is the temporary eclipse of continental
European money markets. This is one phase of the incompleteness
of European reconstruction. Monetary instability in Europe has
caused many European countries to keep reserves in New York.
It has involved a constant exchange of funds between Europe and
America, diminishing the net exportation of American capital,
and tying it up in a bewildering exchange of floating balances, all
UNITED STATES AS A CREDITOR NATION 179
intent on picking up interest in constantly changing markets. Au-
thorities estimate foreign demand balances in the United States at
varying amounts. Secretary Mellon17 puts the figure at $2,000,-
000,000; others estimate it at nearer $1,000,000,000. Whatever
the total, it is an unsettling factor in financial relationships, be-
cause any sudden withdrawal of foreign funds may bring about
credit restriction in the United States. A stable Europe is essential
to the confidence of American finance and American business in
initiating large-scale undertakings because it would put an end
to the extraordinary circulation of short-term funds.
BALANCE OF INTERNATIONAL PAYMENTS
No true reading of America's economic position is possible without
an examination of the balance of payments. A misapprehension,
for instance, would be created that the statistics of foreign issues
floated in the United States constituted the extent of the capital
exportation of the United States. The fact is that this total must
be reduced not only by the amount of loan refunded but also by
many other offsetting items. Foreigners are buying American se-
curities. They are redeeming existing debt and buying back their
securities from Americans. Vice versa, Americans are buying for-
eign securities issued abroad. These transactions represent only a
few of many immeasurables arising from the fluctuations of se-
curity ownership which must somehow be estimated in computing
the true situation of "private funded-capital" movement to and
from the United States. We find that the money we send abroad in
this category of long-term items exceeds in total the money sent
here, as appears by the table below. This shows "net export of
capital" after all "private funded-capital" items have been taken
into account. In 1926 "net nominal" investment (investment less
refunding) was $1,135,000,000; but the "net export of capital"
was only $604,000,000. Similarly in 1927 the investment figure
should be reduced from $1,376,000,000 to $671,000,000.
This net capital export would be still further reduced if the
amount of the above-mentioned demand deposits were subtracted.
17 Annual Report of the Secretary of the Treasury, 1927, p. 71.
180 AMERICAN FOREIGN RELATIONS
As we have pointed out, the United States is not only lending long,
but is borrowing short, and the inflow of short-term funds from
abroad for safekeeping and other purposes diminishes consider-
ably the net export of capital. Then, much of the long-term money
borrowed from the United States remains on deposit in American
banks, a condition of things tantamount to re-lending by our
debtors and therefore significant of what the Midland Bank (Lon-
don) calls "an alleviation of foreign debtorship to the United
States." Mr. Mellon estimates that over $2,000,000,000 is held
here, but as we also have demand balances abroad, the Department
of Commerce has investigated both the debit and the credit side of
the item, the result indicating a sum of $1,052,000,000 in our net
short-term indebtedness to foreigners.18 This item is called "net
change in international banking accounts" in the table below, but
for 1927 a blank has been left against it, since the department
could not accept the results of an admittedly imperfect investiga-
tion as reasonably accurate. If the department's investigation had
been accepted the United States in 1927 would have appeared as
an importer of capital! The department's task in assessing our
position as a deposit-holding nation is extremely complicated by
the bewildering shifts to which capital is nowadays subject. This
situation has turned the leading industrial nations into what the
Economist describes as "hybrid sorts of debtor-creditor com-
munities," or nations which are subject to incessant ebbs and flows
of financial activity and capital movement. It is a situation that
must be borne in mind by those who criticize American lending on
the ground of loss of capital.
Many other items enter into our balance of payments and must
be appreciated in the appraisal of our creditor position. Here we
gain more measurable ground than that of the financial relation-
ships, but it still remains fairly intangible, despite the refinements
of statistical method introduced by the Department of Commerce.
The only visible item is our trade balance, which in 1927 showed an
export surplus of $527,000,000, but nowadays our commodity
is Department of Commerce: The International Balance of Payments in 1927 1
p. 45.
UNITED STATES AS A CREDITOR NATION 181
exchanges represent only five-eighths of our total transactions
with foreigners. Mr. Hoover says, "Our foreign trade is now
in an era of big invisibles," meaning not only financial debits and
credits but the movements of funds by tourists and immigrants, the
yield of investments, and a battalion of other transactions with the
external world. These exhibit the law of compensation at work in
our national account, hidden from view by "credits and debits
fighting in the dark against each other," as the Hon. George Peel
puts it. The debits help to adjust the credits, and the way in which
it is done will enable us to answer such questions as : How are we
"receiving" payment for war debts ? How shall we accept payment
of interest on our foreign loans ? Why is it that the United States
does not show an import surplus in her merchandise account?
Creditor nations as a rule receive payments on account of foreign
loans in goods, which would be entered on the debit side of the na-
tional account as "surplus of merchandise imports." In the United
States we are increasing our imports relatively to our exports,
showing that we are receiving some part of our interest and our
war debt payments in goods, but on balance the world is in debt to
us in the exchange of commodities. Our tourists, our financiers, and
our immigrants are engaged in putting funds into the hands of
foreigners by way of helping to offset our gross creditor position.
So important is our balance of payments that it might be de-
scribed, as A. G. Everett19 has described it, as "largely a review of
American national life, a reflection of the nation's international so-
cial activities, a reflection of many national habits and customs,
and in some degree a measure of its international policies and poli-
tics." Although exactness is impossible, the information being
buried in incalculable debits and equally incalculable credits, our
record is becoming clearer every year, thanks to the Harvard
Business School, which started this inquiry in methodical fashion,
and to the Department of Commerce, whose researches since 1922
have commanded world-wide attention and appreciation. The fol-
lowing table is adapted from the detailed data prepared an-
nually by the department :
10 American Bankers' Journal, September, 1927,
182
AMERICAN FOREIGN RELATIONS
DEBITS
Total of private-funded capital items
(net export of capital)
Freight (net)
Tourists
Emigrants (net)
Charitable and missionary contributions
Surplus of gold, silver, coin, bullion,
and currency
Net change in international banking
accounts
Miscellaneous
Errors and omissions
1922 1923 1924 1925 1926 1927
638
522
432
604
671
8
8
61
32
300
400
500
560
567
617
325
290
300
310
218
206
75
70
55
50
46
43
246 246 272
16 19
61
5
50
1,600 1,033 1,658 1,426 1,546 1,569
(in millions of dollars)
CREDITS
Surplus of merchandise exports
Yield of investments (net)
Total of private-funded capital items
(net import of capital)
War debts
Motion picture royalties (net)
Freight (net)
Miscellaneous
Net change in international banking
accounts
Surplus of gold, silver, coin, bullion,
and currency
Errors and omissions
192S 1924 1925 1926 1927
734 388 970 666 244 527
225 417 464 355 467 514
109
126
50
7
375
3 216
83 116
160
75
106
64
195
71
24
359
186
206
71
58
187
6
1,600 1,033
(in millions of dollars)
1,658 1,426 1,546 1,569
These figures show that America's international turnover last
year was approximately $18,200,000,000, or a per capita transac-
tion of $152 with foreigners, and reveal the manner in which "the
jurisdiction of the trading world of today is broader than the
jurisdiction of any of the governments whose citizens appear as
traders on the world's markets."20 When the human activity
measured in the figures is borne in mind, it will be appreciated how
inextricably our social and economic life is internationalized.
20 Adams, Henry Carter, "International Supervision of Foreign Investments,"
American Economic Review, March, 1920.
CHAPTER THREE
STATE DEPARTMENT SUPERVISION
OF FOREIGN LOANS
THERE is no consistent basis of policy in any country for the
protection of the rights and interests of a national outside
of the territorial jurisdiction of his government.1 Doctrines there
are in plenty, but neither an international law of bankruptcy nor
a universally accepted code of arbitration is in operation. In the
United States the expatriate or traveler may choose between
Bryan's "When you go abroad you have to take your chances" and
Coolidge's "The person and property of a nation are a part of the
general domain of a nation, even when abroad." Yet the question is
bound up with our increasing overseas interests and political com-
mitments, and must be borne in mind in any consideration of gov-
ernmental supervision of the country's money lending. Supervision
as a general policy is as recent as our own lending activities; it
developed after the war in conformity with America's transforma-
tion from a debtor to a creditor nation. Whereas in 1914 we owed
foreigners about $4,500,000,000, we are now creditors to the ex-
tent of $25,000,000,000, inclusive of war debt. The metamorphosis
in our financial relation to the world is the occasion for the inter-
vention of the Federal Government. True, this relation, save for
the war debt, is a private one between the American investor and
the foreign borrower, but the lender is also a citizen of the United
States, and his overseas undertakings affect his citizenship and
might run counter to the conduct of our foreign relations. A case
in point was that of a proposed loan on the New York market for
the construction of a dam across the Blue Nile. It seemed as if this
were a plain business affair between American and Abyssinian in-
terests ; but tentative conversations produced the information that
Abyssinia was under certain restrictions by agreement with Great
i This general question will be treated in a future volume, and the effect of
American loans on borrowing nations, such, for example, as those to Central Ameri-
can republics, will be treated in connection with the specific problems to which they
have given rise, We are here concerned with the new modus ushered in by the policy
laid down by the State Department in 1922.
184 AMERICAN FOREIGN RELATIONS
Britain, France, and Italy, which would have invested the enter-
prise with a certain international delicacy. A private undertaking
might thus assume much wider dimensions in its implications of
responsibility than is conveyed in the simple relations between
lender and borrower.
In its concern with lending operations the government is
merely following the precedent marked out by other lending na-
tions. In Britisli practice it is difficult to trace the connection be-
tween official supervision and foreign loan-making. Even its exist-
ence has been denied by government spokesmen. Speaking in the
House of Lords on March 2, 1922, Lord Crawford said, "There is
no government control over capital issues and it is the policy of
the government not to intervene betwreen foreign governments and
potential lenders in this market." No overt intervention probably,
but there can be no doubt that the government has expressed its
interest in relations whose effect on British policy has been amply
attested in history. Commenting on the Crawford statement, Dr.
Arthur N. Young, economic adviser to the State Department,
stated at the 1924 conference of the Institute of Politics at Wil-
liamstown, "It is understood to be the practice of issuing houses
that intend to bring out such loans to make known the facts to the
Bank of England, thus affording opportunities for consideration
of any objections that might be presented to particular transac-
tions." Dr. Young's guarded phraseology is a testimony to the
lack of definition or formulated policy in Great Britain ; there are
now no "laws" in operation governing capital exportation, but
there is an all-pervasive influence, and this seems to be exercised
by the Bank of England in consultation with the Treasury or the
Foreign Office, perhaps both. It is apparent that the government
relies upon the bank to see that the ramifications of investment
banking do not run athwart national interests. The bank's pater-
nal relation with other issuing banks is the result partly of its
peculiar position and partly of a long tradition of cooperation.
Division of risks is so general that practically all major financial
transactions are handled by a pool of banks under the aegis of
"The Bank"; this has developed a community of interest. Any
lapse from the self-discipline of British investment banking re-
SUPERVISION OF FOREIGN LOANS 185
veals the presence of a certain official watchfulness. In 1912 the
so-called Crisp loan to China was put through by an independent
syndicate prior to a reorganization loan by an international bank-
ing consortium in which British policy was vitally interested.
When the chief promoter, C. Birch Crisp, called at the Foreign
Office, he was informed that "His Majesty's Government were
not, of course, in a position to put pressure on the syndicate in-
terested in the loan, but they could put considerable pressure on
the Chinese Government and would not hesitate to do so at once.5'2
Nevertheless, the Crisp loan went through, but it has never re-
ceived the same attention in official representation which has been
accorded to other loans whose service has been in dispute with the
financially embarrassed Chinese Government. Another example
was furnished when the Midland Bank was recently constrained
to drop a proposal to lend money to Russia. In spite of an occa-
sional recalcitrancy, the Bank of England's oversight of lending
activities abroad is effective, even if informal, and the result is that
the stream of British overseas investments in general flows in the
bed of imperial interests.
Switzerland follows the British model in respect of regulation
by "understanding." The 1927 report of the National Bank says :
It is agreeable to note that the large Swiss banks, almost without
exception, have kept the central institution advised of all lending
operations that were contemplated. We hope that the same practice
will be followed in the future.
The British practice of investment differs radically from what
is called the continental system, of which France is the lead-
ing example. Traditionally, the British prefer to invest their
capital in a British stock company, with its board of directors and
its bank account located in London ; the French lend theirs, buying
government bonds or securities in ventures managed by other
than Frenchmen. The one method produces the attitude of mind
of the stockholder, the other that of the rentier. In "political"
loans, also, France used to be much more venturesome and "un-
2 British Blue Book, China, No. 2, 1912. Quoted by George W. Edwards, Invest-
ing in Foreign Securities, p. 277.
186 AMERICAN FOREIGN RELATIONS
businesslike" than the British, and, in consequence, in 1914, the
Association of French Manufacturers felt constrained to protest
against a system that had become increasingly unmindful of
French industrial requirements.
The French regulate capital exportation by law, as the British
did in the days of Walpole, and as the Dutch did in 1700, when
a decree was issued against "foreign loan transactions without
consent." In France it is deemed the duty of the government to
control the export of the nation's savings. Government consent
must be obtained before loans can be floated for overseas bor-
rowers, and listing on the Bourse is controlled through the Min-
ister of Finance in consultation with the Minister for Foreign
Affairs. This was revealed in 1909 when, acting in the interests of
the domestic metallurgical industry, the French Government re-
fused to admit the stock of the United States Steel Corporation
to listing privileges on the Bourse. The Chamber of Deputies keep
a watchful eye over all activities in connection with this control,
which gained its most specific exposition in 1912 from Raymond
Poincare, and for this reason has been called the "Poincare doc-
trine." In that year, when Poincare was Premier, the Turkish
Government applied to the French banks for a loan. The Ministry
refused permission to "list" the issue, and the Turks floated the
loan in Berlin. Answering those critics of the Left who wished to
know why the Ministry of Finance favored reactionary Russia
and not revolutionary Turkey, Poincare said that investigation
had shown that the Turkish Government sought financial accom-
modation to increase its artillery equipment, and, since its
existing artillery had come from the Krupp works in Germany,
it obviously intended to place its new order with the same or-
ganization; the Turks, in fact, had refused to consider buying
their equipment from the Creusot factories in France. To sanction
the loan would mean that the savings of the French people would
be used to keep the Krupp works busy while the munition plants
of France were idle. The government had refused to endorse a
financial transaction in which French capital would be exported
to develop the munition industry across the Rhine. The accumu-
lated savings of the nation, Poincare maintained, were as impor-
SUPERVISION OF FOREIGN LOANS 187
tant a part of national defense as the nation's soldiers, and the
government could no more permit bankers in time of peace to lend
capital abroad contrary to the national interest than it could per-
mit the General Staff to lend an army corps to the enemy in time
of war. Poincare's exposition resulted in a vote of confidence for his
government, and the Chamber, though sometimes charging cor-
ruption and lack of judgment, have always accepted the principle
of governmental responsibility as outlined by Poincare, although
the Poincare doctrine has not always been the guiding principle
of loan-making, as the 1914 protest of the French manufacturers
and the loans to Russia bear out. Practice even in France is not so
rigid as theory.
Supervision in pre-war Germany was exercised by a Listing
Office, and it was instituted primarily with the view of protecting
the investor against fraudulent issues.
The present tendency of American financial operations abroad
is toward the French model in that a large percentage of our
foreign holdings are in the form of government and municipal
bonds. How long that tendency will continue is conjectural. The
policy of the government in respect of supervision of these opera-
tions, however, leans more toward the British practice. In com-
mon with all other lending nations, the United States during the
war instituted strict control over American financial operations
abroad, but it was extraordinary control, and as such has no bear-
ing on this discussion. In May, 1919, the government lifted cer-
tain war-time restrictions, but the Treasury still required notifi-
cation of all financial transactions with the outside world. The
government at this time was trying to insure the repayment of war
debts, and could not view with favor the export of American capi-
tal in such manner as to neutralize the effect of war debt rep-
resentations. It might therefore be assumed that the government
was more concerned to settle the intergovernmental indebtedness
than to control the power residing in American exportable capital.
Yet the government could not ignore the mounting total of Ameri-
can holdings overseas without ignoring a vital factor in foreign
relations.
In the summer of 1921, President Harding invited a group of
188 AMERICAN FOREIGN RELATIONS
investment bankers to the White House to discuss the formulation
of a policy, which was framed in a public announcement from the
State Department on March 3, 1922, reading in part as follows :
The flotation of foreign bond issues in the American market is as-
suming an increasing importance and on account of the bearing of
such operations upon the proper conduct of affairs, it is hoped that
American concerns that contemplate making foreign loans will in-
form the Department of State in due time of the essential facts and
of subsequent developments of importance. Responsible American
bankers will be competent to determine what information they should
furnish and when it should be supplied.
American concerns that wish to ascertain the attitude of the de-
partment regarding any projected loan should request the Secretary
of State, in writing, for an expression of the department's views. The
department will then give the matter consideration and, in the light
of the information in its possession, endeavor to say whether objec-
tion to the loan in question does or does not exist, but it should be
carefully noted that the absence of a statement from the department,
even though the department may have been fully informed, does not
indicate either acquiescence or objection. The department will re-
ply as promptly as possible to such inquiries.
The Department of State can not, of course, require American
bankers to consult it. It will not pass upon the merits of foreign loans
as business propositions, nor assume any responsibility whatever in
connection with loan transactions. Offers for foreign loans should
not, therefore, state or imply that they are contingent upon an ex-
pression from the Department of State regarding them, nor should
any prospectus or contract refer to the attitude of this Government.
The department believes that in view of the possible national in-
terests involved it should have the opportunity of saying to the under-
writers concerned, should it appear advisable to do so, that there is
or is not objection to any particular issue.
This was the manner in which the government heralded its in-
terest in the flotation of foreign securities on the American market.
It essayed neither supervision nor control. As is made clear by
the department when it extends approval to any loan applica-
tion, no responsibility is assumed for its future, nor does it pre-
sume to pass upon its merits as a business proposal. "It should
SUPERVISION OF FOREIGN LOANS 189
be clearly understood that the Department of State has no express
legal relation to the flotation of foreign loans in the American
market," says Dr. Young. The attitude is expressly one of watch-
fulness in the country's larger interests of foreign relationships.
It seeks (and has obtained) the cooperation of bankers, and its
checks are applied so informally as to rely upon telephonic and
verbal communication. But the departure augured an interven-
tion whose significance lay both in the public interpretation of
responsibility and in the development of policy out of concrete
cases.
No matter how mild it is, any governmental action has unique
and dominant implications. A request becomes a command when
it emanates from a government department. To the bankers the
request for cooperation was agreeable enough, for, apart from
their desire not to impede the attainment of national objectives in
the domain of foreign policy, the imprimatur (if the action of
"passing" a loan application may be so called) of the State De-
partment on any issue would connote a certain, if ambiguous,
standing for the bonds to be marketed. It follows that any other
course than acquiescence in the department's wishes or acceptance
of its ban would make it difficult for the issuing house to dispose of
its loan to the American investor. It is a fact that to the average
investor go\ eminent approval holds a signification which the State
Department has been continually at pains to dispel. He has gone
so far as to imagine that such approval, which is now tacitly car-
ried by any foreign loan publicly issued, would involve the spon-
sorship of the government for the safety of his investment. That
the department felt some consideration for the investor was re-
vealed during the course of the discussion in 1927 as to whether
or no private German loans had priority of service over repara-
tions remittances.8 Secretary Kellogg, speaking before the Council
on Foreign Relations on December 14, 1925, said :
While the department has not thought itself called upon to object
to such loans to German municipalities and states as being against
the public interest, it has called the bankers* attention to the fact
that indiscriminate loans to municipalities and states were not, it
3 See Section IV, Chapter 1, "Reparations," p. 398 ff.
190 AMERICAN FOREIGN RELATIONS
was believed, favored by the German Government, and might raise
serious questions of transfer of funds sufficient to pay the principal
or interest of such loans.
Bond salesmen would be lacking in the enterprise usually asso-
ciated with their calling if they failed to suggest an interpreta-
tion of official sponsorship. In a loan to San Salvador floated in
1922, the contract provided that in case of differences between the
borrowing government and the bankers, such differences should be
submitted to the arbitration of the Chief Justice of the Supreme
Court of the United States ; and the bankers' circular to potential
investors carried the statement :
It is simply not thinkable that, after a Federal Judge has decided
any question or dispute between the bondholders and the Salvador
Government, the United States Government shall not take necessary
steps to sustain such decision. There is a precedent in a dispute be-
tween Costa Rica and Panama in which a warship was sent to carry
out the verdict of the arbiters.
The statement was immediately repudiated by the State Depart-
ment, which has always insisted that its approval must not be re-
garded as the corollary of government credit or as any indication
that the American Government would become a collecting agency
in the event of default. In an address at a dinner of the Near East
Relief Association on October 24, 1924, President Coolidge en-
dorsed a pronouncement made by Elihu Root at Buenos Aires in
1906 by saying, "American investors receive no assurance that
their loans or agreements will be supported by American arms.
It is not, and has not been, the policy of this government to collect
debts by force of arms.55 Even when the State Department might
approve a loan to a foreign applicant, factors might supervene
to prevent flotation. Such a situation is believed to have arisen
over a proposed loan to the Japanese-leased South Manchuria
railway in 1927. It is understood that State Department approval
had been secured, but that the opposition from China made the
bankers uncertain as to the receptivity of the market, and so pre-
vented the issue at the time.
The 1922 announcement has brought forth the following ob-
SUPERVISION OF FOREIGN LOANS 191
jections: first, to loans to nations which have not funded their
war debts to the United States ; secondly, to loans to assist mo-
nopolies of raw materials essential to the normal peace-time con-
sumption of the United States ; thirdly, to loans for non-produc-
tive purposes. These vetoes have developed on specific applica-
tions, and, although the correspondence between the bankers and
the State Department is carried on in confidence, were brought to
light in the interests of public policy, advocated in the main by
the Treasury and the Commerce Department, which are ap-
parently taken into consultation before loan applications are
"passed" upon. It should be emphasized, however, that policy is
not considered iron-bound by precedent.
Objections have also been raised to a loan to Germany to finance
trade with Russia and to the selling of a Russian 9 per cent rail-
way loan in the United States. The policy here has hardly been
consistent. The government has more than once intimated that
it does not favor loans to Russia, but with American trade with
Russia booming, has seemingly acquiesced in the granting of
long-term credits for facilitating American exports to Russia. A
case in point was the agreement late in 1927 between the Soviet
Government and an American financial group headed by Percival
Farquhar providing a credit of $40,000,000 for six years. It was
understood that most of the capital thus obtained would be invested
in the United States in new metallurgical equipment. The agree-
ment was hailed at the time as "a breach in the American credit
barrier."4 The banning of a loan to Germany to finance German
trade with Russia could not check what is a general practice,5 for
the simple reason that the American Government could not control
both ends of the conduit pipe.
LOANS TO NATIONS WHICH HAVE NOT FUNDED THEIR
WAR DEBTS TO THE UNITED STATES
THE ban on loans to nations whose debts have not been funded had
its origin in the attitude of the Treasury. That may, indeed, have
been the basis of the 1922 announcement. That it was not then
* New York Times, November 29, 1927.
s For examples, see Section IV, Chapter 1, "Reparations," p. 389 ff.
192 AMERICAN FOREIGN RELATIONS
made clear was due to reasons both of public and domestic policy.
As Elihu Root has pointed out, "Nations are even more sensitive
to insult than individuals," and there could hardly have been a
more disturbing affront to the debtor nations than publicly to
announce the closing of the American money market to them. The
domestic aspect of the policy arises out of its connection with the
legislative function of Congress. Credit extended to foreign bor-
rowers in general spells the exportation, not of funds, but of goods ;
an embargo on foreign loans might be considered tantamount to
an embargo on exports, which is not an executive but a legislative
function. After waiting nearly seven years for most of the debtors
to acknowledge their obligations, Secretary Mellon felt that he
would have public opinion on his side without legislative action
in applying the pressure of non-access to the American money
market to the negligent debtors. The exercise of the pressure was
well timed. London was closed as a market for foreign capital
issues on account of Britain's impending return to the gold stand-
ard ; other financial markets were slowly recovering from war ef-
fects. The ban is explained in the 1925 report of the Treasury.8
Early in 1925, after much consideration, it was decided that it was
contrary to the best interests of the United States to permit foreign
governments which refused to adjust or make a reasonable effort to
adjust their debts to the United States to finance any portion of their
requirements in this country. States, municipalities, and private en-
terprises within the country concerned were included in the prohibi-
tion. Bankers consulting the State Department were notified that the
government objected to such financing.
It is known that at least one debtor government was refused a loan
by New York bankers when the administration drew attention to
its failure even to acknowledge communications on its obligation.7
The use of the new State Department policy as an instrument
of national policy to enforce respect for war debt claims had par-
ticular application to France. About this time she was contem-
plating a stabilization loan, but negotiations were held up because
she had failed to conclude her war debt settlement with the United
« P. 54. 7 Wall Street Journal, June 23, 1925.
SUPERVISION OF FOREIGN LOANS 193
States. France chose to forgo the loan rather than accept the pre-
requisite condition of adjusting the war debt. At the end of 1927
she was still unwilling to ratify the Berenger-Mellon agreement,
but was making regular payments to this country in accordance
with schedule. This might explain the raising in 1927 of the ban on
the flotation in the United States of French industrial issues. Be-
fore this, however, the State Department had approved the flota-
tion on the American market of lower interest bearing securities to
retire $75,000,000 of French bonds floated in the United States.
Seeing that the State Department action came at the time of a
Franco- American controversy over the French tariff , it was natu-
ral that it should be regarded as an attempt to facilitate the tariff
negotiations. But France chose to ignore the offer, and to put the
transaction through in another way; the retirement of the out-
standing bonds was accomplished through the sale of $75,000,000
new French 5's to the Swedish Match Company. The American
subsidiary of this organization at the same time offered $50,000,-
000 of its debentures on the American market. Barred officially
from the American market, France has floated large loans in such
foreign markets as Holland and Switzerland, and these have been
subscribed in many cases by American investors. Dr. Max Winkler
estimates that in the five months ended February, 1927, France
borrowed some $105,000,000, of which about $27,500,000, was
supplied by Americans. Much the same result could be adduced
from any other study of the holdings of French post-war loans.
LOANS TO ASSIST MONOPOLIES OF RAW MATERIALS
ESSENTIAL TO NORMAL PEACE-TIME CON-
SUMPTION IN THE UNITED STATES
MR. HOOVER regards American loans to so-called monopolies, as
well as non-productive loans, as injurious to the larger interests of
the United States. The administration has adopted this stand-
point. In the latter part of 1925 it became known that the State
Department had objected to the underwriting by Lee, Higginson
and Co., of a $75,000,000 loan to the German Potash syndicate.
Subsequently two issues, one of £8,000,000 and the other of £4?,-
000,000, were floated in London by a syndicate in which the
AMERICAN FOREIGN RELATIONS
London branch of Lee, Higginson and Co. participated. Then a
proposed loan to the Brazilian Coffee Institute came under official
veto. Mr. Hoover's objections were voiced as follow:8
The administration does not believe the New York banking houses
will wish to provide loans which might be diverted to support the coffee
speculation which has been in progress for the past year at the hands
of the coffee combination in Sao Paulo, Brazil. Such support would
simply bolster up the extravagant prices to the consumer.
But the coffee interests got through the meshes of official prohibi-
tion by securing two loans about equal in total amount to the
banned loan through Lazard Brothers and Co., Ltd., on the Lon-
don market. In accordance with a usual practice, a portion of the
bonds were purchased and sold by an investment house in the
United States. "When we denied certain foreign monopolies access
to our own monopoly of credit, we in effect pitted one monopoly
against another," comments John Foster Dulles,9 but the effect
of these two vetoes would corroborate what he further points out,
that our "monopoly of credit" is being dissipated by the restora-
tion of other investment markets.
In these days of industrial control of raw materials peculiar
to certain countries and of a growing degree of international
economic understanding, there would seem to be difficulties of defi-
nition and application, besides one of consistency, in the official
attitude toward this class of foreign loans.
LOANS FOR NON-PRODUCTIVE PURPOSES
BY non-economic or non-productive loans it is inferred that the
department has principally in mind loans for armament, since, ac-
cording to Secretary Kellogg,10 the department has disapproved
certain loans of this character. The policy is specially applicable
to certain Central American republics toward which the United
States has assumed a special moral obligation. In these cases, to
quote an official of the State Department, the department may
s Of. Speech before the Third Pan American Commercial Conference, May 2,
1927.
0 Foreign Affairs (N. Y.), "Our Foreign Loan Policy," October, 1926, p. 33.
10 Address before the Council on Foreign Relations, December 14, 1925.
SUPERVISION OF FOREIGN LOANS 195
also "feel called upon to consider whether the arrangements pro-
posed are fair to the government concerned."11 Another official
says, "We scrutinize their loans with particular care to be sure
they are not too large to be easily handled and that they are for
purposes which will assist the borrowers to build up their own eco-
nomic structure to a point where they will be entirely self-sup-
porting."12 The governments concerned have sometimes been
requested to give their assistance in settling any disagreement
concerning a loan contract by referring the dispute to a member
of the United States judiciary, and also to assist in the selec-
tion of financial experts. Furthermore, according to Secretary
Hughes,13
In this situation, our government endeavors by friendly advice to
throw its influence against unfairness and imposition, and it has at
times, with the consent of the parties, indeed at their instance, agreed
to a measure of supervision in the maintenance of security for loans
which otherwise would have been denied or would have been made at
oppressive rates.
Bolivia, China, Colombia, Cuba, Ecuador, Guatemala, Hon-
duras, Hungary, Liberia, Mexico, Panama, Paraguay, and Persia
are apparently in the mind of the State Department in this gen-
eral connection. To some of these countries unofficial American
financial experts have sometimes rendered assistance. Edwin W.
Kemmerer, for instance, has held appointments to recommend cur-
rency reforms in no fewer than seven Latin American countries.
Other countries have engaged Americans on semipermanent
appointments in connection with loan agreements. In 1927 an
American was engaged as financial adviser to make a survey in
Nicaragua, and an American adviser was attached to the Ministry
of Finance in Poland in connection with the extension of an im-
portant loan.
China is in a separate category in respect of the diplomatic side
of its financial relations with the United States. In pre-war days
11 Young, Dr. Arthur N., in an address before Radcliffe College, Jan. 16, 1925.
12 Castle, William R., Jr., in an address before the Republican Club of Massa-
chusetts, at Boston, March 7, 1928.
is Address before the American Bar Association, August 30, 1923.
196 AMERICAN FOREIGN RELATIONS
financial relations with China held a special significance, and the
State Department found that diplomatic intercourse with Peking
was prejudiced on account of the non-existence of an American
banking group in the international Consortium operating in China.
Certain American banks were approached, and admission diplo-
matically gained for them to the Consortium, but later the Wilson
administration withdrew its support, and the American group fell
out. President Wilson maintained this attitude toward all fur-
ther American attempts to participate in any ambitious measure
in the economic development of China. After the war, policy was
suddenly reversed, and, again at the instigation of the State De-
partment, an American banking group came together, and after
protracted diplomatic correspondence was joined by banking
groups from the principal lending nations. Together these groups
made up the existing Chinese Consortium. In its letter to the
American banking group on July 19, 1918, the State Department
said, "This war has brought the countries of Great Britain,
France, Japan, the United States, and some others into a state of
harmony and helpfulness, and has supplanted an intense spirit
of competition by a spirit of mutuality and cooperation in matters
relating to their interests abroad." To all those invited to become
members of the group it was made clear that the enterprise was of
the character of a public service, entered upon at the request of
the government to the end of assisting to maintain the govern-
ment's traditional policy of the "Open Door" and of replacing
international competition in China with international cooperation.
In connection with past loans to China for quasi-military or ad-
ministrative purposes, China has yielded valuable national con-
cessions as security, and the new Consortium laid down the
principle that only loans for constructive purposes would be con-
sidered. China has not yet invited its financial assistance.
The recent charge that American money was finding its way
to Germany for unproductive purposes has engaged the attention
of the State Department, judged from Secretary Kellogg's speech
before the Council on Foreign Relations already cited. The Sec-
retary of State said, "The department has . . . called the atten-
tion of the bankers to the fact that they should consider very care-
SUPERVISION OF FOREIGN LOANS 197
fully the question whether . . . loans were for productive
purposes which would aid in procuring funds for transfer." As will
be seen from the chapter on reparations, this concern made itself
felt in responsible quarters, and, with the cooperation of the Ger-
man Government, stricter measures of German control over bor-
rowing activities had been achieved by the end of 1927.
OPINION ON THE POLICY
THIS short history of supervision would make it doubtful whether
it is possible in peace time absolutely to regulate the move-
ment of investment funds. Somebody has said that money follows
interest as the tide the moon, but it is guided by hands that are
international in scope and competitively inspired. As soon as hos-
tilities have ceased international finance breaks down barriers still
maintained by war psychology. In 1817 Baring and others were
eager to lend money to Britain's ex-enemy, France. In answer to
questions in Parliament, Lord Liverpool said that the government
had informed the bankers that any such transaction would be con-
cluded strictly at the parties' own risk. This has been the situa-
tion after every conflict. It was the situation after the late war.
France owed us war debts ; but the French equivocal attitude did
not deter private American citizens from lending money to the
French Government. It has been shown that international finance
can just as easily break down the proscriptions of peace. Ameri-
can capital has been borrowed by parties in default to European
bondholders. It has gone into unproductive channels. It has
flowed through the bars raised against it by the State Depart-
ment. The closing of the American money market to a prospec-
tive borrower merely diverts him to another financial center, where
the same instrumentalities denied him in the United States may
turn up to meet his needs in another national costume. The profit
of course goes to the underwriting country.
The problem in the United States is aggravated because under
our banking system the degree of cooperation existing in Great
Britain seems hardly attainable among American investment
bankers. There has thus developed a certain competition capable
of introducing to the public unsound investments.
198 AMERICAN FOREIGN RELATIONS
To entrust government agencies with such centralized power in
the international field as formal supervision would confer would be
to add new embarrassments to their international functions. Poli-
tics or diplomacy must inevitably override economics in the con-
siderations of the State Department. Some legislators would
emphasize this tendency. A congressman some time ago opposed a
loan to Rumania "because of its disregard for the treaty rights of
religious minorities." The State Department was assailed from
China (as well as by Americans who scented political implications)
while it was considering the application of bankers anxious to
underwrite an issue of bonds for the South Manchuria Railway
Company. Because of these problems, a certain opinion, recogniz-
ing the growing importance of money lending abroad in America's
international activities, admitting government responsibility yet
hesitant to add to it, favors the continuance of what George W.
Edwards calls "modified laissez faire"
Alternatives to the present regime offer a labyrinth of uncer-
tainty. Perturbed lest supervision should become the equivalent of
protection, many agree with Senator Borah that government in-
tervention should be terminated, some because of their confidence
in the emergence of banking self-control, and others on grounds
of laissez faire pure and undefiled and traditional American prin-
ciples. Others wish to see oversight reposed in the Federal Re-
serve Board, or the Treasury, or a government commission, at the
same time advocating more publicity in order that the public
should be kept informed of the problems and possible consequences
involved in these transactions. A section of public opinion de-
mands international supervision of international money-lending
on the ground that competition for the financing of backward
countries leads inevitably to international conflict. These ad-
vocates point to the success of the League of Nations as a banking
adviser. They argue that international finance should be as rigidly
regulated as domestic banking. If they cannot obtain agreement
to the suggestion that American finance should submit to inter-
national regulation, then they would entrust the determination of
defaults to international agencies, with power to arbitrate con-
troversies and make decisions binding. There is at least one case
SUPERVISION OF FOREIGN LOANS 199
on record of a private international loan in which provision is
made for the reference of any dispute to the League of Nations.
On the general question of the internationalization of the in-
vestment function, James Speyer, an international banker, has
this to say :14
Take the instance that was cited just now about the German steel
makers wanting money here. I can very well imagine that a French-
man on that committee would be dead opposed. And I go further. If,
after our Civil War, we had had such an international committee in
Europe to pass on what loans should be made to the United States of
America to help them build up one of the greatest industrial machines
that ever was, I do not think they would have let us have much money.
Something has been achieved in the way of international invest-
ment understanding. Apart from undertakings under the auspices
of the League, post-war examples are the Chinese Consortium and
the growing coordination of the world's central banks, while in-
vestment bankers in the United States have also shown a coopera-
tive spirit in at least one instance in interceding with a would-be
borrower in behalf of foreign holders of existing bonded indebted-
ness whose service had been neglected. It is the investor's hope that
such cooperation among world investment bankers will eventually
alleviate the risks of default through the refusal of new loans
until debtors have made a satisfactory composition in respect of
old loans, provided the old loans have been honorably contracted.
Senator Carter Glass is the foremost critic in Congress of the
State Department policy in its domestic aspects. He describes it
as "a dangerous centralization of power" and attacks it as un-
constitutional. He says the department has no more right to ap-
prove or disapprove foreign loans than it has to embargo the ex-
port of commodities.15 The answer of the State Department is
that there is nothing unconstitutional in answering a banking in-
quiry. To outward seeming this is all that the department's in-
formal ruling amounts to ; even when applied in vetoes it involves
merely a loose supervision. But scrutiny by the State Department
confers in the nature of things a regulatory power whose impor-
i* In a speech before the Foreign Policy Association, March 24, 1928.
is Proceedings of the Academy of Political Science (N. Y.)» January, 1928.
200 AMERICAN FOREIGN RELATIONS
tance corresponds with the billion a year expansion of American
loans. President Coolidge justifies the government's scrutiny by
contending that foreign loans come within the proper conduct of
foreign relations, and that supervision is therefore a function of
the President under the Constitution. He "indicated that he had
considered from time to time the abandonment of the policy, but
had come to the conclusion that unless some such plan was fol-
lowed, Congress might enact a drastic regulatory law, which in
the end might interfere with the making of any such loans."16
In commenting editorially on what it called this "truly extraor-
dinary" statement, the Commercial and Financial Chronicle of
October 22, 1927, said:
It may well be questioned whether there is a word or phrase in the
Constitution of the United States, or an allusion or implication in
any decision of the Federal courts, which would sustain the conten-
tion that the supervision of foreign loans made by private citizens is
an element of the foreign relations power of the Federal Government.
In so far as such loans constitute foreign or domestic commerce, they
are placed by the Constitution under the exclusive jurisdiction of
Congress. While in so far as they are private business transactions,
which of course they are, when the government itself is not the lender,
they are not envisaged by the Constitution at all. To maintain, as
Mr. Coolidge is represented as maintaining, that executive super-
vision is necessary in order to prevent Congress from legislating upon
the subject, is not only to set the Executive in opposition to Congress
at a point at which the constitutional authority of Congress is clear,
but suggests a further usurpation of executive authority whose sole
defense appears to be that Congress, if it chose to act within its un-
doubted right, would probably act unwisely. It is indeed a novel con-
stitutional doctrine that the Executive may properly act in a finan-
cial matter of importance, notwithstanding the lack of constitutional
warrant, in order to discourage Congress from acting in the same
matter in a way that the Executive might not like.
A growing body of opinion would look askance at any other than
an informal, flexible supervision, and would prefer it to a control
by which every foreign loan depended on the chances of a debate
IB New York Times, October 15, 1927.
SUPERVISION OF FOREIGN LOANS 201
in Congress. That might mean either the loss of valuable business
to the United States or the diversion of capital exportation into
channels neither productive nor desirable in the best interests of
international relations. There is, however, a general sentiment
strongly opposed to the financial-political adventuring such as
disfigured much of the European lending in the nineteenth cen-
tury.
CHAPTER FOUR
INTERNATIONAL IMPLICATIONS
OF GOLD DISTRIBUTION
THE use of gold as a general measure of values pins the ex-
change price of all goods and services to a standard which
is highly unstable. It follows that such a monetary system exerts a
profound but largely unperceived effect upon general social wel-
fare.
Where the quantity of all forms of credit instruments, including
currency, is strictly related to the quantity of gold available, there
is a consequent variability in the supply and consumption of goods.
If everybody were given $100, everybody would be able to buy
more goods, and the added demand would stimulate production to
meet it. The opposite effect would be produced if $100 were ex-
tracted from everybody's pocket. The consequence of these two
processes on prices is not so simply explained, but it is generally
held that prices are affected by the proportion between circulating
money and goods. Where gold movements determine the quantity
of money, an influx of the metal, by increasing money supplies and
therefore the demand for goods, eventually raises the general level
of prices ; in contrast, a decrease in monetary gold has the reverse
effect.
A homely illustration of the result of this process is found in
Boswell's Life of Johnson. When the lexicographer was told
that in the island of Skye eggs were twenty for a penny, he re-
plied : "Sir, I do not gather from this that eggs are plenty in your
miserable island, but that pence are few." Subject to the proviso
that it is dangerous so to particularize on the relation between
available money and prices, the learned doctor's dictum applies
what most economists regard as a general truth, involving those
uncertainties in living conditions whose injurious social conse-
quences have been observed in the post-war period. Professors
E. W. Kemmerer and Irving Fisher are among those who advocate
the regulation of one or other of the factors that make for price
IMPLICATIONS OF GOLD DISTRIBUTION 203
level perturbations. In his 1928 presidential address to the Stable
Money Association, Professor Kemmerer said,
There is probably no defect in the world's economic organization
today more serious than the fact that we use as our unit of value, not
a thing with a fixed value, but a fixed weight of gold with a widely
varying value. In a little less than a half century, here in the United
States, we have seen our yardstick of value, namely, the gold dollar,
exhibit the following gyrations: from 1877 to 1896 it rose 25 per
cent ; from 1896 to 1920 it fell 70 per cent ; from 1920 to September,
1927 it rose 56 per cent.
He and other economists aim at making the dollar as constant in
its purchasing power as our weights and measures are in their
equivalences. It would then be unnecessary to ask, in the words of
Henry Ford, "A foot is twelve inches but when is a dollar a dol-
lar?" The efforts to create stability of purchasing power find their
justification in the verdict of the Midland Bank (London) in its
monthly review of June-July, 1927, that "history has shown that
apart perhaps from wars and religious intolerance, no single factor
has been more productive of misery and misfortune than the high
degree of variability in the general price level." Some reformers
are even exercised over plans for the entire demonetization of gold.
Bad as is this economic instability for the nation concerned, it
may have an injurious effect on international affairs. For the na-
tions having close trade relations with each other, it means that
the price level of one country may be subject to fluctuations
traceable to events occurring in other and often remote countries,
but particularly in the economically predominant country. Yet
until post-war years it did not unduly affect international political
relationships, for two reasons: (a) changes in the relative price
levels of different countries were never abrupt and violent; (b)
these changes were always more or less automatic.
The moneys of two countries exchange at par when the mutual
indebtedness of goods and services balance; when one nation re-
ceives more goods and services from another than it gives in re-
turn, then the exchange goes against it, and is rectified by an
204 AMERICAN FOREIGN RELATIONS
outflow of gold settling obligations which cannot be otherwise
balanced. It was the general experience before the war that as gold
flowed out, the consequential advance of money rates curtailed sup-
plies of credit, industry was impeded, and prices exhibited a fall-
ing tendency — a process called deflation. But the effect was ulti-
mately to attract gold, which always flowed to countries with high
interest rates, and this set up precisely the opposite consequences,
bringing price levels back to equilibrium. Hence the slight effect
on political relations.
This condition of things was popularly described either as auto-
matic or as a natural combination of cause and effect. No nation
exerted a purposeful influence over its price level (although it
could have done so easily), much less over the prices of other coun-
tries. But, being the world's principal gold market, London could,
and at intervals did, exercise some control over gold movements
through a change in the discount rate of the Bank of England,
which thus attracted or repelled gold as conditions required. It
could also influence credit by drawing funds off, and putting them
on, the market through certain open-market operations in the buy-
ing and selling of securities, thus releasing or contracting available
funds to the public. Most of the newly mined metal was sent to the
London bullion market to be disposed of, and when it entered the
vaults of the Bank of England it instantly gave rise to fresh sup-
plies of credit; conversely, any shortage inevitably led to credit
contraction. It follows that London was the point where a shortage
or plethora of gold produced its initial effects, and this made
it the world leader in credit expansion or contraction, with its
ultimate consequence in a rising or falling price level. Though
gold was the standard, though the yardsticks of its value varied
with every country, the pound sterling was elevated into the posi-
tion of arbiter of world currencies and prices by the converging of
economic activities on London. Its position never caused con-
tinued embarrassment to the domestic economy of other coun-
tries, partly because little suspicion existed that it was used for
political purposes, but principally because the mechanics of the
gold standard under the operation of free gold markets distributed
IMPLICATIONS OF GOLD DISTRIBUTION 205
the metal in the proportions required by differently constituted
countries.
In consequence of the war most countries abandoned the gold
standard as too restrictive of their economic activities. The outgo
of gold in payment of supplies from neutrals was not looked upon
as the signal to readjust their economic mechanism by nations
intent on production for war-making. Currency and credit were
issued entirely without regard for the restraints formerly imposed
by the availability of gold. The world indulged in rampant infla-
tion, including even the United States, which prohibited gold ex-
ports except under license from September 7, 1917, to June 30,
1919, but which otherwise was the only nation which did not de-
part from the basic principles of a full gold standard.
It was long after the war that the nations began to return to
a gold basis, amid conditions which have given the problem of
gold distribution a significance that it never before possessed.
These conditions are : first, some of the most important countries
have reestablished a gold standard after a period of irredeemable
paper money. Their transition from an inflated price level to a
gold standard price level has been materially affected by the
availability of gold. To intensify their difficulties, these same coun-
tries are under long-term obligation to make war debt payments
measured in terms of gold ; on these payments the distribution of
gold and the relative price levels of debtor and creditor nations
have an important bearing. Secondly, trade and credit develop-
ments during and after the war have drained half the monetary
gold stock of the world to the United States, which is at the same
time the principal creditor of all the nations most concerned with
the way in which gold is distributed. Thirdly, the banking system
of the United States has been so organized as to confer a more
conscious control than hitherto over the relation between gold and
credit ; hence, but strictly within limits, over the commodity price
level of the United States and by indirection over that of other
countries. Such a control is exercised by the Federal Reserve sys-
tem, which was established in 1913 partly to make the country's
currency mechanism less sensitive to gold imports and exports;
206 AMERICAN FOREIGN RELATIONS
"deliberately it had been made insensitive rather than sensitive,"
says Dr. Taussig.1
RETURNING TO THE GOLD STANDARD
A NATION is not injured by the fact that its currency is irredeem-
able in gold and its price level inflated. On adjustment a new par
must be introduced to bring the currencies of the trading nations
into a value equilibrium ; and the nation's foreign trade in goods
and services can be made to balance without creating any need for
gold settlements. But when the nation's money is not only de-
preciated, but depreciating, a new influence comes into force. This
condition tends temporarily to stimulate exports from the country
with the irredeemable money into the stable money countries. If
the exporting country happens to be the debtor of the importing
countries, the bearing of this factor on international relations is
evident.
Quite apart from the difficulty of resuming a gold monetary
system, those countries with both a depreciated currency and a
heavy debt to the United States had sufficient reason to consider
themselves seriously injured in their credit relations with the
United States by the behavior of prices subsequent to the debt
contracts. They had borrowed billions of gold purchasing power
from the United States and contracted to repay these billions in
gold dollars. When they borrowed, gold dollars were cheap because
the price level in this country was high ; when they began repay-
ment, gold dollars had increased at least 20 per cent in value, and
the last important settlement was signed when this increase had
reached 33 per cent. In short, the behavior of the price level had
increased their burden of indebtedness by at least one-fifth, ir-
respective of any policy of their own regarding domestic stabiliza-
tion. This fact is the more apparent because these European
countries borrowed goods, not gold. When they began negotia-
tions for repayment they found themselves obliged to pay, not
goods of a value equal to the original loan, but definite sums of
gold of indefinite purchasing power. The increase of their in-
i Taussig, International Trade, p. 330.
IMPLICATIONS OF GOLD DISTRIBUTION 207
debtedness to America by approximately two billion dollars of
purchasing power resulted from the fact that the war debt settle-
ments contained no safeguarding clause relating the indebtedness
of the borrowers to the price level.2 Here was cause for the concern
of those debtor nations regarding the future of the price level in
this country ; any further fall of prices would add to their load of
debt.
This concern was intensified by the suspicion that this coun-
try, through control of gold movements and therefore of inter-
national exchange levels, was keeping world commodity prices,
but particularly American prices, depressed. It was alleged in
some quarters that our prices remained below the level that might
be expected to result from a free play of economic forces. To this
allegation the answer was made that the cause might as reasonably
be traced to conditions in Europe. In any case, up till the middle
of 1927 our price level was declining somewhat in the face of con-
ditions that might naturally have caused it to rise. Between Janu-
ary, 1925, and June, 1927, wholesale prices in the United States
declined 10 per cent; in Switzerland, 14 per cent; in Sweden, 14
per cent; and in England, 17 per cent. Falling domestic prices
tend to be depressing to business activity and the consequences are
serious to countries recovering from economic dislocation.
How much the international economic problems of these coun-
tries would be aggravated by their return to the gold standard
depended upon the conditions under which that revolution of their
monetary system was carried out. When, as in the case of Ger-
many, the old paper money was practically repudiated, no inter-
national problem was created save that of obtaining from abroad
a sufficient supply of gold to launch the new monetary system;
this was achieved by borrowing. Nor has any international com-
plication arisen over the return to the gold standard which ac-
cepted and perpetuated the existing depreciation of the paper
unit, as in the case of Italy and France. Italy has officially accepted
the depreciated value of the lira and stabilized it permanently at
2 Concessions were made in the debt settlements that to a certain extent offset
this inflation of debt repayment. See Section IV, Chapter 2, "Debts."
208 AMERICAN FOREIGN RELATIONS
its present value ; France, through 1927, while refraining officially
from accepting the current value of the franc as permanent,
tacitly stabilized it through the exchange market. These countries
have added to their problems only the additional concern of com-
manding enough of the world's gold or foreign exchange to main-
tain their monetary systems.
But England's problem was different. At a time when the value
of her pound sterling was actually 10 per cent below pre-war
par, she undertook to reaffirm the pre-war par value in terms of
gold for her paper money and for sterling bills of exchange. This
was proudly called a return to normality, although, as Reginald
McKenna, chairman of the Midland Bank, has often pointed out,
it is never explained "why the conditions of 1913 should be re-
garded as normal any more than those of 1927 or 1928 or any
other date." The step involved an addition to the exchange costs of
all foreign buyers of British goods, handicapping English export
trade and giving an artificial stimulus to the trade of England's
competitors. The step is still the subject of heart-searchings in in-
dustrial circles, which are now engaged in counting its cost. Sir
Alfred Mond, one of Britain's leading industrialists, in his Indus-
try and Politics, says, "It has been calculated — I think, correctly
— by various authorities, that one result of the return to the gold
export standard, a result of the rise in the £ in relation to the
dollar, is to add between Is. 9d. and 2s. to the price of every ton
of coal we export from South Wales." The decline of export trade
meant an increase of Britain's staggering burden of unemployed ;
costs fell to reestablish England's competing power, bringing
about a decline of wages tantamount to a reduction, according to
J. M. Keynes, of about 10 per cent in the standard of living. After
setting out upon such a venture it was natural that England should
view with an anxious eye the trend of gold movements upon which
she relied to carry it through successfully.
At the same time, England's debtors abroad were compelled by
England's return to gold to pay her in terms of gold rather than
in depreciated pounds, and this advantage to the British creditor
offset in some degree the disadvantage to British industry.
IMPLICATIONS OF GOLD DISTRIBUTION 209
^HE GOLD FLOW TO THE UNITED STATES
SOME authorities, notably those of the Rand, hold that the world
must accustom itself to a progressive decline in the output of
gold ; others are optimistic. Joseph Kitchin, in his evidence before
the Royal Commission on Indian Currency and Finance, estimates
that the world's monetary stock of gold needs to increase at the
rate of 2.4 per cent per annum to keep abreast of economic de-
velopment. The facts are that output has continuously decreased
since the peak year of 1915, confirming the opinion of the joint
committee set up soon after by the U. S. Department of the In-
terior that production has "passed its zenith," and seems "to be
on the decline." Moreover, gold has decreased in purchasing power
by 60 per cent since 1901 ; not only is gold more expensive to pro-
duce but also more gold is required by the central banks to do the
work it formerly did. The shortage has constrained the world to
dispense with hand-to-hand gold currency and to conserve and
consolidate its gold stock as the basis of credit. "Unless we are pre-
pared to face a prolonged fall in commodity prices," warns the
Comptroller of the British Mint, in his 1926 report, "it is impera-
tive to economize on gold, both as regards its use as a commodity
and as money." The British official was emphasizing the warning
which had previously been issued by the Indian Currency Com-
mission. But present economies, coupled with the decline in pro-
duction, do not offset the shortage in the requirements of the gold
standard world, which has thus to look to the United States for
replenishment.
A comparative table of the pre-war and post-war holdings of
the world is furnished below :
210 AMERICAN FOREIGN RELATIONS
GOLD HELD BY CENTRAL BANKS AND
GOVERNMENTS, 1913-19273
1913 1927
United States 1,290,420,000 3,977,181,000
England 170,245,000 741,698,000
France 678,856,000 710,339,000
Germany 278,687,000 444,158,000
Italy 288,103,000 239,180,000
Belgium 59,131,000 99,878,000
Netherlands 60,898,000 160,796,000
Russia 786,800,000 97,043,000
Spain 92,490,000 602,484,000
Switzerland 32,801,000 99,785,000
Canada 115,894,000 151,978,000
Argentine 224,989,000 460,771,000
Brazil 53,202,000 100,735,000
Australia 21,899,000 105,121,000
India 72,780,000 119,097,000
Japan 64,963,000 541,739,000
Other banks and
countries 479,334,000 651,614,000
Total 4,771,492,000 9,203,597,000
The fourteenth annual report of the Federal Reserve Board
shows the manner in which America's stock has been increased. Be-
tween June 30, 1914, and December 31, 1927, it increased from
$1,891,000,000 to $4,376,000,000, an increase of $2,485,000,000,
of which $2,071,000,000 represented reported net imports less
amounts earmarked for foreign account, and $414,000,000 addi-
tions to gold stock from other sources, chiefly excess of domestic
production over consumption by industry and the arts. The his-
tory of this large accession may be divided into five periods. (1)
Between June, 1914, and April, 1917, when the United States
joined the Allies in the war, there was a net import movement of
gold amounting to $1,080,000,000, caused by payment for war
demands for goods and materials. (2) Between April, 1917, and
June, 1919, there were few gold movements in and out of the coun-
try, because Europe paid for American purchases with American
s Table adapted from comprehensive figures published in the Federal Reserve
Bulletin, April, 1928, p. 261. The figures do not include gold technically known as
"in circulation," or holdings of any foreign assets other than earmarked gold. No
satisfactory figures are obtainable under the former head. The aggregate of the
American holdings at the end of 1927 is stated at $4,376,000,000.
IMPLICATIONS OF GOLD DISTRIBUTION 211
credits, and an embargo on gold exportation was in effect. (3) Be-
tween June, 1919, and September, 1920, gold began to flow out in
liquidation of foreign dollar balances held in the United States.
The net export was $380,000,000. (4) Between September, 1920,
and December, 1924, gold flowed continuously into the United
States, the net import being $1,660,000,000. This inflow was due
largely to the fact that Europe needed supplies of food and raw
materials for purposes of reconstruction and was obliged to export
gold to balance her accounts. (5) Since December, 1924, gold
movements have been on a much smaller scale, the United States
having lost about $125,000,000. According to the Federal Reserve
Board month-to-month figures, the peak of America's holdings
occurred in May, 1927, when the United States held $4,609,000,-
000. Exports since then "occurred very largely in connection with
programs of monetary reform or as a consequence of central bank
credit policies."4 Thus at the end of 1927 the United States still
held nearly half of the world's total stock of monetary gold, as
compared with a quarter before the war ; but when our economic
progress is borne in mind, and the fact that our gold is supporting
a credit structure which, according to League of Nations figures,
is five-eighths of that of the entire world, our so-called "gold hoard-
ing" does not seem so heinous as some foreign critics have asserted.
CONTROLLING THE RELATION BETWEEN
GOLD AND CREDIT
IN 1917, after the United States had entered the war, the full value
of the Federal Reserve system in the centralization of the country's
bank reserves came to be appreciated. Credit was expanded to
meet war demands, but it rested no longer on the movement of gold,
which was stationary up till the middle of 1919, but immediately
on the credit flowing from the credit reservoir of the Federal Re-
serve banks. As was to be expected from orthodox economic theory,
the result was inflation of prices. In April, 1919, the system's ratio
of reserve to liabilities was 13 per cent to 14 per cent above re-
quirements, but by November an outburst of speculation in every
4 Fourteenth Annual Report of the Federal Reserve Board, p. 14.
212 AMERICAN FOREIGN RELATIONS
market, probably partly influenced by the large gold inflow, had
nearly exhausted the New York Reserve Bank's surplus. Discount
rates had eventually to be raised, and the consequent deflation
through the retirement of the Federal Reserve credit issued for
war purposes brought prices down precipitately.
In 1921, after this warning of the demoralizing effects of both
inflation and deflation, the Federal Reserve authorities began to
exercise themselves over the problem of the scientific control of
bank credit. Emergency demands were no longer in operation, and
the factors were favorable for the adjustment of credit supplies
according to the country's economic needs, the war having brought
a third of the country's banks, with two-thirds of the total bank
resources, within the system. Moreover, gold was at this time pour-
ing into the United States, and this was added reason for lay-
ing the foundation of a settled policy of regulating credit instead
of allowing gold movements to regulate it, of using gold reserves
against a quantity of money, not as the basis of it. Such a momen-
tous change from pre-war practice was destined to try to make
gold the servant instead of the tyrant of industry. One by one
the brakes for the purpose of rationing credit scientifically were
brought into operation. The first was buying and selling govern-
ment securities, a form of credit control already in employment
in London. It would seem as if the Federal Reserve authorities
must have known of the British experience. Professor Commons,
however, dates the "insight" of the Reserve Board of its power
through these operations as somewhere between May, 1922, and
April, 192S.5 In the ordinary course of business the Reserve banks
had acquired government securities as earning assets. Such pur-
chases obviously put cash in the hands of the selling member banks,
and this was used to pay their debts to the Reserve banks and to
replenish their reserves, the augmentation of which is generally
felt in an augmentation of credit supplies. But it took a particu-
larly large transaction during the period mentioned by Professor
Commons for the system to realize the power over credit supplies
residing in such operations. So important was the transaction re-
ferred to that it resulted in the reduction of commercial money
c The Annalist, April 1, 1927.
IMPLICATIONS OF GOLD DISTRIBUTION 213
rates and the inflation of prices. If open market purchases of gov-
ernment securities had this effect, then the contrary step of open
market sales would have the reverse effect ; here was the introduc-
tion of the first lever of conscious credit control. It is now gen-
erally regarded as preparing the market for firmer money rates.
There are other levers or brakes; first, changing the rediscount
rate, the rate at which member banks obtain credit; second, the
circulation or withdrawal of gold certificates; and, third, the
mobilization of member bank cooperation not only in furtherance
of policy but also in the maintenance of a so-called tradition to
keep down their indebtedness to the Federal Reserve system.
When the bill creating the Federal Reserve system was under
discussion in the Senate in 1913, the two policies laid down for its
guidance were the accommodation of business and commerce and
the stabilization of the price level, but this latter injunction was
eliminated prior to enactment. The Strong bill now before the
House would reinstate it thus: "All of the powers of the Fed-
eral Reserve system shall be used for promoting stability in the
price level." Some of this bill's supporters, probably thinking more
often of particular commodities than of the general level, main-
tain that price stability can be insured by the confident handling
of the credit brakes. The Federal Reserve authorities deny this
contention, pointing out that they are not yet assured in their
operations, but are watching drifts, studying tendencies, applying
a corrective here and neutralizing a dangerous factor there, rather
than working consistently toward a goal along a known chain of
sequences. This is not to say that the Board has no goal ultimately
in view. It is desirable that the Board shall manage its credit
mechanism in such a way as to correlate the volume of credit to
the volume of business, but whether its strivings toward this goal
have an effect on prices is a question admitting of many opinions.
In its official publications the Federal Reserve Board constantly
minimizes the relationship. Its tenth annual report says, "Price
fluctuations proceed from a great variety of causes, most of which
lie outside the range of influence of the credit system. No credit
system could undertake to perform the function of regulating
credit by reference to prices without failing in the endeavor." This
214 AMERICAN FOREIGN RELATIONS
has been continually stressed by all the high officials who have
given evidence before the House Committee on Banking and Cur-
rency. But the fact remains that commodity prices have main-
tained a comparative impassivity ever since conscious control over
credit became a settled policy of the Federal Reserve Board. Is
this due to that policy? The 1926 hearings on the Strong bill con-
tain remarks6 of the Governor of the Federal Reserve Bank
of New York in which he makes a move toward the affirmative.
Mr. Williamson. Do you think that the Federal Reserve Board
could, as a matter of fact, stabilize price level to a greater extent
than they have in the past by giving greater expansion to market
operations and restriction or extension of credit facilities ?
Governor Strong, I personally think that the administration of the
Federal reserve system since the reaction of 1921 has been just as
nearly directed as reasonably human wisdom could direct it toward
that very object.
The governor later went into the question of gold "manage-
ment" in the course of a memorandum prepared for the committee
in answer to certain criticisms which had been levelled against the
Federal Reserve system by the Commercial and Financial Chroni-
cle. He said :7
In the old days there was a direct relation between the country's
stock of gold, bank deposits and the price level because bank de-
posits were in the last analysis based upon the stock of gold and bore
a constant relationship to the gold stock, and the volume of bank
deposits and the general price level were similarly related. But in
recent years the relationship between gold and bank deposits is no
longer as close or direct as it was, because the Federal reserve system
has given elasticity to the country's bank reserves. Reserve bank
credit has become the equivalent of gold in its power to serve as the
basis of bank credit. A bank can meet its legal requirement for re-
serves by borrowing from the reserve bank, just as fully as though it
deposited gold in the reserve bank.
e Hearings before the Committee on Banking and Currency, H.R. 7895, Pt. I,
p. 307.
i Ibid., p. 470.
IMPLICATIONS OF GOLD DISTRIBUTION 215
W. Randolph Burgess, Assistant Federal Reserve Agent of the
Federal Reserve Bank of New York,8 calls this "equivalent of
gold" a "cushion." "Federal Reserve credit acted as a kind of
cushion between gold movements and bank deposits. It broke the
impact of gold exports or imports upon bank credit and made pos-
sible a continuous adjustment of credit to the needs of business."9
He says that whereas the adjustment of Federal Reserve credit
to changes in gold supply was largely "semi-automatic" until
1921, the adjustment of the subsequent period "was more con-
scious and more specific in aim," which he describes as "a logical
use of the machinery of the Reserve system for enlarging the basis
of credit in times of emergencies."10 Irving Fisher11 praises the
system for this "management." "If it were not for the policy of
the Federal Reserve system to virtually sterilize that gold, prevent
its becoming the basis for a great pyramiding of credit, it would
be a tremendous menace. If the Federal Reserve system had not
done what it has done, I believe today the price level would be
double what it is." He also says that the "comparative approxi-
mate stability of the dollar which we have had for the last four
years, for which we have to thank in a large measure Governor
Strong and his colleagues, is more responsible than any other one
cause for our prosperity, which has been so unexampled, and which
to many people has seemed to be unexplained."
If all the above-mentioned levers can be successfully marshalled,
Federal Reserve policy, having displaced gold movements as the
immediate determinant of credit, would undoubtedly have a
distinct bearing, not on particular prices, but on their general
level. It would be asking too much of our still youthful system to
expect either the correlation of the levers or their employment at
the psychological moment, yet the following table, showing a fairly
stable course of prices after the definitive inauguration of the non-
gold credit policy, would seem to be a testimonial to the Federal
Reserve system as well as to the self-discipline of business.
8 The Reserve Banks and the Money Market.
e Ibid., p. 249, 10 Ibid.
11 Address before the Robert Morris Associates at Louisville, June 7, 1927.
216 AMERICAN FOREIGN RELATIONS
AVERAGE INDEX NUMBERS OF WHOLESALE PRICES—12
1918-1927
1918 194.3
1919 206.4
1920 226.2
1921 146.9
1922 148.8
1923 153.7
1924 149.7
1925 158.7
1926 151.0
1927 146.8
(1913 = 100)
In the first six months of 1927 the opinion was freely expressed
in Europe that this gold policy was vitally injuring European
economy. Thus the Swedish economist, Gustav Cassel, referring to
the possibly disastrous effect of a continued fall of prices, stated
in the circular of the Swedish bank Skandinaviska Kreditak-
tiebolaget in July, 1927, that the world- wide decline of prices
was to be attributed to the eagerness of the United States to
accumulate gold. Sir Josiah Stamp, in a speech reported in the
London Times of March 18, 1927, stated that if the United
States continued a gold absorbing and neutralizing policy, she
would be conducing to a lower external price level in Europe
and elsewhere. A strong statement from Philip Snowden, for-
mer British Chancellor of the Exchequer, condemned "American
policy of cornering the world's gold supply." A direct attack
upon our policy came from Berlin ( J. Dreyfus & Co.) . Taking the
position that the gold problem must be viewed as a part of the
problem of international debts, the writer asserted that "America
as the creditor of the whole world will decide the future of gold" ;
that "the control of the . . . world price level has passed entirely
to the Federal Reserve Board" ; and that "the governors of the
Board can put the world price level up or down as they please."
The statement goes on to say, "a real deflation would render Eu-
rope's economic problem, if anything, still more difficult. It may
well be asked whether the Federal Reserve Board is not partly re-
12 Index Numbers of Wholesale Prices on Pre-War Base, Bureau of Labor Sta-
tistics, Department of Labor.
IMPLICATIONS OF GOLD DISTRIBUTION
217
Index
Numbers
250
Monetary
Gold Stock
100
50
1913 '14 M5 '16 '17 '18 '19 '20 '21 '22 *23 '24 »25 '26 '27
Relation of index of wholesale prices with monetary
gold stock in the United States.
sponsible for the tardy improvement of the past few years." In
France, Jean Barral had gained a following for his description of
European nations as the "companions in servitude" to America.18
Then a dispute with the United States over new French tariffs
gave rise to repeated allusions to "Europe's answer to America."
is Of. Europe or America; Who Shall Be the Master?
218 AMERICAN FOREIGN RELATIONS
This is how Babson's Statistical Organization, in a report dated
October 18, 1927, regarded it: "If the problem were limited to
France alone it would not be so serious. We believe that France is
voicing the protest felt by all industrial European nations." The
Independence Beige was of the opinion that the French action
would help in the formation of a European bloc to oppose Ameri-
can lack of cooperation. In the United States, the Harvard econo-
mists in their letter of July 23, 1927, attacked our policy of "de-
pressing commodity prices in all countries by means of our activity
in burying or sterilizing a large part of the gold supply of the
world."
These reproaches did not take account of the charge by British
industry that credit had been wilfully contracted by the ultra-
conservative policy of the Bank of England. In relation to the
United States, it was implied that the Federal Reserve authori-
ties had not been cognizant of the need for a stable Europe. Their
actions prior to 1927 belie the assumption. They had realized the
danger to America's economic dominance of a Europe off the gold
standard and had striven to bring her back to it. Nobody could
know better than they that America's gold derived its value from
its universal validity as money, and that, since the gold standard
was an international convention, the United States, as the holder
of half the world's gold, must assume some role of guardianship
of that standard. Furthermore, the fluctuations in the exchange
value of the dollar as expressed in foreign moneys were a great
hindrance to American trade. An exporter is seriously hampered
if he cannot make a fairly close calculation of the number of dollars
he will get out of the foreign moneys in which he is selling his
goods. Stability of exchange was necessary to save American trade
from being conducted as a gamble ; "it is more important to the
United States to restore the currencies of the world to a stable
basis and make them sacred than it is to collect our foreign debts,"
said Owen D. Young.14 As far back as 1922 the Comptroller of
the Currency had issued the warning in his annual report, "The
cessation of gold imports would represent a long step toward the
i* In a discussion at the 38th annual meeting of the American Economic Asso-
ciation, December, 1925.
IMPLICATIONS OF GOLD DISTRIBUTION 219
restoration of that economic equilibrium which is absolutely neces-
sary as a prerequisite to the establishment of sound monetary
systems throughout the world." Great Britain was the first con-
sideration. Continental Europe, Africa, and the Orient were all
accustomed to trade through London, and no European country
could maintain a gold standard without London which, in turn,
could not be a gold market without American cooperation. And the
United States could not expect fully to reap the reward in trade
of her dominant economic position till the pound sterling had been
worked up to the pre-war par with the dollar. This was done in
1925, with the aid of American credits, which were never used.
Other countries gradually followed suit, with the United States
sometimes standing by, ready to extend a helping hand, and some-
times actually extending loans, which energized production and
restored normality in commercial relations. "I believe that the
action of our Federal Reserve system in agreeing to work with the
Bank of England in getting English currency back to a gold-
backed basis constituted one of the wisest, most courageous, and
most far-seeing actions ever taken by a bank of issue," was the
verdict of Henry M. Robinson.15
INAUGURATING ACTIVE INTERNATIONAL
BANKING COOPERATION
THUS a degree of cooperation had already sprung up by the mid-
dle of 1927. But, as we have seen, it did not end the troubles of
Europe ; it intensified them. Britain's return to the gold standard
involved the raising of all restrictions on gold movements. Similar
embargoes were removed by other countries newly returned to the
gold standard. Though the Federal Reserve authorities, then
accustomed to open market operations, had produced an easy
money market, gold continued to return to the United States ; it
did not produce any advance in the price level; and the re-
sult was a gradual increase in money rates in Europe. Alarm
was manifest on every hand in England. The Currency Commis-
i5 Can Germany Keep up Her Payments? Published by the National Foreign
Trade Council.
220 AMERICAN FOREIGN RELATIONS
sion of 1925 went so far as to declare that the policy of the gold
standard hinged in a degree on the course of American prices.
High officials of the Federal Reserve system realized that there
must be a check to this denudation of Europe if Europe were to
be maintained on the gold standard. Testifying before the Bank-
ing and Currency Committee of the House of Representatives on
April 9, 1926, on the lack of significance to credit operations of
the American gold reserve,16 Governor Benjamin Strong said:
"It won't mean very much to us until the readjustment or re-
distribution of the world's monetary stock has been one day com-
pleted. I hope that will be soon."17
Besides this difficulty, 1927 witnessed acute competition in Eu-
rope for the continent's reduced gold supply. Europe was pur-
suing a contrary policy to that recommended by the Genoa Con-
ference of 1922 which advocated cooperation among the world's
central banks with the view of economizing monetary gold. Coun-
tries were urged to content themselves with a gold-exchange
standard and allow the major central banks to hold the metal. The
idea was more or less on the lines of a clearing system ; the money of
gold-exchange standard countries would be convertible, not into
gold, but into the money of some gold standard country, such as the
United States or Britain, so preserving the link with gold. But this
gold-exchange standard came to be regarded as a transitory ex-
pedient, as it was in pre-war days, and as the countries of Europe
recovered their economic position there developed a demand for
the actual gold wherever foreign exchange had been accumulated.
Argentina began to divert gold direct from South Africa. The
Bank of England was embarrassed by French drafts on the metal
in London in the spring of 1927.
Thus the automatic suction of gold to the United States, the
scramble for the vanishing remainder, the artificial depression of
the international price level — these made up the problems which
Europe invited America to solve in July, 1927, at a bankers' con-
ference held in New York. "It may be surmised," says British
is The gold reserve ratio of the Federal Reserve Banks was 71.7 per cent at the
end of 1927.
IT H.R. 7895. Part I, p. 379.
IMPLICATIONS OF GOLD DISTRIBUTION 221
Industries, the organ of the Federation of British Industries, of
October 31, 1927,
that during the conference the European representatives stressed
the fact that their attempts to operate the gold standard under the
exceptional conditions of the post-war period had failed ; experience
having shown that each successive step taken, either by one Euro-
pean central bank acting alone, or by cooperative action by two or
more central banks, tended, in the absence of any active American
support of the international price level, to depress that price level
to a corresponding degree, with the result that there appeared to be
no end to the deflationary process ; indeed, as it was, the possibility
of a serious European monetary crisis could not be left out of ac-
count.
Active American support of Europe (and of the gold standard)
came as a result of these bankers' conversations.18 Benjamin M.
Anderson, Jr.,19 gives July 27 as the date that "seems to represent
the turning point in Federal Reserve Bank policy." Easier credit
conditions were provided in the United States for the facilitation
of a gold movement to London. This was accomplished by the
following acts: (1) The buying rates on acceptances were lowered
at the New York Federal Reserve bank in late July and early
August. (2) Beginning July 27, the Federal Reserve banks began
large purchases of government securities, the figure rising from
$385,000,000 on July 27 to a peak of $704,000,000 on November
16. (3) Beginning July 29, the Federal Reserve Board began the
reduction of the rediscount rate from 4 per cent to 3% per cent, a
rate that became uniform throughout the system early in Sep-
tember.
These changes propelled and maintained a gold current Eu-
rope-ward, eased the pressure on London's reserves, and avoided
a threatened rise in the London bank rate. Paradoxically (accord-
is Little has been revealed officially concerning a development whose effects were
deep and world-wide. More information is available in the British and German
press than in the United States ; but the student may now piece together valuable
data from the 1928 hearings before the committees on banking and currency of
the Senate and the House of Representatives, particularly the evidence of Dr.
Adolph C. Miller, a member of the Federal Reserve Board,
is Chase Economic Bulletin, Vol. VIII, No. 1.
222 AMERICAN FOREIGN RELATIONS
ing to economic theory) , the American commodity price level rose.
The price increase between June and October was only 3 per cent,
but it was the first real interruption in a steady decline in the world
price level since 1925. Between August and the end of 1927 the
United States exported $300,000,000, making a net loss in gold
holdings in 1927 of $151,000,000. From certain appointments
subsequently made in the central banking world, it may be inferred
that steps were also taken, in particular by the Bank of England
and the Federal Reserve Board, to harmonize to a certain extent
the national monetary policies of the countries represented in the
conversations with a common international policy more or less in
line with the Genoa currency resolutions.
The reaction in England was instant and enthusiastic. Sir Jo-
siah Stamp commented on the bankers' conference as "one of the
most important in the history of industry." British industrial
opinion on its results found expression in British Industries, which
declared that America had "transformed the whole outlook." In
the United States, the Federal Reserve Board explained the new
policy as facilitating the financing of the fall purchases of grain,
cotton, and other American farm products, and as attracting a
larger volume of the financing of the exports to the banks of this
country, and consequently in reducing the demand for credit for
this purpose abroad, thus "exerting a favorable influence in the
international financial situation."20 At the end of the year, Secre-
tary Mellon and the Federal Reserve Board stated the "larger
plan" that the authorities had in mind. Said the Board :21
In adopting a policy of international cooperation in support of
the gold standard, the Federal Reserve system has acted in recogni-
tion of the responsibility resting upon this country, as the holder of
nearly one-half of the world's stock of monetary gold, and of the im-
portance of sound monetary conditions throughout the world to the
prosperity of industry and trade in the United States.
It was a far cry from the days when the United States tried
zealously to convert the world to the virtues of silver !
20 Federal Reserve Bulletin, September, 1927, p. 631.
21 Fourteenth Annual Report of the Federal Reserve Board.
IMPLICATIONS OF GOLD DISTRIBUTION 223
The central banks in Europe have very definite ends ultimately
in view. According to the Financial News (London),22 Sir Otto
Niemeyer, Director of the Bank of England, is "reported to have
disclosed to the Bulgarian press a uniform credit policy for Eu-
rope." It was of the utmost importance, he said, that each bank
should keep intact its statutory reserve in gold, in order to stabilize
the national currency. A uniform pattern for European banks of
issue would have its advantages in mutual accommodation. When
the United States resumed gold payments in 1879, John Sherman,
then Secretary of the Treasury, secured a gold credit of $15,-
000,000 in London by the sale of bonds, ready to be used if neces-
sary to assure the stability of dollar exchange. The New York
Times23 recently reminded its readers that interbank arrange-
ments such as now exist might have prevented the American panic
of 1907.
An American central bank, in cordial relations with the European
State institutions, might have arranged in advance for orderly ship-
ment of gold by way of relief from the State banks at London and
Paris. What actually happened was the frantic bid of a 4 per cent
premium on foreign gold by Wall Street, advance of the Bank of
England rate to 7 per cent, the adoption of measures by nearly all
other European banks to prevent any gold withdrawals, and there-
fore a maximum of international disturbance with a belated and
disastrously expensive machinery of relief in America. To a con-
siderable extent, the world's great central banks acted in a crisis
of those days with the same absence of effective and coordinated
policies as was displayed in our country by the 6,000 national banks.
It is too early yet to look into the future of central bank co-
operation. In Europe, competition for possession of gold has not
ceased, for reliance on the title instead of the actual metal involves
a degree of faith hardly compatible with present political rela-
tions. Investigation shows that a substantial part of our own gold
supply is subject to withdrawal by the very countries which are
berating us for not releasing more of it. Over a billion dollars,24 or
the equivalent of a quarter of our gold stock, is reputed by several
22 December 6, 1927. 23 April 13, 1928.
24 "Upward of $2,000,000,000," says Secretary Mellon, in his 1927 Report.
224 AMERICAN FOREIGN RELATIONS
authorities to be held in New York in foreign balances, and, in-
asmuch as it has a direct claim on our gold reserves, it must not be
forgotten in appraising how much of the metal the United States
could lose without endangering credit or, alternatively, rearrang-
ing the basis of its support. For the ability of the Federal Reserve
authorities to ignore gold movements in rationing credit in a gold
standard world is obviously dependent upon the amplitude of the
American gold supply.
THE IMPORTANCE OF NEW YORK
THE rise of the dollar in world importance is the fruit of all these
activities. The United States through her gold resources has
brought the main part of the world back to the gold standard. But
she no longer allows gold to be the main determinant of her credit ;
credit has been regulated, and therefore gold exports do not neces-
sarily cause a fall in the American commodity price level, nor do
gold imports necessarily cause a rise. The purchasing value of the
dollar is managed independently, and it follows that gold, being
still the standard, must seek its value from the dollar. This is what
has happened, and the result is that American monetary policy is
instrumental in determining the value of the currency of every
other gold standard country. McKenna puts it in this way :
If the price level outside America should rise in consequence of an
increase in the supply of gold, America would absorb the surplus
gold ; if, on the other hand, the external price level should fall in con-
sequence of a shortage of gold, America would supply the deficiency.
The movement of gold would continue until the price levels inside
and outside America were brought once more into equilibrium. Al-
though gold is still the nominal basis of most currencies, the real
determinant of movements in the general world level of prices is thus
the purchasing power of the dollar. The conclusion therefore is
forced upon us that in a very real sense the world is on a dollar
standard.25
To New York has fallen a considerable share of the monetary
precedence held in pre-war years by London and before London
26 Address to the Stockholders of the Midland Bank, January 24, 1918.
IMPLICATIONS OF GOLD DISTRIBUTION 225
by Amsterdam. Besides the power accruing from gold holdings and
from its position as an investment market. New York is rapidly
coming to the front as a market for that money of international
commerce, the bill of exchange. Prior to the enactment of the
Federal Reserve Act, the national banks were not permitted to
accept time drafts financing foreign trade. In consequence Amer-
ica's foreign trade was financed mainly in London. This subser-
vient position was strikingly revealed in 1914. New York, the
financial center of the western hemisphere, was so "helpless" that
"we actually received a commission of British financiers and econo-
mists to discuss how Great Britain could help out the United
States in solving the financial problems of the United States grow-
ing out of the fact that Great Britain was in the war."26 There has
been such a radical change in this respect that the international
bill market in New York now vies with London for the privilege
of accommodating world commerce. Explaining this situation,
Governor Strong says :
I have no doubt if you were on the Malay peninsula, talking with
a producer of rubber who had a large shipment to make to New York
or possibly to London, and he had banking facilities in both centers,
he would go to the agency of some bank there, and say, "Now, what
can I get for a bill in dollars or in sterling," and he would get a quo-
tation from the bank which would be largely fixed by the knowledge
that the bank manager had of the rate at which he could get dis-
count for that bill, either in the London market or the New York
market.27
The total of dollar acceptance credits outstanding at the end of
1927 was $1,080,581,000, or $325,000,000 greater than the figure
recorded a year before, showing that many American export
products formerly financed through London were financed
through New York on account of the facilities and favorable rates
obtainable in the fall of 1927 on this side of the Atlantic.
To this phenomenal record must be added the fact that New
York has displaced Liverpool as the American cotton price con-
26 Leffingwell, R. C., Address before the Investment Bankers' Association, De-
cember, 1918.
27 H.R. 7895, 1926, p. 319.
226 AMERICAN FOREIGN RELATIONS
troller; continental European spinners do practically all their
trading on the New York market.28
Domestic politics and the difficulty of reconciling domestic with
international requirements must for a long time frustrate the con-
summation of the degree of cooperation envisaged by the banking
world. In the United States, the New York Reserve Bank was ele-
vated in power in 1927 by the operation of a single rediscount rate
throughout the system. This attracted more surplus funds than
usual from the interior to New York. An agitation was under way
at the end of 1927 which sought both to curb the easy money
policy and to destroy rate uniformity on the ground that the sur-
feit of funds that had gravitated to New York had produced
unparalleled speculation. Out of a total of $22,000,000,000 in the
loans and investments of the reporting members of the system at
the end of 1927, no less than $13,000,000,000 had been contracted
in loans to brokers and in bank investments. Commercial credit
taken up in 1927 actually declined from the 1926 figure, but the
funds that went into the securities market, either in the form of
direct bank investments in securities or in that of collateral loans
against securities, advanced a billion and a half dollars. Of this
amount, $800,000,000 was accounted for after July, having been
the expansion of American bank credit caused by relieving the
pressure on European bank credit.
If the supply of new money does no more than keep pace with
the increase in production, there is in fact no inflation whatever ;
yet, though credit has been available in quantity much above com-
mercial demand, the commodity price level has remained com-
paratively unperturbed, the inflation having been restricted to
security and non-commodity prices, wages included. These phe-
nomena are the subject of considerable study among economists.
Some scout the success which Irving Fisher attributes to the new
monetary policy, and doubt whether gold can be as irrevocably
impounded as in India, where, being buried underground by indi-
viduals, it has no psychological influence on the country's economic
28 Cf. evidence of William L. Clayton, of Anderson, Clayton £ Co., Houston,
cotton merchants, before the Senate Cotton Committee. Journal of Commerce
(N. Y.), March 30, 1928.
IMPLICATIONS OF GOLD DISTRIBUTION 227
operations. While not admitting "sterilization," they admit a cer-
tain degree of what might be called "neutralization." This is true
not only in the United States but also in Europe, where credit
policies are pursued to some extent independently of gold move-
ments. Some point out that in the last six years there has been a
radical change in commercial financing — that business is replacing
its former dependence on bank loans with independent company
financing. This, they say, would account for lack of business infla-
tion, and explain the banks5 activities in the stock market. Others
continually foretell an upward movement in the commodity price
level in sympathy with non-commodity trends such as accompanied
the expansion of credit in 1917-1918 at the behest of war finance.
They demand drastic measures on the part of the Federal Reserve
banks to curb stock-exchange speculation. In opposition to the
firmer money advocates are the Treasury authorities, who are at
one with Europe in favoring easy money in the United States, be-
cause then they can convert the public debt cheaply.
It is obvious that the smooth working out of international bank-
ing cooperation in these domestic exigencies is difficult of achieve-
ment.29
2» The above treats of conditions up till the end of 1927. Conditions are con-
stantly changing, and they changed in many respects in 1928, in consequence of the
increasing recovery of Europe and the growing domestic insistence in the United
States for monetary policies less directly connected with larger world policies.
III.
THE UNITED STATES AND THE
LEAGUE OF NATIONS
CHAPTER ONE
HISTORICAL PROJECTS FOR A SOCIETY OR
LEAGUE OF NATIONS
THE same reasons which made it impossible for the United
States to keep out of the Napoleonic wars, bringing us to
undeclared war with France in 1798 and to open war with Great
Britain in 1812, involved us in controversy with both sides within
a month of the outbreak of the World War. The German asser-
tion of a reprisal right to destroy American property and to
take American lives because of the ineffectiveness of the Ameri-
can efforts to break the British blockade of Germany, made it
impossible for us to stay out of the war unless we stayed on our
own side of the Atlantic.
Some few Americans, not absorbed in the processes of war-
making, gave their attention to the principles at issue, and saw
that our political isolation was a chimera unless we were willing to
accept economic and social isolation as its base, and hence that
we should be drawn into any future war as we had been drawn into
this war. It behooved them, therefore, to find a scheme to lessen
the probabilities of war among the nations as the best way to pro-
tect American well-being. The business as well as the political
interests of the country required that some international ma-
chinery be devised to make more stable relationships possible.
They realized that the timeliness of any proposal in this direction
would be cardinal to its success, because the fusing of sovereign
states into a cooperative organization can best be accomplished
while nationalistic rigidity has given way to the cooperative effort
of war-making and the public conscience is aroused by the horrors
and degradations of war. They foresaw that when emotions had
cooled, separateness might again set in, the masses of people might
be indifferent to possibilities which offered no immediate problem
to their daily existence, and after a time there might grow up
among a new generation which had never known war the ever-
recurrent sophistry that war is necessary to keep the fiber of a
nation manly and robust. So it was that during the World War,
232 AMERICAN FOREIGN RELATIONS
as in the great wars of the past, some of the best minds devoted
themselves to the problem of world organization to insure peace,
and began to study with a new and living interest the schemes
which had been proposed during the modern era.
The conception of a federation of states was a medieval theory
which had been frustrated by the rise of the national state and its
doctrine of absolute independent sovereignty. This doctrine was
adapted to an agrarian civilization, when each state was self-con-
tained as to raw materials, markets, and capital ; it is only after a
hundred and fifty years of the industrial revolution that, in spite
of the sanctity of absolute sovereignty, men's minds have begun
to grasp the idea of modern economic interdependence and the
need for a cooperative organization. The economic difficulty has
intensified an anomaly created by the emergence of the modern
national state; the doctrine of sovereignty has produced as its
corollary the doctrine of the "equality" of states, which consorts
ill with the actualities of unequal power, but which has gained
strength with the advance of civilization. A regime of "equals,"
with no law among them and without sanctions for their agree-
ments, can properly be described as international anarchy.
For more than a century Europe had been engaged in prac-
tically continuous war on a scale never known in the Middle
Ages when in 1638 the Due de Sully [1560-1641], "as an ironical
memorial to *what might have been/ " attributed to his late mas-
ter, Henry IV (who had been encouraged by the bold projects of
Queen Elizabeth), the "Great Design" of constituting a vast
European confederation.1 This first attempt to reconcile the sov-
ereignty of states with an international organization allowed to
the states equal representation in a general council, but failed
to take account of their inequalities of power; moreover, the
scheme was in essence a political manoeuvre against Austria and
Spain. In 1693, the humanitarian William Penn proposed a
"General Dyet," which was to meet periodically as a legislature
and as a court, and the judgments of which were to be enforced
i The best sketch of the matters discussed in this chapter will be found in
James Brown Scott's Introduction to Ladd's An Essay on a Congress of Nations,
first published in 1840. Oxford University Press, 1916. Carnegie Endowment for
International Peace.
PROJECTS FOR A SOCIETY OF NATIONS 233
by the combined strength of all the states. To avoid offending the
sovereigns on the point of their theoretical equality, he proposed
a round assembly hall with such numerous doors that all question
of priority in entrance and exit would be avoided. Then, at the
close of the War of the Spanish Succession, the Abbe de Saint-
Pierre [1658-1743], who had acted as secretary to the French
plenipotentiary at the Congress of Utrecht, published a revision
of Henry's "Great Design." He, too, proposed a great armed
league for peace among the Christian sovereigns, excluding the
Tsar. For the first time a provision was made for differentiating
the states according to their real power by adding to the general
council a small executive council whose membership was to be re-
stricted to the five great European states.
Some of the early theorists were concerned with the causes as
well as the cures of war, and a monk of the early seventeenth cen-
tury, Emeric Cruce, in 1623 suggested commercial cooperation
as the basis for peace. The Abbe de Saint-Pierre took up the idea,
and Jeremy Bentham went so far as to propose, in 1786-9, the com-
plete abandonment of the prevailing "colonial system" as a neces-
sary reform in aid of peace.
Kant was probably the least concerned with the immediate
cessation of battle and the most profound in his understanding of
social tendencies and of the conditions essential to peace. Early in
the Revolutionary wars he prepared his little treatise, Zum Ewigen
Fricden! [1795]. He believed that peace, the greatest practical
problem for the human race, would be achieved as the moral idea
and enlightened self-interest developed among peoples. He pro-
posed a federation of free states. The possession of republican
institutions was set up as a membership requirement; there was
to be a permanent congress; and standing armies were to be
abolished. For the very reason that Kant's plan was less detailed
and less pretentious than its forerunners, the present League is
indebted to Kant for its basic principles.
During the Revolution there was in France a yearning for in-
ternational fraternity which Lamartine has thus epitomized :
L'egoisme et la haine out seuls une patrie
La Fraternit^ n'en a pas —
234 AMERICAN FOREIGN RELATIONS
but a torrent of nationalistic feeling swept over Europe, and the
allied sovereigns organized peace at Vienna on the basis of the
maintenance of peace by vigilant authority. Under the domination
of Metternich, the Holy Alliance as well as the Confederation of
Europe, which had been inspired by the scheme of Saint-Pierre,
was perverted into an agency for opposing liberalism and change
everywhere, and it broke up, proving an instrument ill adapted to
the needs of the age. Nevertheless, this failure contributed even-
tually through trial and error to a clearer understanding of the
nature of international machinery.
During the nineteenth century the Concert of Europe per-
formed a valuable though insufficient service by emphasizing in-
terstate interests, and by seeking to prevent war or to alleviate its
miseries. It was in no sense a league, and it was successful only
when its members found it to their individual advantage at the
moment to work together, and when the questions at issue con-
cerned others more than themselves.
The problem of interstate organization which had at times oc-
cupied European minds offered a more imperative challenge to the
early American statesmen and political philosophers at the time
of the consolidation of the American republic. While having to
preserve as much of individual sovereignty and equality as pos-
sible, they had the task of constituting a new government which
would insure peace and cooperation among the states. They had to
overcome provincial separatisms and cultural divergences; race
antagonisms and intolerance were formidable. The journey then
from New York to Charleston took twice as long as a trip from
New York to Geneva today. The leading men of the different
colonies hardly knew of one another even by reputation. The sec-
tional prejudices of that day are illustrated by Washington's
comment upon New Englanders as "an exceedingly dirty and
nasty people," and in the reference of the father of Gouverneur
Morris to "the craft and cunning so incident to the people of that
country [Connecticut]." A brigadier-general wrote that Penn-
sylvania and New England troops would as soon fight each other
as the British. When the Confederation was formed there were
boundary disputes, trade rivalries, and such friction over finance
PROJECTS FOR A SOCIETY OF NATIONS 235
that the richest states sometimes refused to have anything to do
with the paper money of the weaker states. Jefferson observed
despairingly that whatever might arise between independent na-
tions actually arose as broils among the states. As the state func-
tions included substantially all the important powers affecting
individuals and local communities, and as there was no potent
neighbor state which could frighten them into uniting for common
protection, it was hard to persuade the people of the need for a
broad Federal sovereignty. Moreover, in those early days the eco-
nomic links which bind together the states of the modern world
were feeble.
The problem common to all interstate organization, of reconcil-
ing the claims to power by the large states with the claims to
equality by the small, confronted the framers of the Constitution.
The Constitution became "a bundle of compromises," and an
original bicameral system was set up. As Madison pointed out, it
was based on the idea that in politics men have to deal with effective
powers and not with a mythical entity known as indivisible sover-
eignty. A smaller body was devised to represent equality, con-
servatism, and tradition, and was made a council of advice on
foreign relations, the perilous field which needed all our available
experience and sagacity. The more numerous body took into ac-
count the inequalities of actual power among the states and pro-
vided representation according to population ; it was allotted an
equal share in domestic legislation, together with a superior con-
trol over what was then considered the stronghold of democracy,
taxation. This scheme for reconciling the interests of large and
small states offered promise to future world organization. When
federalism, severely tested by the Civil War, held together, the
vogue of the federative principle was increased throughout the
world.
THE LEAGUE TO ENFORCE PEACE
THIRTY-NINE years after the formation of the union, some
Americans turned their attention to the larger problem of or-
ganizing the world for peace, and founded the American Peace
Society, but it did not have a war impetus at its foundation, and
236 AMERICAN FOREIGN RELATIONS
its achievements have not been impressive. In the first months of
the World War a new movement sprang up spontaneously — the
League to Enforce Peace. Some of the supporters of the American
Society for the Judicial Settlement of International Disputes,
founded in 1910, who had formerly opposed the use of force in
international relations, were convinced by the war that force must
be utilized, and the League to Enforce Peace is said to have owed
its existence to this change of attitude. The League to Enforce
Peace publicly endorsed a project consisting of four fundamental
proposals: (1) justiciable disputes shall be judged by an inter-
national tribunal ; (2) other disputes shall be submitted to a coun-
cil for recommendation; (3) force shall be employed against any
state that refuses to submit a dispute; (4) conferences shall be
held from time to time.
The League to Enforce Peace made use of the American talent
for organization. Counties were made the units of organization,
and propaganda was spread in the manner of a political cam-
paign; 2,300 newspaper clippings referring to the League were
received at the central office during the week which ended Febru-
ary 3, 1917. A tabulation of editorial comments throughout this
period showed approval by more than nine-tenths of the newspa-
pers of the country, though it was recognized that much of this
approval was temporary, and that opposition based on American
tradition would appear at the end of the war. The avowed purpose
of the movement was to impress itself on the Senate, for it was
realized from the start that the danger to the success of a League
project lay there.
The League to Enforce Peace consistently held to the view that
it had better confine itself to the four simple principles first enun-
ciated. It is of course essential to the popularization of any new
scheme that debatable details be avoided so as to obtain a general
sentiment of approval, and it was desirable to leave the delegates
to the Peace Conference free to make the necessary adjustments
in coming to agreement. A committee also formulated practical
details in a draft convention, approved by the executive com-
mittee in March, 1918, but after conference with President Wilson
decided to withhold the draft from public discussion and the press.
PROJECTS FOR A SOCIETY OF NATIONS 237
Another proposal, drawn up by a private group, was an adapta-
tion of the Abbe de Saint-Pierre's scheme which set apart the
Great Powers and entrusted them with greater authority and thus
repudiated the doctrine of the equality of states. It provided for
a permanent international council which was to be made up of
three representatives from each of the Great Powers, and one rep-
resentative from each of the other states, and which was to ap-
point a ministry of five members, invested with executive powers
and permanently in session. It also provided for a council of con-
ciliation and an international court, but the scheme did not offer
an adequate handling of the causes of war, and lacked elasticity.
It is noteworthy that the use of international force was a cardinal
feature of both projects. Neither draft was widely enough circu-
lated or stoutly enough advocated to embarrass draftsmen of the
new Covenant of the League of Nations, but the four years' ac-
tivity of the League to Enforce Peace served the League cause by
preparing the public mind for its reception and by popularizing
the ideal of international organization in behalf of peace.
PRESIDENT WILSON AND A LEAGUE OF NATIONS
WOODROW WILSON'S conception of a league of nations was no war
product, but a natural and essential part of his whole political
philosophy. He had already proved the genuineness of his desire
for international organization by the peace proposal which
resulted in the Bryan conciliation treaties; by the projected
Pan American League, which contained a mutual guarantee of
territorial integrity by the use of force and which later became Ar-
ticle X of the Covenant ; and by his reference of our dispute with
Mexico to the A.B.C. Powers of South America. As early as the
autumn of 1914 Wilson said, when looking ahead to the end of
the war ; "all nations must be absorbed into some great association
of nations whereby all shall guarantee the integrity of each so
that any one nation violating the agreement between all of them
shall bring punishment on itself automatically." When Wilson
was persuaded to speak at the League to Enforce Peace banquet
in Washington on May 27, 1916, he endorsed the program of
238 AMERICAN FOREIGN RELATIONS
that organization only indirectly, making no mention of force;
but he advocated the general idea of a league with such ardor that
he was henceforth regarded as its champion. It is worthy of note
that at this same banquet Senator Lodge spoke on behalf of a
world league and specifically favored the use of force. From this
time on, Wilson carried the project forward by public addresses,
including the speeches in his presidential campaign, and by dip-
lomatic correspondence. Under his leadership a more elastic league
gained favor. Wilson brought the League proposal to the atten-
tion of the belligerent statesmen by his peace note of December,
1916, which occasioned the formal commitment of the Allies in its
favor. He followed this up by including the League among the
Fourteen Points which he enunciated on January 8, 1918, as a
suitable basis for peace. When the armistice was concluded, the
Central as well as the Allied Powers had subscribed to the general
principle of a league of nations. This left the task of formulating
a specific and universally acceptable plan to the plenipotentiaries
at the Peace Conference.
CHAPTER TWO
THE SENATORIAL ELECTIONS OF 1918
WHEN the war drew to an end, in the fall of 1918, the Con-
gressional elections were at hand. Not since the Civil War
had there been so much at stake in a Congressional election. Wilson
had done his best in his individualistic way from 191 4 to stimulate
a public desire for a liberal peace and a new world order ; but the
country had been organizing the novel effort of war-making with
single-minded energy and relish, and it was bewildered by the swift-
ness of the German collapse, the armistice, and the sudden stillness
of the enginery of war. Men's minds were not ready for great deci-
sions in a new political field; the mass opinion of 120,000,000
people orientates itself slowly in novel situations. The issues which
the peace had to determine were not clearly presented to the elec-
torate at this time, and discussion of the League was omitted from
practically all the local campaigns, though it had figured in the
1916 Democratic platform, when it was not combated by the Re-
publicans. Politicians had then considered advocacy of a league
as a party advantage, but in 1918 the people were apparently not
aware that their choice of Senators largely determined the kind
of peace treaty to be made. Politicians of both parties decided to
be non-committal on the great issue and to limit the political con-
troversy to comparatively inconsequential local concerns. Presi-
dent Wilson's famous declaration that "politics is adjourned"
may have served well the unhampered prosecution of the war by
stamping partisan opposition to the administration's war meas-
ures as disloyal, but in the elections of 1918 the terms of the ap-
proaching peace were the issue, and an understanding of them
would have been helped by the open elaboration of party policies.
Comprehension of this required a more educated support than
the waves of unquestioning enthusiasm accorded to President
Wilson's war policies. It demanded open debate — to clarify the
public understanding, to separate partisanship from sincere op-
position.
Instead of this, under the political hush of the spring and
240 AMERICAN FOREIGN RELATIONS
summer of 1918 accumulated all of the personal and class griev-
ances which a period of economic, social, and psychological dis-
location had produced. The burden of war-time taxation, the
sacrifices of producers and middlemen under food-price regula-
tion, the industrialists' dissatisfaction with war-time wages — all
contributed to a restiveness under the disciplines of war. An im-
patient tendency grew up to associate inconveniences and hard-
ships with the administration and their relief with the opposition,
and the nation's complaints could not be answered by the clash of
party with party, of criticism with vindication.
The Republicans, as early as February, elected a National Com-
mittee Chairman, and the Democrats followed suit. Under the re-
spective leadership of Will H. Hays and Vance C. McCormick,
both elected on pro-war records, the party machines were set in
motion for the approaching electoral contest. By asserting their
consistent loyalty to the President and by promising the most
speedy and vigorous prosecution of the war, the Republicans
sought to forestall Democratic claims of credit for the national
successes : cautiously they seized upon the President's inclusion of
"the abolition of economic barriers between nations" in his Four-
teen Points to reiterate their protectionist policy and to stress
the danger of an influx of cheap European manufactures after the
war; with moderation they criticized the Census Bill as offering
a loophole for Democratic political jobbery by leaving open to
favoritism the appointment of census officials ; government opera-
tion of railroads and other public utilities was branded as dan-
gerously socialistic; war expenditures were scrutinized for evi-
dences of graft. The Democrats based their appeal for continuance
in power upon the merits of the war legislation: the draft, the
Farm Loan Act, the War Trade Board, the Alien Property Cus-
todian, War Risk Insurance, Labor laws, etc., and their ad-
ministration of the Federal Reserve System, the Liberty Loan
issues, and the railroads, telephones, and telegraphs.
Outside of these retrospective contentions and of the irrelevant
shibboleths resurrected from campaigns of the previous decade,
there were no electoral issues in the national sense. Prohibition,
woman's suffrage, and farm legislation were non-partisan ques-
SENATORIAL ELECTIONS OF 1918 241
tions subject to opportunism in local platforms. Until the fall of
1918 little prominence in the press or at public gatherings was
given to the choices before the electorates.
Besides the two major parties, there was, in the West, an or-
ganization representing class interests in the election. The Non-
Partisan League, founded in North Dakota in 1915, had become
national in ambition and had acquired some political influence in
North Dakota, South Dakota, Minnesota, Idaho, Washington,
Colorado, Nebraska, Iowa, Kansas, Oklahoma, and Texas. It
gained control of important elements in the press and won the
adherence of farm-labor socialist groups who hoped to profit by
splitting the votes of the two major parties. The platform of this
league, while pledging support to the President and the war, was
directed toward government ownership of public necessities, fed-
eral standardization of farm products, federal subsidy of agri-
culture, heavier taxation of capital and of the "big interests," and
the reduction of the middleman's profit. It took no position on
foreign policy.
On October 25, Wilson issued an appeal to the nation to return
to Congress a Democratic majority in order to assure uninter-
rupted continuance of the administration's policies, to permit uni-
fied and solidly supported control of the peace negotiations, and
to prove to the Allies by a "vote of confidence" the popularity of
the President's program. In it he termed the Republican Con-
gressmen loyally pro-war but dangerously anti-administration,
and emphasized the grave obstacles party opposition would create
in the conduct of foreign affairs.
Ingenuously conceived, the manifesto was a political blunder.
Instead of renewing the enthusiasm with which the public had
acclaimed the President's demand that politics be adjourned, it
furnished the unsleeping hostility of the Republican party man-
agers with opportunity to retort that the war was not Wilson's
war nor should the peace be his peace ; that citizens of both parties
who had contributed to the approaching victory were entitled to
participation in making terms with the enemy ; that the Constitu-
tion had not created a Senate as an automatic rubber stamp to
approve the President's action but as a popular check against
242 AMERICAN FOREIGN RELATIONS
executive absolutism. The spell was broken, and Wilson was por-
trayed by his opponents no longer as an inspired national leader
but as a politician capitalizing the national struggle for the glory
of his party. A long-smouldering hostility toward Wilson burst
forth — attacking his methods and ignoring his principles. No
coalition of parties existed, as in European countries, to keep it
subdued.
This was the opportunity for which Republican politicians had
hoped. The election could be contested with open acrimony and
the President could be attacked with impunity. The truce was
over. Chairman Hays published the Republican reply, couched
in vitriolic terms. Roosevelt and Hughes broadcast vigorous ad-
dresses declaring war on the administration. Taft and Roosevelt
buried their difference to issue a joint appeal for a Republican
Congress to resume its full constitutional control and to assure
the unconditional surrender of the Central Powers. Republicans
asserted that they had not only exceeded the Democrats in loyalty
to the war but had given the President more consistent support,
and that Wilson's charge was mendacious. They pointed out that
the message called for the election of Democrats, among whom at
this time were numbered several pacifists, notably Henry Ford,
and for the defeat of some Republicans impeccably loyal to the
war. The restoration of the Senate's prerogatives and the reduc-
tion of executive power were demanded. Among the platform ac-
cusations made against the administration were : criminal waste in
the administration of public funds ; graft ; the intention of nego-
tiating a hasty peace, lenient toward the enemy and unacceptable
to the Allied military leaders ; a plan to involve the country in the
European system of intrigue and military alliances in which the
threat of war was an instrument of policy and in which war itself
was possible at any moment.
In short, the ten days' interval between the President's message
and election day was sufficient to lay the Democratic party open to
disastrous attacks, but not enough to allow the popularization of
any constructive party programs for the future. The strategic
disadvantage at which the Democrats found themselves was ag-
SENATORIAL ELECTIONS OF 1918 243
ravated by the epidemic of Spanish influenza which prevented
ublic meetings.
In the 37 senatorial contests — 32 of them to replace Senators
hose terms expired in 1919, five of them to fill vacancies made
Y resignations or deaths — the Democrats gained one seat, which
id been occupied by a Republican, and lost seven, which they had
mtr oiled; this gave the Republicans a majority of two in the
enate.
David I. Walsh, by defeating Weeks at the Massachusetts polls,
icame the first Democratic Senator from that state in seventy
*ars. His victory was attributed to his popularity as Governor,
> the success of the labor laws enacted during his administration,
id to the substantial support he gained through his favorable
/titude toward woman's suffrage.
In New Hampshire, Keyes, Republican, won the seat which had
>en occupied by Hollis, Democrat, in a campaign in which there
as no national question. In Delaware, the Democratic Senator,
lulsbury, was defeated by Hall, despite Wilson's appeal to the
»ters of that state to reelect Saulsbury on the merits of his record
supporting the administration. Elkins defeated the Demo-
atic candidate, Watson, in the West Virginia elections, on a
epublican high-tariff and win-the-war platform. The Illinois
intest was a race between the Democratic senatorial "whip,"
2wis, especially recommended by Wilson for election, and the
epublican candidate, Medill McCormick. The latter won by a
mil plurality in the rural districts and the Republican leaders,
ming at the highest game, attributed his success to Lewis's sub-
rvience to Wilson. Thompson, another strong Wilson adherent,
st the Kansas election to Capper, who received the support of
e Non-Partisan League. In Missouri a Republican, Spenser, was
*cted to fill the vacancy created by the death of Senator Stone,
emocrat; Spenser received the support of a considerable Ger-
an vote. Finally, Phipps unseated Wilson's candidate, Senator
mfroth, of Colorado, by a victory to which the Non-Partisan
;ague and the women's vote materially contributed.
In New Jersey, the Republicans retained the full-term seat and
e short-term seat by the election of Edge and Baird, despite
244 AMERICAN FOREIGN RELATIONS
Wilson's personal appeal to the electors of his home state to send
the Democratic candidates to Congress. In Maine, Fernald, Re-
publican, was reflected; in New Hampshire, the election for the
short-term seat was won by Moses. The support of the Democratic
candidate by the labor vote in Rhode Island failed by a narrow
margin to defeat the reelection of Senator Colt, Republican.
Eight Democratic Senators were reflected in the Democratic
South. Four other southern states returned Democratic Senators,
of whom Harris of Georgia and Harrison of Mississippi were
nominated at Wilson's suggestion in the place of their prede-
cessors. Stanley of Kentucky probably profited by the President's
appeal of October 25, and Pollock of South Carolina was nomi-
nated and elected on a woman's suffrage plank.
Fall, Republican, was reflected in New Mexico by a margin of
only 2,400. In Iowa, Kenyon was reelected on a platform an-
nouncing no definite policies save the establishment of a high
tariff. At Wilson's suggestion that, owing to his record of loyalty
to the administration, the Democrats should not offer a candidate
to oppose him, the Republican Senator Nelson from Minnesota,
running on a national prohibition platform, was reelected by
a large majority over the Non-P artisan League candidate. Ster-
ling, Republican, of South Dakota, which was one of the states
dissatisfied with food-price regulation, was reelected with the sup-
port of the women's vote and the Nori-Partisan League. The
Nebraska primaries were the only ones to nominate a candidate
outstandingly anti-war and obstructionist; Norris, Republican,
was one of the "wilful twelve" Senators, and his reelection was to
a certain degree an answer to the Wilson manifesto of October 25.
In Nevada, the Democrat, Henderson, won a short-term seat be-
cause of a division of the Republican votes between Roberts and
the Non-Partisan League candidate, Miss Martin. Thomas J.
Walsh, of Montana, won reelection on the Democratic ticket, de-
feating the Republican and Non-Partisan League candidate. In
Idaho both candidates of the Non-Partisan League were vic-
torious— Borah, Republican, for the long-term seat, and Nugent,
Democrat, for the short-term seat; Warren in Wyoming and
McNary, in Oregon, both Republicans, were reelected.
SENATORIAL ELECTIONS OF 1918 245
The forces which determined the several elections were some-
times local, sometimes general. They included support for or hos-
tility to prohibition ; the tendency of the business interests, large
and small, to back the Republican party; pressure for a high
tariff in industrial districts; objection on the part of food pro-
ducers and distributors to the fixing of food prices, especially as
the South had profited enormously from unregulated cotton prices ;
resentment in the states where General Leonard Wood was popular
that the administration had not permitted him to go to France ; the
attitude of the Non-Partisan League or of its anti-agrarian oppo-
nents, and the enthusiastic support by the women of those who
appealed for their new suffrages. There was virtually no issue con-
tested and properly discussed which arose out of the policies that
were the cause of our entering the war, of the degree of efficiency
with which it was conducted, of the aims announced for the United
States by its official spokesman, or of the effort which the United
States was to put forth in the making of a durable peace.
The senatorial campaigns and election in Michigan resulted in
a Republican victory whose legality was for the next four years
the subject of party challenge, rendered the more bitter because
the control of the Senate was at stake. Had the Democratic candi-
date won the election, there would have been a tied vote in the
Senate, and Vice-President Marshall would have cast a ballot on
the Democratic side, thereby organizing the Senate committees in
favor of Wilson's peace policies. Newberry, the Republican nomi-
nee, was declared elected, however, and voted for the Republican
organization of the Senate and against the ratification of the
treaty.
Michigan had been considered a Republican state, and Henry
Ford had been believed a Republican. During the summer of 1918
Wilson requested Ford, who was in no sense a politician, to offer
himself for the Democratic candidacy. At the Democratic primaries
Ford received a strong majority over Helme, and in the Republican
primaries a vote of 72,000 was polled for him as against 115,000
for Commander Newberry, who became the Republican nominee.
In the election Ford ran on a pledge to support President Wilson,
and Newberry on opposition to Wilson and to his peace plans, on
246 AMERICAN FOREIGN RELATIONS
advocacy of a woman's suffrage amendment and on labor legisla-
tion. The result was a victory for Newberry by a margin of less
than 5,000. A contest of the election by Ford and the filing of
charges started an investigation by a Senate sub-committee in
1920 which was not concluded until September, 1921. In the
meantime, Newberry and 134 others were indicted on a charge of
violation of the Federal Corrupt Practices Act limiting campaign
expenditures to $3,750 in the case of Michigan senatorial pri-
maries. Newberry was convicted and on November 29, 1919, was
sentenced to two years in prison. The United States Supreme
Court reversed the conviction on May 2, 1921, holding that "power
to control party primaries for the designations of candidates for
the Senate was not within the Congressional power to 'regulate
the manner of holding elections*1 . . . and its exercise would inter-
fere with purely domestic affairs of the States"; that the
XVIIth Amendment to the Constitution had not altered the
rule ; and that Section 8 of the Federal Corrupt Practices Act,
applied to primary elections of candidates for a seat in the Senate,
was unconstitutional.
On May 9, 1921, Newberry returned to the Senate from which
he had absented himself since his indictment. The next Michigan
senatorial election of 1922, was won by a Democrat, who was
pledged to renew the attack on Senator Newberry, and this, to-
gether with the election in other states of Senators similarly
pledged forecast that another proposal for the unseating of New-
berry would be supported by 42 Democrats, ten Republicans, and
one Farm-Labor Senator. Newberry resigned in November, 1922,
before the Senate had convened.
i U. S. Const, Art. I, Sec. 4.
CHAPTER THREE
THE UNITED STATES DELEGATION TO
THE PEACE CONFERENCE
A LTHOUGH the President's foreign policy had not been a
jfjL primary issue in the election of 1918, the implication of a
Republican victory after his demand for a vote of confidence placed
Wilson at an embarrassing disadvantage in regard to the negotia-
tion of the treaty. The manifesto he had issued was used to turn
the tide of public opinion against him.
Wilson, nevertheless, proceeded with his peace program. With
characteristic boldness, he announced his decision to head the
American delegation to the Peace Conference. It was fitting that
he should do so, inasmuch as the European Powers were to be rep-
resented by their premiers and he, as spokesman for the Allies,
had been the most influential war statesman in formulating the
principles upon which peace was to be made. Without Wilson it
might have become a purely European peace, especially as it
would have proved impossible to refer everything back to him;
but the decision was without precedent and among a people who
are sticklers for tradition in such matters it was easily attacked.
There was no deliberate and carefully weighed opinion on the
question, since everyone was more or less bewildered by the mag-
nitude and swiftness of events.
Wilson appointed the additional members of the delegation
seemingly without regard to the necessity of gaining Republican
support for the treaty. Mr. Lansing, the official spokesman of
Wilson's war administration, was of course appointed, for to
leave him behind would have been a serious reflection upon Wil-
son's own choice of a Secretary of State ; but he was known to be
lukewarm to a league of nations and to oppose the kind of league
that the forces at Paris were contemplating. Wilson had acted
as his own Secretary of State by himself preparing and sending
some of the most important notes to Germany. It was significant
of their relations that, when Lansing ventured to object to Wil-
son's determination to go to the Peace Conference, "the Presi-
248 AMERICAN FOREIGN RELATIONS
dent," as Lansing later stated, "listened to my remarks without
comment and turned the conversation into other channels." At
Paris Wilson announced to Lansing, a lawyer, that "he did not
intend to have lawyers drafting the treaty of peace." When Lan-
sing testified at the Senate hearings it was learned how little the
President had confided in him and what an almost negligible role
he had played at the Conference. The complete demonstration has
been afforded in Mr. Lansing's book.
Colonel House had done yeoman service for Wilson as observer
and reporter of political conditions at home, as a liaison with im-
portant circles in London and Berlin, and as a reporting member
attached to the Supreme War Council in Paris — a Father Joseph
to Wilson's Richelieu. His presence on the Commission, or at least
at the Conference, was indispensable to Wilson because Wilson
had entire confidence in him.
In the face of charges of partisanship, and without regard for
the Senate's resentment at the solitary responsibility he had as-
sumed, Wilson declined to choose the other two delegates from
among the representative and influential Republican statesmen.
Henry White had had an extensive experience in European diplo-
macy, and knew most of the European political leaders; he had
played an admirable role at Algeciras, and he gave substantial
help to Wilson at Paris. Unfortunately, neither he nor his views on
the great issues of the Conference were known to Congress, to the
American press, to the political world, or to the public at large ;
and the fate of the Treaty was to be affected to some extent by the
charge that it represented Wilson's views and not those of other
outstanding Americans. General Tasker H. Bliss, who had been
the American military representative attached to the Supreme
War Council, had a profound philosophy for the organization of
peace and had thought far more than most Senators upon its prac-
tical possibilities ; but, like Mr. White, the diplomat, he had been
debarred by his profession from taking part in public affairs and
from acquiring a political following, while his modesty had re-
strained him from giving public circulation to his ideas. This was
not a group chosen for common deliberation and concerted action,
and it was never supposed that a prevailing opinion of the members
UNITED STATES AT THE PEACE CONFERENCE 249
would determine its positions. No more was expected of the other
delegates than an individual helpfulness to Wilson, who, in impor-
tant matters, made no use of any of them except Colonel House.
Notable Republicans were in men's minds in connection with the
composition of the delegation. There had been a general senti-
ment favoring the selection of leading Republicans, especially
those who were known either to have influence with the Senate or to
be staunch supporters of the League. Lord Grey had even advised
Wilson to appoint three Republicans, including Mr. Root and
Senator Nelson. Opinions as to Wilson's reasons for not selecting
any of the most conspicuous Republicans for his Commission de-
pend largely on conjecture. It is known that Wilson regarded "a
lawyer's mind" as a disqualification, and this objection may have
applied to Mr. Root, and to Mr. Hughes as well. Many had looked
to the appointment of ex-President Taft, who had taken an active
part in the League to Enforce Peace. Wilson was known during
the war to have refused Taft permission to make a speaking tour
in England for the purpose of explaining American war plans
and emphasizing loyalty to the common cause, having been ap-
prehensive lest the tour might be regarded as involving the United
States as an accessory to Britain's special war aims. Some people
surmised that Wilson was unwilling to take Taft to Paris from
fear that he might have too definite ideas as to the kind of league to
be drawn up.
The other outstanding Republican Wilson might have chosen
was the Chairman of the Committee on Foreign Relations of the
Senate, Henry Cabot Lodge. Between these two men existed a
strong party and personal animosity. During the presidential cam-
paign of 1916 that animosity was inflamed by the postscript inci-
dent.1 Through indirect channels Mr. Lodge had received private
intimations of an administration secret, and in a campaign speech
at Brockton, Mass., on October 27, 1916, he "asserted that Wilson
had added a postscript to the second Lusitania note of June 9,
1915, in which he informed the German Government that the
strong phrases of the so-called 'strict accountability' note of May
13 were 'not to be taken seriously' ; and that this postscript disap-
i IV ew York Times, October 28, 30, and November 1, 1916.
250 AMERICAN FOREIGN RELATIONS
peared after members of the Cabinet had threatened to resign and
to let the public know of the postscript." Called upon to issue a
reply, Wilson telegraphed three days later : "The statement made
by Senator Lodge is untrue." Lodge had somehow got hold of one
thread of an incident at the White House and supplied other
threads of his own to make up his story. Wilson, in fact, after the
cabinet meeting and at Bryan's request, had consented to the
simultaneous dispatch of an instruction to Ambassador Gerard
indicating our willingness to submit the question to a commission
of investigation ; when the Cabinet learned of it by accident, their
attitude caused the President to order the suppression of the sup-
plementary instructions.
A more serious cause for Wilson's aversion from Lodge was the
Senator's swift reversal of opinion in regard to the League. In a
commencement address at Union College on June 9, 1915, Lodge
had presented the most forcible arguments which could be drawn
from history and the evolution of human society to prove that "the
policeman, the soldier, is the symbol of the force which gives
sanction to law, and without which it would be worthless," and that
"there is no escape from the proposition that the peace of the world
can only be maintained as the peace and order of a single com-
munity are maintained, and as the peace of a single nation is
maintained, by the force which united nations are willing to put
behind the peace and order of the world. Nations must unite as
men unite to preserve peace and order." And he advocated "a
union of civilized nations in order to put a controlling force be-
hind the maintenance of peace and international order," even
though he said, "No one is more conscious than I of the enormous
difficulties which beset such a solution or such a scheme." The next
year Lodge advanced the same view at the banquet of the League
to Enforce Peace. But when, in January, 1917, Wilson addressed
the Senate in favor of essentially the same kind of league, Lodge
had cooled off, and he delivered an address which discredited the
conception of any league built on the use of force.2 Thus it ap-
2 When urging our participation in the Algeciras Conference, Senator Lodge
spoke of entangling alliances as follows:
"Washington was altogether too sensible and too practical a man to suppose that
UNITED STATES AT THE PEACE CONFERENCE 251
peared to Wilson that Lodge's convictions as to the interest of
world civilization were not so strong that he would not sacrifice
them for the sake of party advantage or because of personal ani-
mosity.
The precedents, however, did not favor the appointment of
Senators as diplomatic plenipotentiaries for the negotiation of
treaties.8 James A. Bayard and Henry Clay whom President
Madison had appointed to the Ghent Peace Conference were so
embarrassed by their twofold and conflicting duties — their duty
of secrecy to the conference, and their duty to their congressional
colleagues to disclose all they knew — that they resigned respec-
tively from the Senate and the House before departing on their
mission. When President McKinley appointed Senators to nego-
tiate the Spanish treaty in 1898, the Senate objected so vigor-
ously, insisting on the impossibility for a Senator to vote impar-
tially on a treaty which he had negotiated, that the President
assured Senator Hoar, whom the Senate had delegated to present
the objection, that he would thenceforth discontinue the practice.4
President Wilson was of course familiar with these precedents,
and, having decided not to take the Chairman of the Senate Com-
because we were not to engage in alliances which might involve us in the wars of
Europe, with which we had no concern, therefore we were never to engage in any
agreements with any nation of Europe, no matter how beneficial they might be to
the world at large or to ourselves. . . ." (Cong. Rec., Vol. 40, Pt. II, p. 1469.)
In his speech on May 27, 1916, at the first annual gathering of the League to En-
force Peace, he said:
"I think a next step is that which this League proposes and that is to put force
behind international peace. ... I know the difficulties which arise when we speak
of anything which seems to involve an alliance. But I do not believe that when
Washington warned us against entangling alliances he meant for one moment that
we should not join with the other civilized nations of the world if a method could
be found to dimmish war and encourage peace,"
In 1919 he opposed the entry of the United States into the League, saying:
"There is an issue involved in the League constitution presented to us which far
overshadows all others. We are asked to depart for the first time from the foreign
policies of Washington."
s In this connection Section 6 of Article I of the Constitution should be noted:
"No Senator or Representative shall, during the time for which he was elected, be
appointed to any civil office under the authority of the United States, which shall
have been created, or the Emoluments whereof shall have been increased during
such time; and no Person holding any office under the United States shall be a
Member of either House during his Continuance in Office." Also see Section I,
Chapter 3, "Domestic Control," p. 115.
4 Hoar, Autobiography of Seventy Years, II, 47 ff.
252 AMERICAN FOREIGN RELATIONS
mittee on Foreign Relations, he could not by any supportable rea-
soning take with him Senator Nelson or any other Senator.
A group of 1,300 aides and experts were picked to accompany
the delegation. It was part of Wilson's conception of the new
diplomacy that the application of principles was to be assisted by
experts in history, geography, ethnology, economics, finance, and
law. Wilson appealed for the cooperation of these experts, saying :
"Tell me what is right and I'll fight for it ; give me a guaranteed
position." But this was not the same thing as deliberation on equal
terms with colleagues of independent minds.
The popular enthusiasm which acclaimed Wilson in Europe was
without historic parallel. He had become the spokesman of the
people of the world ; he alone of the war-time statesmen had ex-
pressed the longing of the inarticulate multitudes for a surcease
of their anguish, and insisted upon a peace that by the use of prac-
tical and permanent machinery would open the door into a new
world. These were solid bases for the enormous wave of emotion
which carried Wilson to the zenith of his contemporary fame.
Never before in history had there been so general a convic-
tion in favor of the establishment of a new institution, a coopera-
tive enterprise of the nations for peace and well-being. The ex-
perience of the previous few years had exposed the inadequacy
of ordinary diplomatic machinery. Everyone knew of Sir Edward
Grey's inability to arrange a conference to avert the 1914 debacle ;
all had suffered the disastrous consequences which the "balance of
power" theory had brought. The violation of the neutrality of
Belgium and Luxembourg demonstrated the need for a more
fitting guarantee of the safety of small nations. Moreover, the
Allied nations had paid a regrettable price for the early conduct
of the war, when their insistence upon equality and independence
of action had precluded that single leadership essential to effective
cooperation. Only the direst necessities had forced them to re-
linquish some of the dearly prized attributes of sovereignty in
order to set up the Supreme War Council in November, 1917. This
brought the statesmen to experiment with schemes of joint man-
agement and the pooling of international resources, and the con-
sequent lessons provided guides for the drafting of the League
UNITED STATES AT THE PEACE CONFERENCE 253
Covenant. The inestimable usefulness of the inter-Allied war
controls furnished the strongest argument in behalf of some peace-
time venture in international cooperation. Indeed, these experi-
ences of the war, together with the precedents of the two Hague
Conferences, furnished the essential principles on which the
League was built : a world league in place of an alliance of victors ;
regular and frequent conferences; a permanent secretariat; and
a territorial guarantee in behalf of small nations.
During the course of the war, the publication by the Soviet
Government of the secret commitments of the Allies revealed to
the general public the kind of bargaining which had taken place.
These commitments promised the transfer of blocks of territory
with their helpless inhabitants to induce entry into the war or
continuance in it. It was learned, for instance, that the Allies had
assured Italy, by the Treaty of London, "a just share of the
Mediterranean region adjacent to the province of Adalia" in case
Turkey were divided up at the end of the war. The peoples de-
nounced this old secret game of diplomacy and asked for a new
kind of statesmanship, the agitation gaining a momentum to
which Wilson gave a leadership and which no statesman could well
ignore.
CHAPTER FOUR
THE CREATION OF THE LEAGUE
OF NATIONS
A LTHOUGH the European leaders had responded to the popu-
jfjL lar clamor by eulogizing the notion of a league and by allow-
ing Wilson's talk about a new diplomacy and a new order to pass
uncontested, none of them had adopted these new principles with
the grim earnestness of the descendant of Scotch Covenanters. Cle-
menceau, Lloyd George, and Sonnino came to the conference at
Paris with objectives of an entirely different sort from those of
Wilson. The primary interest of France was security, and Clemen-
ceau's program included military and political guarantees of the
French frontier, reparations, and friendly relations with the
United States. Lloyd George had pledged himself by campaign
speeches in the December elections to "make Germany pay and
hang the Kaiser," and he felt bound to strive for the conciliation
of the Dominions by the annexation of German colonies. Italy was
chiefly interested in gaining opportunities for economic develop-
ment, outlets for surplus population, and the annexation of the
Irredentist lands. Clemenceau, Lloyd George, and Sonnino knew
one another well, and spontaneously pursued a common line. They
were prepared for a league, or for the League that was formed, but
essentially their attitude was that a league was not so important
as Wilson was making it out to be ; the "practical" settlements of
the treaty were the thing !
Wilson arrived among them as the great unknown factor. His
freedom from selfish national objectives was disconcerting; they
could not understand his determination to bring about the creation
of a league as a matter of far greater importance than the satis-
faction of national war aims. The result of the struggle over these
purposes, divergent rather than hostile, was that the two parties
got on each other's nerves. The European heads had not expected
Wilson to carry the subjects of his inspirational preachments
into the secret deliberations of the Big Four, and the more insistent
he became, the more he "addressed" them on the subject, the more
CREATION OF THE LEAGUE OF NATIONS 255
certain were they that his fixed idea was more or less visionary —
unobjectionable, to be sure, but not so important as he would have
them think. They were inclined to stick together, in order to "get
on with the business" ; Wilson on his side became more set, more
suspicious of motives. In the end he achieved his purpose and made
the first practical organization of the world for peace, though the
statesman's reward, the adhesion of his own country to his plan,
was not to be his. The strain at Paris was terrific, for Wilson had
not only his great aim in the creation of the League, the aim of
America as he saw it, to win, but he had to struggle also with the
war-flushed victors of Europe to obtain their consent to peace
settlements fair enough to endure. When other plenipotentiaries
were enjoying relaxation and recreation from the arduous work,
Wilson was closeted with experts, documents, books, and reports.
It is remarkable that his health bore up as long as it did, for the
process of arteriosclerosis from which he suffered is accelerated by
strain and fatigue.
Wilson's objectives at the Peace Conference were few and clear.
In his mind the League was the symbol of them all, and the in-
corporation of the League in the treaty became the issue on which
his whole program depended. He had made up his mind about this
before the Conference opened and had made his decision public in
September, 1918, saying: "As I see it, the constitution of the
League and the clear definition of its objects must be a part — and
in a sense the most essential part — of the peace settlement itself."
He went on to say : "We still read Washington's immortal warning
against 'entangling alliances' with full comprehension and an an-
swering purpose. But only special and limited alliances entangle
and we recognize and accept the duty of a new day in which we
are permitted to hope for a general alliance which will clear the
air of the world for common understandings and the maintenance
of common rights." He coined the phrase "disentangling alliance"
to characterize the League. Foreseeing the impossibility of creating
a completely just treaty of peace, he said "there is no man and no
body of men who know just how it ought to be settled," and for
this very reason he became more firmly resolved upon the necessity
of a permanent league, saying at Manchester, England, "If we
256 AMERICAN FOREIGN RELATIONS
are to make unsatisfactory settlements, we must see to it that they
are rendered more and more satisfactory by the subsequent adjust-
ments which are made possible." As the Conference proceeded
Wilson became even more insistent, for he began to doubt whether
all the states would join the League if it were separated from the
treaty.
On the first day of the Conference, Clemenceau offered a plan
of procedure in which the League discussions figured last. Wilson
countered this the next day by proposing a list of subjects with
the League as the first item. A British resolution accepted Wil-
son's list, but referred the League question to a special committee.
Wilson hesitated to acquiesce in this resolution, for he saw that it
left the Council of Four free to take up what interested them most,
questions whose controversial aspects might imperil the modera-
tion and fairness he was struggling to promote, and he obtained
general acceptance of an amendment securing the creation of the
League "as an integral part of the general treaty of peace." He
took the occasion to make his point clear : "This is," he said, "the
central object of our meeting. Settlements may be temporary, but
the actions of the nations in the interests of peace and justice must
be permanent. We can set up permanent processes. We may not
be able to set up permanent decisions."
Wilson had thus succeeded in carrying his first point but he sus-
pected, perhaps unjustly, that his European colleagues were at-
tempting to thwart his main contentions by the practice which he
described as "acceptance in principle but negation in detail." Cle-
menceau, Lloyd George, and Sonnino, who had been firm in exclud-
ing small nations from the important deliberations of the Council,
insisted that these same nations should have representatives on the
League Commission ; it is less likely that they were trying to frus-
trate Wilson than that they thought it important to stop the small
nations5 clamor by giving them a share in an enterprise of general
concern. Wilson, at any rate, accepted the suggestion. At the same
time, he astonished everyone by making himself chairman of the
Commission. The effect was to shift the center of interest during
the first part of the Conference from the Supreme Council to the
CREATION OF THE LEAGUE OF NATIONS 257
League Commission ; and the League project, contrary to the ex-
pectations of all delegates, became a matter of prime importance.
The other negotiators were now awakened to the necessity of
exerting their full powers to get the kind of peace settlement they
wanted. When on the day following the decision to set up a League
Commission Lloyd George opened a discussion on colonial matters,
although this topic came last on the agreed list, he was instantly
supported by Clemenceau and Sonnino, the object of all being to
hurry on the division of the German colonies and their apportion-
ment before the League Commission could set up a mandate system.
It was a repudiation of the fifth of the Fourteen Points, as well as
an indirect attack on the League plan. Wilson was obliged to de-
fend an institution which had not yet been established even on
paper, and to battle for the adoption of a mandate scheme whose
details the Commission had not yet had time to work out. He re-
fused to agree to annexation, and was inflexible in his insistence
upon a mandate arrangement. The French gave vent to their
thwarted hopes and exasperation by launching a press attack upon
Wilson personally, deploring his impracticable ideals. The British
decided to make the best of the situation, and by allowing Wilson
to call these colonies "mandates" to hasten their immediate par-
celing out. So it happened that, except for its last clauses, the
Covenant article on mandates was not written by the League Com-
mission but was a resolution of the Council of Ten on January 30,
1919. This was the first of a long succession of battles which
pivoted upon the League.
Wilson now devoted his energies to driving the League Commis-
sion1 at full speed. The Commission entrusted with formulating
the Covenant was the strongest which sat on any question through-
out the Conference. It proved to be far more liberal-minded than
the Conference as a whole. David Hunter Miller, who was present
as American legal adviser, gives the following testimony: "That
the men who created that paper [the Covenant] were working
with a noble purpose, with a wish for peace, and with a singleness
of heart which is without precedent in the annals of diplomacy,
i The standard work on the drafting of the Covenant is that by David Hunter
Miller, The Drafting of the Covenant, 2 vols.
258 AMERICAN FOREIGN RELATIONS
that I know." The Commission produced the first draft with phe-
nomenal rapidity; on February 14, after only ten evenings' work,
while doing their regular days' work at the same time, it laid a
preliminary draft of the Covenant before the Plenary Conference.2
THE RECEPTION OF THE LEAGUE PROJECT
IN THE UNITED STATES
THE next day Wilson sailed for home, bearing the Covenant with
him. His short stay in Europe had been an enormous personal
success ; his great project, the drafting of a Covenant, had been
accomplished. Yet the American people made no such response as
he had expected. In his struggle in Paris, Wilson had taken steps
beyond the limits marked by American traditions and the conven-
tional understanding of the mass of the people. He did this with his
eyes open, thinking he could persuade the country to follow right
as he saw it. Early in the war he said, "We are participants, whether
we would or not, in the life of the world. What affects mankind is
inevitably our affair." He believed, therefore, that he was best serv-
ing American interests by providing an effective organization for
the betterment of world conditions and the removal of the menace of
war. He understood this to be the realization of those war aims
for which American soldiers had given their lives ; he felt, more-
over, that America, as a co-belligerent, was morally responsible
for making at least this one contribution to the peace. He was
astonished and dismayed at the reception of the Covenant by his
country.
The American attitude toward the Covenant, though not im-
mediately critical, had a critical background. In the first place,
there was doubt as to the ability of any one man to represent the
American people. Criticism of Wilson himself had been stirred up
by this time ; he was censured for his "autocratic" methods, or for
the opposite weakness of having been duped in Europe, or for
2 The amount of work done at Paris by Wilson has never been generally known
in the United States. The records of the Council of Four "comprise 206 meetings in
101 days (including 15 Sundays) and occupy ten large foolscap volumes of type-
script."— Pamphlet by Sir Maurice Hankey, Diplomacy by Conference, p. 18.
CREATION OF THE LEAGUE OF NATIONS 259
having yielded on American principles, such as open diplomacy
and publicity at the Conference. Wilson's personality had never
aroused the same popular affection as Roosevelt's. Wilson failed to
respond to the American people's desire for information by making
an adequate presentation of the story of the Conference or of the
drafting of the Covenant of the League ; he gave neither a satis-
factory account of the formation of the Covenant nor an adequate
exposition of its articles ; he failed to make use of the League to En-
force Peace or to ask for the collaboration of its leaders in explain-
ing and popularizing the League. On the second day after his
landing he called together the House Committee on Foreign Affairs
and the Senate Committee on Foreign Relations for a dinner at the
White House, but, if we accept Lodge's account, "Wilson answered
questions about the drafting of the Covenant for about two hours
and told us nothing."
Shortly after this Lodge and Knox made speeches in the Senate
attacking the League in order to show that "the League should
not be yoked with the Treaty and risk dragging both down to-
gether," and that a general peace treaty, separate from the Cove-
nant, should be negotiated as quickly as possible. This was fol-
lowed by a political move on the eve of the adjournment of the
Senate; the declaration commonly known as the Round Robin
signed by thirty-nine Senators was read into the Senate Record
by Lodge. It served the purpose of announcing to Europeans as
well as to Americans that a sufficient number of Senators were
opposed to the League and to its inclusion in the Treaty to defeat
the ultimate ratification of the entire Treaty. Its effect on Wilson
was to harden his determination not to alter his program or change
a word of the Covenant.
The President's action during his first stay in Paris was to this
extent publicly repudiated. Anticipating such Republican opposi-
tion Wilson had adopted the last desperate resort of a President
in attempting to compel the compliance of the Senate — namely "to
get the country so pledged in the view of the world to certain
courses of action that the Senate hesitates to bring about the ap-
pearance of dishonor which would follow its refusal to ratify."3
s Woodrow Wilson, Congressional Government, pp. 233-4.
260 AMERICAN FOREIGN RELATIONS
Wilson's Metropolitan Opera House speech challenged the Senate
with these words : "When that Treaty comes back, gentlemen on
this side will find the Covenant not only in it, but so many threads
of the Treaty tied to the Covenant that you cannot dissect the
Covenant from the Treaty without destroying the whole vital
structure." He thus assumed a bold front before it became clear
that a desperate remedy was necessary ; his open and defiant proc-
lamation put the opposition Senators on their mettle, as Mr.
Lansing says, "to defeat a President whom they charged with at-
tempting to disregard and nullify the right of the Senate to exer-
cise independently its constitutional share in the treaty-making
power." The dim outlines of a gigantic struggle were blackening
the horizon.
THE LAST STAGE OF THE PEACE CONFERENCE
WILSON, having found that the Covenant was thoughtfully dis-
cussed by some of the American leaders, adopted all their sug-
gestions except that excising Article X.4 Accordingly, he proposed
and defended on his return to Paris the amendments to the Cove-
nant which stipulated that the Monroe Doctrine be specifically
recognized, that domestic questions be reserved, and that with-
drawal be provided for ; that the Council act by unanimous con-
sent ; that no nation be a mandatory without its consent ; and that
the language of the Covenant in certain respects be revised. The
French objected to the insertion of a Monroe Doctrine clause, and
it was only after Wilson had replied in what is reported to have
been "an extempore speech of bewitching eloquence" that they
acceded reluctantly to the inclusion of the article. The clause re-
garding domestic questions, as cabled by Mr. Taft, and the other
amendments, were accepted without great difficulty. In the course
of five additional sessions of the League Commission in the early
part of April, Wilson had succeeded in gaining the acquiescence
* Article X of the Covenant reads as follows :
The Members of the League undertake to respect and preserve as against ex-
ternal aggression the territorial integrity and existing political independence of all
Members of the League. In case of any such aggression or in case of any threat or
danger of such aggression the Council shall advise upon the means by which this
obligation shall be fulfilled.
CREATION OF THE LEAGUE OF NATIONS 261
of the European Powers in these purely American revisions. As
Hamilton Holt pointed out, the Republican party had reason to
feel gratified by the contribution which it had made to the Cove-
nant : except for Mr. Root's suggested inspection of armaments,
the only point which had not been accepted was that intended to
nullify or strike out Article X ; four of Root's nine suggestions
were fully adopted, with three partially recognized, six of
Hughes's seven points were accepted, and all five of the proposals
of Taft and Lodge were incorporated in the revised Covenant.
During the last part of the Versailles Conference national rival-
ries were at such a pitch that negotiations were near to rupture
several times. Each plenipotentiary was forced to compromise,
yielding in matters which he held most at heart, and curtailing his
demands. Lloyd George obtained a number of "C" mandates for
the Dominions which practically amounted to annexation ; yet he
shouldered a large and unpopular responsibility by signing the
treaty of guarantee for France. France gave up her demand for
a separate Rhineland, but secured the occupation of the left bank
for a period of fifteen years ; in return, the United States and Great
Britain pledged themselves to come to the immediate aid of France
in case of unprovoked attack. Italy modified her most extreme
demands and was brought to accept the internationalization of
Fiume. Japan was unable to insert a clause in the Covenant estab-
lishing the principle of equality of races and the just treatment of
aliens because England and America frowned upon a proposal
which would have brought the status of Japanese subjects in Cali-
fornia and in the British Dominions within the ambit of League in-
terest. A special concession was made to her in regard to Shan-
tung. Inability to come to an agreement on the reparations question
constantly threatened to disrupt the Conference, and no one was
satisfied with the compromise which was finally agreed upon.
The Supreme Council found a number of problems insoluble,
and, treating the League as a living organism before it existed,
they turned these matters over to it for settlement in the future.
Thus formidable tasks were imposed upon the League long before
any of its machinery had been set up. Indeed, it was impossible at
that time to visualize what the nature of the League would be, for
262 AMERICAN FOREIGN RELATIONS
the Covenant as finally drafted at Paris is remarkable for its
elasticity. The scheme was based on practical experience rather
than on abstract principles, and its authors had the good sense
to set up a framework which would allow free development. It
might become a great central authority, or its sphere of action
might be limited to secondary matters. The various continental
schemes, and the drafted proposals of the League to Enforce Peace
in the United States and of the League of Free Nations Society in
England, expressed the views of jurists and international lawyers
who had put chief stress on the judicial settlement of disputes.
The Commission at Paris, on the contrary, approached the sub-
ject in the light of the Allied war experience and entrusted the
greatest responsibilities to a political body, the Council, represent-
ing the actual distribution of the political force of the world, in the
hope that by one device or another, as exigencies required, it would
preserve the peace in time of crisis, and that the cooperative ma-
chinery of the League would become more and more useful to the
world at large and in time would create a new pacific attitude.
CHAPTER FIVE
THE ATTITUDE OF THE AMERICAN
PUBLIC TOWARD THE TREATY
AND THE COVENANT
WILSON was severely blamed in this country for having
acquiesced in the compromises of the Treaty. American
critics seized upon the Shantung arrangement as the most flagrant
departure from justice. When it was learned that three of the four
members of his delegation had given him a joint memorandum ad-
vising him not to yield on this matter, the public concluded that he
could be charged with having failed to defend American principles,
and with being an accomplice in the guilty settlement. When the
Senate Committee pressed Wilson to tell why he acceded to an
arrangement which he admittedly disapproved, Wilson gave his
reason as "Only the conclusion that I thought it was the best that
could be got under the circumstances." In adding pensions and
separation allowances to the reparation terms he had offered Ger-
many he accepted the position of the memorandum prepared by
General Smuts, and his outcry against "logic" seemed an emo-
tional effort to defend a decision that disturbed his conscience.1
General Srnuts in his turn, after signing the Treaty, eased his con-
science in a manifesto reprobating the tenor of the Treaty and
justifying it only because such a Treaty was inevitable and be-
cause the League could be trusted to remedy its specific injustices.
Wilson was forced to yield on the first four of his Fourteen
Points, and these were the principles which introduced a pacific
spirit into the "Decalogue of Peace"; but it is not seriously
doubted that he battled valiantly with a "task of terrible propor-
tions," that he exerted every ounce of his energy in behalf of the
principles which he had proclaimed and which the peoples of the
world had appeared to sanction, and that he held out tenaciously
against tremendous odds as long as he believed there was the
slightest chance that the principles of an equitable peace might
prevail.
i See p. 836.
264 AMERICAN FOREIGN RELATIONS
In 1919 and during the years immediately following, the Peace
Treaty appeared to the majority of Americans as a failure. Those
humanitarians who had expected a millennium felt pessimistic, as
did General Smuts, who said : "It was the human spirit that failed
at Paris. It was not Wilson who failed there but humanity itself.
It was not the statesmen that failed so much as the spirit of the
peoples behind them." To the conservatives, it appeared that our
negotiators had been too unselfish, and that the Treaty contained
too many new-fangled projects such as the plebiscites, the inter-
nationalization of cities, the International Labor Office, and the
League. There were few historically minded persons who looked
at the Versailles Treaty in the light of the peace treaties of the
past to obtain from such a comparison a correct evaluation of
the modern treaty.
The political opposition to the League, which developed swiftly
at this time, had some solid bases in public opinion and emotion.
The American and Wilsonian conception of a League was ideal-
istic and ideological. It was not related, as in Europe, to American
necessities, but was one of those evangelical movements which ap-
peal to the Puritan spirit of America as "compensation" for its
absorption in the day's work. Wilson, had he been at the acme of
his powers, might have held the popular imagination and led this
spirit of America to a hearty and enthusiastic endorsement of the
Covenant ; but he came back from Europe wearied by an excessive
application to the solution of those intricate world problems which
had been newly revealed to him in their concreteness and which
weighed heavily upon his heart and mind. He had a serious break-
down on April 3, 1919, and during the remainder of the Conference
was increasingly handicapped by illness.
When the 66th Congress opened, May 19, 1919, with a Repub-
lican majority in both Senate and House, Wilson had a chance to
win, but only by making no mistakes in tactics. American senti-
ment was cooling ; the eagerness of business to demobilize and re-
turn to the habits of the business hive and the pursuit of profits
was paralleled by a tendency in the political field to revert to the
American tradition and to reject responsibility for maintaining
peace in Europe. The early basis for the American peace move-
AMERICAN ATTITUDE TOWARD THE TREATY 265
ment, as embodied in the League to Enforce Peace, was the view
that Europe needed a material power on the side of righteousness,
a military force that could put down nationalistic aggression. It
grew in popularity as a proposed cure for all ills, but when the
crusade was found to require a new international orientation and
to entail burdens and sacrifices, the people were disappointed and
turned away.
By the spring of 1919 America was sick of war; the emotion
aroused by her war casualties was fresh, and it was easy to arouse
an antipathy to the League by focusing attention upon those
articles of the Covenant which contemplated war making of a
police character.
The isolation of the United States in the past half century had
kept the public ignorant of the facts of international relations;
the suddenness of its education, provided by newspaper reports
on the Peace Conference, gave a repellent impression of intrigue
and selfish quarreling. The unsuspected complexity of the prob-
lems was so bewildering to the inexperienced American mentality
that the people were eager to limit political questions once more to
familiar local concerns. There was a return to the old platitude
that the innocent and gullible American delegates were "no match
for the wily Europeans," and to the opinion that America was so
great, so self -sufficient, so untarnished, and so different from the
rest of the world, that she had no need, such as Europe had, for
participation in a League of Nations.
Another factor in the American attitude in regard to the League
came from what Sir Arthur Salter describes as "the immense
centrifugal force of national separatism which developed as soon
as the war ended."2 In order to win the war the Allies had abdi-
cated their economic sovereignty and had created inter- Allied
"controls" over the international aspects of economic life, pur-
chasing, distribution, and so on. There were reasons for continuing
the new scheme of inter- Allied control, in order to repair the
damages which the war had caused ; but when the vital necessity
for common action had ended, the spirit of independent national-
2 Salter, Allied Shipping Control, p. 266.
266 AMERICAN FOREIGN RELATIONS
Ism, which, carefully managed and directed, had been intensified
as an aid to the conduct of the war, became too strong for its bonds.
The antipathy of business men to governmental interference in
their field had yielded only temporarily under the fervor of the
war passion and the war energy ; as soon as the destructive side of
the war had ended, their old prepossessions returned to habitual
moulds. The dissolution of the inter- Allied committees, chiefly at
the instance of American business interests, showed the prevailing
impatience with war controls. This impatience was illustrated by
the break-up of the Allied Maritime Transport Council. Within
two days of the armistice Sir Arthur Salter, on behalf of the
British Government, officially communicated with France, Italy,
and the United States, suggesting that the Allied Maritime Trans-
port Council be transformed into a General Economic Council to
coordinate the work of the various councils and committees, and
to deal with questions of special urgency in regard to reconstruc-
tion of devastated territories, distribution of scarce commodities,
and reciprocal concessions among the Allies in regard to foodstuffs
and other essential commodities. The French and Italian Govern-
ments were willing to accept the proposal. The plan became in-
operative through the refusal of cooperation by the United States ;
the armistice tasts were imperfectly understood in America, and
the American Government, influenced by the pressure of American
business interests, was eager to terminate all war systems and to
get away from the war spirit as quickly as possible. The experience
in cooperation and the momentum created by that experience were
thrown away ; it proved impossible to provide a substitute organ
to handle these tasks at all quickly or effectively. The dissolution
of the Allied Maritime Transport Council cost Europe three
months of delay in beginning reconstruction and produced in-
calculable confusion. The League eventually revived as much as
it could of the functions which the war had shown capable of inter-
national management.
The general attitude of leaders in the American business world
toward political cooperation abroad, in the League for instance,
was illustrated by the remarks made by Henry C. Frick to an inter-
locutor sent to him by the Senate group of irreconcilables. "As I
AMERICAN ATTITUDE TOWARD THE TREATY 267
understand it," he said, "the proposition is to pledge the United
States, now the richest and most powerful nation in the world, to
pool its issues with other countries, which are largely its debtors,
and to agree in advance to abide by the policies and practices
adopted by a majority or two-thirds of its associates; that is, to
surrender its present right of individuality of action upon any
specific question whenever such a question may arise."3 For such
reasons Mr. Frick and other financial leaders contributed to the
fund raised to finance the opposition to the Wilson pro-League
campaign.
Politicians were quick to capitalize this centrifugal force and
to base their popular appeal upon it. There were eloquent ex-
hortations for the government to "bring our boys home" and
glorifications of America to the belittlement of the rest of the
world. On September 16, 1919, Senator Lodge said in the Senate :
"I think now, as I have always thought and believed, that the
United States is the best hope of mankind and will remain so as
long as we do not destroy it by mingling in every broil and quarrel
that may desolate the earth."
The cosmopolitan nature of the United States also had its
effect upon the fate of the League. The many Americans who re-
tained an active interest in the lands of their origin had known
strict repression during the war and began to make their influence
felt at this time. The Irish made strong objection to the League
because it was organized under British influences and was not
expected to aid the Irish cause ; added to this was the anti-British
feeling of that section of American opinion that knows no England
later than that of 1783.
There is a striking parallel between the psychology of approach
during 1787-1788 to "a more perfect union" of American states
and that in 1919 to the organization of the states of the world.
When the Constitution of the United States of 1787 and the
Covenant of the League of Nations of 1919 were respectively
presented to the American people, arose against each a similar
opposition, instinctive in its psychology. In both cases the novelty
s Harvey, George, The Life of Henry Frick, pp. 327-8.
268 AMERICAN FOREIGN RELATIONS
of the plans unsettled thought-habit and aroused fear ; and fear
generated jealousy and suspicion. These led to the belief that be-
cause others gained, we must lose, and that someone had deliber-
ately "let us in." This brought the conviction that we were safest
as we were, and that if we could only keep "them" at arm's length
we should do well enough, for it was those "others" who had always
managed to disturb the peace of the world. There were bogey
fears and specific alarms, and then excuses for the fears and a
rationalization of the attitude of opposition. Some of the ad-
dresses of Senators in 1919 were echoes from speeches of the op-
position leaders of 1787-1788. Melancton Smith denounced the
Constitution of 1787 in a speech in the New York Convention and,
referring to the proposed Senate, said : "Can the liberties of three
millions of people be securely trusted in the hands of twenty-four
men? Is it prudent to commit to so small a number the decisions of
the great questions which will come before them? Reason revolts
at the idea." A Senator from New York caught the same alarm in
1919 when he said: "Has the time come when the people of the
United States are ready to rely upon the judgment of one man,
sitting at the capital of Switzerland, who, by his vote, may pledge
the support of the people of the United States to an undertaking
with which they are utterly unfamiliar?" The opposition in 1919
unwittingly repeated the criticisms made in 1787-1788 against
the Constitution when they charged the framers of the Treaty
with having deliberated like an aristocratic body behind closed
doors and with having exceeded their powers.
PRESIDENT WILSON
BUT whereas the opposition had run along similar lines in both
instances, the nature of the support given to them was different.
There was no group of great men in the summer of 1919 compara-
ble to the writers of the Federalist to explain to the people the need
for the League, its nature, and its anticipated operation. The long
travail of the Revolutionary period and the sufferings in difficult
years of the Confederation had convinced the states of the vital
need of reconstruction and of any sacrifices of prestige or inde-
AMERICAN ATTITUDE TOWARD THE TREATY 269
pendent action necessary to that end ; those same experiences had
developed a group of remarkable statesmen, and tempered their
thinking and their characters in the forge-fire of anxiety and sac-
rifice. These men rallied spontaneously to an idea which was no
newer than everything else political in those new times. Parties
had not yet formed, and political and personal antagonisms had
not yet crystallized.
One hundred and thirty years later the soil for statesmanship
was no longer virgin. Party politics was paramount to ideas ; and
a problem of the first magnitude in foreign relations was a rare
phenomenon — so rare indeed that many of the political coteries
thought its chief importance lay in the use that might be made of
it in the unceasing domestic contest for place and power. And on
the later occasion the United States had just come out of a war
which had caused it neither serious apprehension nor grave sac-
rifice ; indeed, the effort it had put forth and the war organization
it had found itself capable of creating had made it for the first
time conscious of its tremendous power and its almost complete
immunity from the dangers which seemed to attend upon all other
nations.
It is not the province of a survey to pass moral judgments, nor
to determine how far the failure of the United States to adhere to
the Covenant is to be attributed to personal characteristics of
President Wilson, or to the sum of them which we call a man's
"temper." It was asserted that he did not try to obtain the co-
operation of influential and able men of public spirit in conveying
the conception of the League to the people ; that although he pro-
fessed faith in the worth and perfectibility of humanity at large,
he was loath to mingle with it and preferred to apostrophize it
from above ; that he had little dexterity in managing individuals
because he was not much interested in them, and, to quote John
Morley,
had never mastered that excellent observation of De Retz, that of
the qualities of a good party chief, none is so indispensable as being
able to suppress on many occasions, and to hide on all, even legiti-
mate suspicions.
270 AMERICAN FOREIGN RELATIONS
There can be no doubt that Wilson's want of instinct for or-
ganization, a characteristic of his well-differentiated intellectual
type, was a handicap to continuous political success in an era of
intensely elaborated party machinery. He trusted in the effective-
ness of ideas, not realizing how seldom the enthusiasm shown in
popular applause translates itself into appropriate acts, and how
much must be done between the general understanding of a project
and its accomplishment. Men of a high type of political idealism,
men with the apostolic fervor of a Savonarola, often find pro-
longed action in common with others an irksome discipline, and
become irritated at intellectual error and at opposition.
Wilson had an incurable indisposition to collaborate with vigor-
ous equals. He described Lincoln as one who "comprehended men
without fully communing with them" ; but Lincoln, though melan-
choly by nature, loved and strengthened himself by human con-
tacts and suffered fools and opponents without wincing. Wilson's
description is more characteristic of Wilson himself.
When all this is said, however, it could not be denied by Wilson's
opponents that the creation of the League of Nations was his
doing, in the sense in which we attribute a monumental achieve-
ment to the leading artificer, or even in the more pronounced sense
that but for Wilson there would be no League. Nor can it be denied
that the very qualities his opponents disparaged were the qualities
which brought him success in his struggle at Paris — the apostolic
zeal, the pursuit of an idea in disregard of human relationships,
the Covenanter's stiffneckedness.
These qualities were characteristics of disposition, such as all
men must have of one sort or another if they have personality ; "to
be this," as Justice Holmes remarks, "is to be not that." The
tumult Wilson aroused, the violence of his opponents' rage, was a
consequence of his insistence that the world consider new ideas and
prepare itself for a new era. The testimony of his larger success is
that it is impossible today to discuss international affairs without
employing Wilsonian terms.
CHAPTER SIX
THE SENATE AND THE LEAGUE
WILSON'S task required him to secure the two-thirds vote
in the Senate necessary to the ratification of the Treaty.
Its fate did not depend solely on the domestic struggle for the con-
trol of foreign relations which had been bequeathed to the Senate
by the Constitution, nor on the partisan motives which determined
a number of the votes, but partly on the fact that the Senate was
unfamiliar with European conditions and impatient of the study
necessary to envisage the setting of the new institution and the
lines of its probable development under the principle of unanimity.
Some Senators devoted themselves mainly to the lawyer's task of
considering not what the parties intended to do, not what their
common interest and reciprocal attitudes would make it advan-
tageous for them to do, but the extent of the damage to national
interest that could be wrought in extreme cases under the con-
tract. "It is more easy," said Hamilton, "for the human mind to
calculate the evils than the advantages of a measure."
When the Senate convened in May, 1919, Senator Lodge was
convinced that the Treaty could not be defeated by a straight
vote, because "the vocal classes" as he called them, a category
which included the newspaper and magazine editors, teachers, re-
ligious leaders and lawyers, endorsed the League. His estimate of
the popular support given to the League was corroborated during
the summer by resolutions approving the League and favoring our
entry into it, passed by such various and representative groupings
as the American Bankers' Association, the American Bar Associa-
tion, the American Federation of Labor and, under Senator
Crane's leadership, the Massachusetts Republican State Conven-
tion. Lodge foresaw the need for careful and systematic organiza-
tion of the opposition forces and he consulted Senator Borah for
advice. They decided to proceed by way of amendment and reser-
vation. That their purpose was to defeat and not to improve the
Treaty by this method is indicated by Lodge, who records that
Senator Borah promised to vote against the Treaty in the end
272 AMERICAN FOREIGN RELATIONS
even though all the amendments which he favored should be
adopted.1 Senator Lodge declared privately that he had studied
the mind of the President, had proposed resolutions which he was
confident the President would reject, and that he was prepared to
add to them if it were necessary, his purpose being to have the
League rejected, but to throw on the President the onus of its
rejection.
An unofficial text reached the Senate a month before the Treaty
was formally presented and was promptly circulated, discussed,
and criticized while the President was engrossed in negotiations at
Paris. On June 10 Senator Knox introduced a resolution, modelled
on the Round Robin, for disentangling the League from the
Treaty. Its defeat led the opposition forces to concentrate upon
the second plan of attack, that of formulating unacceptable
amendments. Some letters of Elihu Root, giving a careful, juridi-
cal analysis of the Covenant and suggesting that it could be im-
proved, were widely circulated as supporting the view that the
Covenant was unsatisfactory in regard to Article X and the Mon-
roe Doctrine clause, and ought therefore to be qualified by reser-
vations, if not repudiated. While some misinterpretations of the
Covenant were indulged in during this preliminary period, and
there was considerable criticism of the President's failure to keep
the Senate informed of the progress of events abroad, nevertheless,
there were intimations of a desire to withhold judgment until
Wilson should present the Treaty officially. The prelude to the
great political drama to follow was not auspicious.
The Versailles Treaty was officially presented to the Senate on
July 10 and then turned over to the Committee on Foreign Re-
lations for careful consideration and investigation. The Franco-
American treaty of guarantee, which by its fourth article was
to have been submitted to the Senate simultaneously with the Peace
Treaty, was withheld by the President for nineteen days. Wilson
was criticized for this action, and when the Franco-American
guarantee treaty was referred to the Senate Committee on Foreign
Relations, it was not taken up and therefore never reported. The
Committee conducted public hearings on the Versailles Treaty
1 Lodge, The Senate and the League of Nations, pp. 147-8.
THE SENATE AND THE LEAGUE 273
from July 31 to September 12, and took the statements of about
sixty "witnesses," including Secretary Lansing, Bernard M.
Baruch, the economic adviser, David Hunter Miller, the legal ex-
pert, and William C. Bullitt, a member of the staff. All of the wit-
nesses were American citizens, but many of them came of different
national origins and desired to be heard in respect of the clauses
of the Treaty affecting these origins.
The testimony of the Secretary of State should have been of
first importance, but Mr. Lansing observed an official discretion,
in deference to the President's policy, acknowledging at the same
time his lack of full acquaintance with developments at Paris.
The Senate Committee requested and had an interview with the
President at the White House on August 19. The request was an
unusual incident in American treaty-making practice;2 handled
with conciliatory skill, it might have been fruitful of constructive
results, of that "accommodation" which Wilson often said was an
essential in the conduct of public affairs. But the President was
not in an accommodating mood; the stiff and uncompromising
spirit of the Covenanters had taken hold of him. The meeting did
not have the character of a conference, and did not serve to win
Republican support for the League. The President read a pre-
pared memorandum dwelling upon the disadvantages which delay
in ratifying the Peace Treaty would cause to trade and to the
normal production of the country. He attempted no finesse in dis-
cussing the Covenant. "Nothing," he said,
I am led to believe, stands in the way of the ratification of the Treaty
except certain doubts with regard to the meaning and implication
of certain articles of the Covenant of the League of Nations, and I
must frankly say that I am unable to understand why such doubts
should be entertained. . . . There was absolutely no doubt as to the
meaning of any one of the resulting provisions of the Covenant in
the minds of those who participated in drafting them, and I respect-
fully submit that there is nothing vague or doubtful in their meaning.
He pointed out that every American suggestion had been incor-
porated in the Covenant and that Article X was only morally, not
2 For a discussion of the practice see Section I, Chapter 3.
274 AMERICAN FOREIGN RELATIONS
legally, binding upon the United States. He made his stand un-
yielding in regard to this article by stating "Article X seems to
me to constitute the very backbone of the whole Covenant. Without
it the League would be hardly more than an influential debating so-
ciety." He objected to amending the Covenant because such action
would renew discussion all over the world and occasion long de-
lays. He admitted the reasonableness of setting forth definite
American interpretations of certain articles, provided that they
did not constitute a part of the formal ratification. Altogether
his address may well have deepened antagonism to methods which
his political opponents considered arbitrary and dictatorial. The
discussion which followed touched upon all the live topics of con-
troversy, such as the likelihood of American acquisition of Yap,
what was to be the American share in the reparation fund, what
had been the government's knowledge, official or unofficial, of the
secret treaties, and what was the correct interpretation of the
Franco- American treaty. Nothing significant to the understand-
ing of these matters was educed. Interest centered chiefly on the
League: the Senators questioned Wilson on the drafting of the
Covenant, on the authorship of Article X which Wilson revealed
to be his own, on the Commission's interpretation of various ar-
ticles, and on the President's predictions as to the functioning of
the League in hypothetical crises, especially as to how the British
Dominions would vote. It became evident that Wilson's distinction
between moral and legal obligations in Article X was not satis-
factory to most of the Senators, including so fair-minded a sup-
porter of the League as Senator McCumber, who required some
insertion in the resolution of ratification to make it clear that the
United States had undertaken limited responsibilities. Wilson ac-
ceded to the suggestion that Article X be specifically interpreted
but maintained his objection to its mention in the resolution of
ratification, saying, "We differ, Senator, only as to the form of
action." This difference of view in regard to the proper form of
action contributed to the ultimate defeat of the Treaty.
Wilson's replies to the Senators' questions left dissatisfaction.
He was unable for reasons of international comity to reveal all
that had happened at Paris, and was consequently embarrassed
THE SENATE AND THE LEAGUE 275
to account for some of the settlements arrived at. Some of the ques-
tions did not promote useful discussion ; one Senator, for instance,
felt prompted to ask: "What provision in the Treaty obligates
Germany to prohibit the spread of Bolshevik propaganda from
German sources in the United States and allied countries?" There
was an obsession for legal exactitude in the very matters which
had been purposely made elastic and undefined in order that the
League might be free to take shape according to the dictates of the
future. All allowance being made for these divergences, a sincere
doubt remained in regard to the wisest course of action.
Senate discussion of the Treaty continued during this interlude,
becoming more technical and detailed as the information obtained
at the hearings was disseminated. On September 15 the Com-
mittee on Foreign Relations presented three reports. The majority
report contained an attack on the President's "autocratic"
methods and proposed forty-five amendments and four reserva-
tions, which Wilson was sure to refuse. The minority report ad-
vised ratification of the Treaty as it stood, "even if like all human
instrumentalities it be not divinely perfect in every detail." Dis-
missing amendments as unthinkable, it opposed all reservations as
designed only to defeat the League by indirection ; it pointed out
what failure to ratify the Treaty would cost the country, and eu-
logized the League without any constructive suggestions for adop-
tion or adhesion to it. Senator McCumber presented a separate
report, which, in the words of Mr. Learned, is "an impressive
tribute to a man able to maintain independence and poise amidst
party rancor." He first criticized the majority report for failing
to explain the Treaty reported, for substituting irony and sarcasm
for argument, for giving more attention to the positions taken
by the press or individuals outside the Senate than to the Treaty
itself, and for proposing amendments which would isolate us from
the rest of the world and make us fail "to consummate the duties
for which the war was fought." He described the League as "a
mighty step in the right direction." His view was that
the whole purpose is most noble and worthy. And as in our American
Constitution we were compelled, in order to form a more perfect
276 AMERICAN FOREIGN RELATIONS
union, to depend upon the right of amendment, so in this great world
constitution experience will undoubtedly necessitate many changes
in order to make a more perfect instrument that will work for the
benefit of humanity. All of these noble and lofty purposes have been
ignored in the majority report or treated with sarcastic disdain or
jingoistic contempt.
The McCumber report proposed six reservations. They gave
an official American interpretation to the articles concerned with
withdrawal, Article X, domestic jurisdiction and the Monroe
Doctrine, and recorded the American understanding that all the
members of the British Empire would be excluded from voting in
case of a dispute involving any one member, and that German
rights in Shantung were to be returned to China by Japan when
the Treaty was adopted.
At the time that these reports were made Wilson was appealing
to the public in a speaking tour of the middle and far west. Be-
fore resorting to this last expedient Wilson had exhausted, he be-
lieved, every direct means of enlisting Senate support. He had even
acceded to the wish of his advisers to invite Senator Lodge to
confer with him ; the overture was allowed to pass in silence. Then
he had sent for at least nineteen of the Republican Senators indi-
vidually, and had tried to convince them that the Treaty should be
accepted as it stood. The White House interviews must have con-
firmed his opinion that all efforts to influence the Senate directly
were futile and that the Treaty was seriously in danger of defeat.
His addresses were intended to arouse public opinion to so clear
an expression of its will for the principles of peace he advocated,
that the Senate would be forced to unity of action with him. Begin-
ning in Columbus, Ohio, on September 4, the President spoke in
twenty-eight cities, passing through the northern tier of states to
the coast. Senators Borah and Hiram Johnson also made a speak-
ing tour at this time, and followed Wilson's route in order to mini-
mize his influence. The President's tour had little marked or lasting
effect on public opinion, except on the Pacific Coast, and it was not
enough to exert any appreciable influence upon the Senate. He
broke down at Pueblo, Colorado, on September 25, and was hur-
riedly brought back to Washington where he fell victim, a few days
THE SENATE AND THE LEAGUE 277
later, to partial paralysis. For the ensuing five months, the crucial
period for the Treaty, Wilson was confined to the White House, de-
prived of consultations with the Cabinet and with the Democratic
leaders of the Senate and of all effective contacts with leaders of
opinion and politics; and failing health increased his unwilling-
ness to listen to advice at a moment when the friends of the Cove-
nant believed that moderation, liberality, and even compromise
were required.
The reading of the Treaty began on September 15 ;3 heat and
tumult characterized the ensuing two months' debate. The pro-
cedure employed in this instance of discussing the Treaty in open
session was novel. In only one or two cases in our history had a
treaty ever been discussed except in executive session. Wilson had
advocated "open covenants openly arrived at," a statement which
he was prompt in modifying as soon as he realized that it was
being accepted in too sweeping a sense. The Senate, realizing that
the tide of opinion had set in against Wilson, employed his prin-
ciple of open diplomacy against him. The public discussion of the
Treaty revealed to the public for the first time the full conse-
quences of the defects in the Constitution which had many times
before led to trouble between the President and the Senate.4 The
Senate's jealousy of the President's constitutional control of for-
eign relations had long been known to those who were interested
in foreign affairs, but it had never before been so fully revealed to
the public. A considerable section of the public concluded that
the difficulty was due to the personal idiosyncrasies and dicta-
torial methods of President Wilson. The Senate naturally encour-
aged a belief that had in it a measure of truth. Five factional
groupings stood out: (1), the administration Democrats led by
Hitchcock; (2), a small group, composed chiefly of Democrats,
who were personally hostile to Wilson and his projects, such men
as Reed of Missouri, Hoke Smith of Georgia, and Shields of Ten-
s A full and careful narrative of the struggle in the Senate, setting forth the
tactics employed, the various alignments, and the results of the numerous votes
taken, is given by H. Barrett Learned in Volume VI, chapter V, pp. 391-435, of
Temperley's History of the Peace Conference. We refer the reader to it for a more
comprehensive treatment of the subject.
* See Section I, Chapter 3, "Domestic Control."
278 AMERICAN FOREIGN RELATIONS
nessee; (3), the mild reservationists such as Thomas Walsh,
Kellogg of Minnesota, and McCumber, who eagerly sought the
acceptance of the Treaty with slight alterations in the text; (4<),
the strict reservationists led by Lodge, a group who tended to
merge into (5), the "Irreconcilables" or "Bitter-Enders," whose
purpose was the defeat of the Treaty. By October 29 a combina-
tion of Democrats and mild reservationists succeeded in defeating
all of the fifty amendments proposed by the Foreign Relations
Committee. The Senate thus expressed, by substantial majorities,
the opinion that the amendment method was out of the question,
chiefly because it would require the assent of every signatory to
the Treaty and hence the reconvening of the Paris Conference.
Lodge then proposed a list of reservations to take the place of
the defeated amendments, following the plan that he and Senator
Borah had settled upon in April. After November 7 the struggle
turned upon the formulation and adoption of qualifying reserva-
tions. They were carried by means of a number of votes from
Senators whose avowed purpose was the defeat and not the im-
provement of the Treaty. This tactic gained favor as the tide of
public opinion during the debate was seen to be turning against
the President; the reservationists became more uncompromising
as they realized the practical possibility of repudiating Wilson's
work. The result was the adoption of fourteen reservations, com-
monly referred to as the "Lodge Reservations," which were de-
signed to release the United States from certain League obliga-
tions thought to be peculiarly repugnant to American traditions.
Just before the Treaty with the Lodge reservations attached
came to a vote, the League to Enforce Peace called a meeting of
its executive committee. Shortly prior to this meeting, Will H.
Hays had asked ex-President Taft for a confidential expression
of his views on the League, and Mr. Taft had complied with the
request by a frank and full exposition in a letter marked "confi-
dential." Excerpts from this letter admitting imperfections in
the Covenant were published in the press on the next day in such
a way as to stamp Mr. Taft as advocating the modification of the
League and thus as favoring the reservations. Notwithstanding
Mr. Taft's indignation at this breach of confidence, the letter
THE SENATE AND THE LEAGUE 279
served the ends of the Republican party machine, and his name
was now used in support of the Republican reservations. The com-
mittee of the League to Enforce Peace which met under his presi-
dency just after this incident decided to endorse the Lodge reser-
vations ; the committee had been unable to interview Wilson, and
it was argued that their action would bring him also to an accept-
ance of the reservations, on the theory that the reservations did
not vitally harm the League of Nations, and that compromise
would afford the Treaty its only chance of life at the Senate's
hands. Some of the members of the League to Enforce Peace there-
upon resigned, expressing the opinion that the reservations were
designed to keep the United States out of the League ; and that
if Wilson were to agree to them the Republicans would add new
reservations of such a nature as to preclude his acceptance of them.
The Republicans gave some color to this latter view at the last
moment before the final vote on the Treaty on March 19, 1920,
by adding a reservation demanding recognition of the independ-
ence of Ireland.
The morning that the Treaty came to its first vote, November
19, the committee of the League to Enforce Peace drafted a letter,
which was read into the Senate record a few hours later, to the
effect that although some of the reservations were objectionable
and even harmful, they left a Covenant adequate to create an
efficient League, that delay was perilous, that "failure to ratify
now would defeat the world's hopes for peace now and always,"
and therefore that the League to Enforce Peace called for "imme-
diate ratification of the Treaty, even with its reservations," but
suggesting certain changes in the preamble. It cannot be doubted
that this pronouncement made in the name of an organization
which contained so many able men and had so long devoted itself
to the subject, had a strong influence on the Senate. President
Wilson nevertheless expressed an unyielding opposition to the
reservations in a letter to Senator Hitchcock, the Democratic
leader, which was also read into the record at the instance of
Senator Lodge. In the letter Wilson described the Lodge resolu-
tion as not providing "for ratification but rather for the nullifica-
tion of the Treaty" and he said, in closing, "I trust that all true
280 AMERICAN FOREIGN RELATIONS
friends of the Treaty will refuse to support the Lodge resolution."
When the Lodge resolution came to a vote it received 39 votes,
against 55 cast by the Wilson Democrats and the "bitter-enders."
On a vote to reconsider, the Treaty with only five reservations was
again rejected, 41 yeas to 50 nays. A second vote on the Lodge
resolution failed by a vote of 41 yeas to 51 nays. Then a motion by
Senator Underwood for unconditional ratification, as Wilson ad-
vocated, far from receiving the necessary two-thirds vote, received
only 38 votes, or 15 less than a majority. This defeat represented
a division along party lines and conclusively demonstrated the
weakness of the President's stand.
The President's message to Congress on December % made only
one incidental reference to the League. Ratification seemed a dead
issue, though on December 13 Senator Underwood, in the middle
of a discussion on foreign exchange rates, brought up the subject,
contending that the Senate had been mistaken in holding that the
Treaty was not still before them for action, and proposing that a
resolution empower the President to appoint a conciliatory com-
mittee of ten, representing all factions, charged with formulating
a compromise whereby the Treaty could be ratified. His resolution,
which required unanimous consent, was defeated on the 13th and
again on the 20th by the objection of Senator Lodge. At this time
Senator Knox failed, because of Senator Hitchcock's objection, to
win unanimous consent to a resolution unreservedly advising and
consenting to the ratification of the Versailles Treaty in so far
only as it provided for the creation of a state of peace between
the United States and Germany.
The American public had not stopped discussing the subject,
and pro-League newspapers argued that America should join
the League even though it might prove in some ways unsatisfac-
tory. The League to Enforce Peace agitated in favor of the adop-
tion of the mild reservations. Public opinion seemed insistent that
its representatives at Washington find a way to patch up their
quarrel so as to pass the Treaty by compromise if need be. A letter
from President Wilson was made public on January 8, 1920, in
which he refused to admit finality in the Senate's action, again
strongly objecting to reservations as a part of the act of ratifica-
THE SENATE AND THE LEAGUE 281
tion because "we cannot rewrite this Treaty," but again express-
ing a willingness that interpretations accompany the ratification.
He suggested as a resolution of the dilemma that the matter be
submitted to the voters, by transforming the next presidential
election "into the form of a great and solemn referendum."
In the middle of January, Senator Lodge called what was
known as the Bi-partisan Conference, on the lines of Senator
Underwood's December suggestion, as an apparent effort to bring
the two sides to an agreement, though he stated his purpose as
being to show that the differences of view "were not verbal but
vital and essential." The Conference, composed of five Republican
and four Democratic Senators, met daily for two weeks and came
to a few tentative agreements but disagreed on all reservations on
the Monroe Doctrine, the equality of voting in the League, and
most emphatically on Article X. Some reservations prepared by
Senator Hitchcock, which President Wilson had declared ac-
ceptable to himself , were intended to assuage the apprehensions of
many Americans that the bases of development of the United
States might be seriously affected by an acceptance of responsi-
bilities under the Covenant unless those responsibilities should be
clarified in advance. Those reservations were substantially as
follow :
(1) Every member nation is to be sole judge as to whether its
obligations, on retirement from the League, have been performed.
(2) No member shall be required to submit to the League any
matter which it considers in international law a domestic question or
one relating to its internal or coastwise affairs.
(3) Nothing in the League is to be construed as impairing the
principle of the Monroe Doctrine or to give the League any jurisdic-
tion with respect to it.
(4<) "That the advice mentioned in Article X of the Covenant of
the League which the Council may give to the member nations as to
the employment of their naval and military forces is merely advice9
which each member is free to accept or reject according to the con-
science and judgment of its then existing government,5 and in the
United States this advice can only be accepted by action of Congress
5 The italicized phrases correspond to the resolution of the Assembly of the
League of Nations of September 25, 1923, interpreting Article X of the Covenant.
282 AMERICAN FOREIGN RELATIONS
at the time in being, Congress alone under the Constitution of the
United States having the power to declare war."
(5) In all cases to which any member of the League having self-
governing colonies, represented in the Assembly, is a party, or to
which any of such colonies is a party, both the member and all its
colonies shall be disqualified from voting.
These Hitchcock reservations were rejected by the Republican
Senators. Senator Lodge had made up his mind in advance that
if the Conference were to break up it should be over Article X.6
His intention was carried out. The Conference resulted only in
inconsequential modifications of the reservations.
A letter from Lord Grey of Fallodon appeared in the London
Times of January 31, 1920, and was printed in the Senate pro-
ceedings at the request of Senator Lodge. It denied that any
charge of bad faith could be made against the Senate whatever
its action might be, and said that most of the suggested reserva-
tions were reasonable except that regarding the independent votes
of the British Dominions, and that Europe was so much in need of
American cooperation that her requests would not lightly be re-
fused. Lord Grey's opinions gave important encouragement to
the reservationists.
On February 10, 1920, Senator Lodge reported the Treaty
back to the Senate and there ensued five weeks of debate. Senator
Hitchcock made public a letter from the President on March 9
in which he refused for the last time to accede to the Lodge reser-
vation on Article X. Senator Thomas Walsh appealed to his
Democratic colleagues to accept the resolution with the reserva-
tions, in spite of the President's opposition, on the ground that the
Treaty even as modified was better than nothing. The final vote on
March 19 was on a resolution of ratification which attached fifteen
reservations and understandings. This resolution failed to obtain
the necessary two-thirds by seven votes ; 28 Republicans and 21
Democrats supported it, and 12 Republican "Irreconcilables" and
23 Wilson Democrats voted for its defeat. The battle of eight
months ended with the Senate rejection of the Treaty. On the same
day it was resolved to instruct the Secretary of the Senate to
8 Lodge, The Senate and the League of Nations, p. 194.
THE SENATE AND THE LEAGUE 283
return the Treaty to the President and to inform him of the Sen-
ate failure to consent to ratification.
For this whole fateful series of events history is likely to place
the chief blame upon the Constitution, which can appear inflexibly
in the role of villain as well as that of benefactor. The Senate,
which has a limited responsibility to discharge and naturally tends
to exaggeration because of its undefined limits, cannot obtain the
facts needed for the discharge of its functions. Not represented in
the negotiations, it may misinterpret motives, as well as underesti-
mate the need for American concessions. It cannot discuss the
great subject of a foreign treaty with those who have determined
its policy and negotiated its terms, obtain their exposition and
explanation, or bring them into a short-range and close-knit de-
bate. The difficulty does not arise in the check-and-balance fea-
ture as it was intended to work, but in a constitutional usage which
has brought about a complete separation of the two great depart-
ments of government, creating suspicion where there ought to be
full understanding and cooperation. The President is not, as in
a parliamentary government, chosen by the legislature and re-
sponsible to it, and he cannot therefore count on its support. The
Senate's attitude toward the management of a great piece of
policy-making business whose initiative is with the President, is
not determined by the merits of the policy but by its own desire,
handicapped and isolated as it thinks itself to be in such matters,
to assert its constitutional prerogative. The books are full of in-
stances, and the Senate and its members are the target of endless
criticism, but the primary responsibility rests not upon indi-
viduals but upon the evolving constitutional system of the United
States.
CHAPTER SEVEN
TREATY-MAKING IN THE UNITED STATES
AND ELSEWHERE
TREATIES IN THE UNITED STATES SENATE
THE delegates to the convention which drafted the Constitu-
tion of the United States faced the task of reconciling their
divergent political views and the jealousies of the constituent
states and sections in the first instrument of federal republican
government in modern times. Their lack of unity of method
and governmental experience was counterbalanced by the cour-
age, foresight, and temperance with which they conceived a
means for welding thirteen weak and mutually hostile states
into a powerful and united nation. Their success has produced
a cult of almost biblical faith in the infallibility and perfec-
tion of the Constitution, yet the records of the convention show
that many of the provisions were the children of chance and happy
compromise. The authors had been trained by twenty or more
years of enormously responsible activity and of the hardest kind of
thinking in the fundamentals of political science. Only men of
that stamp could produce an implement fitted to serve a nation
which was to expand across a continent, and provide for the po-
litical growth of forty-eight states under the unforeseen condi-
tions of the industrial revolution. No constitutional "funda-
mentalist" can deny the probability that an instrument so created
would be likely to contain some troublesome lacunae.
The clause in which the political legacy from the thirteen origi-
nal states was to prove the most embarrassing to their progeny
was the one which established the division of the treaty-making
function : "The President shall have power, by and with the con-
sent of the Senate, to make treaties, provided two-thirds of the
Senators present concur."1 Recent practice has given this clause
the effect of permitting any combination of thirty-three Senators,
acting with diverse or discordant motives, to defeat all treaties
i Paragraph 2, Section 2, Article II of the Constitution.
TREATY-MAKING 285
negotiated by an administration; or, by modifying them in the
process of ratification, to substitute their own judgment for that
of the executive, even to the point of nullifying the intention of a
treaty.
The Senate was intended to be a privy council2 with which the
President should confer and upon whose approval, interpreting
the best judgment of the nation, should depend the final assump-
tion of formal international engagements. When the Constitution
was drawn up the size of the proposed Senate made the plan
practicable. Yet even in the early history of the government,
although the Senate was then a small body and comprised the
nation's best-trained statesmen, instances of executive impatience
with the conservatism of the Senate's deliberations were many.
It is reported that after a conference with the Senate to which
he had brought a treaty for discussion, Washington left it in a
rage, saying, "I'll be damned if I'll go there again !" Since the
early years the President has almost always negotiated trea-
ties without resort to collaboration with the Senate, collaboration
which would ordinarily involve both delay and a sacrifice of the
secrecy which is advantageous during negotiations. The Senate,
however, has gradually converted its neglected consultative
prerogative into a negative power which the framers of the
Constitution had not envisaged. Instead of a collaboration be-
tween the two branches of the government, the treaty-making
power has split into two distinct elements. The President has the
initiative in diplomatic transaction, but has no voice in the de-
liberations of the Senate on the results of his negotiations; the
Senate has the power to reject treaties presented to it, or unre-
strictedly to vitiate their content by making ratification contin-
gent upon amendments or reservations. The fruitful practice of
conference, essential to the prompt consummation of foreign
undertakings of great magnitude and complexity, has fallen into
desuetude.3
Thus it appears that the importance of the Senate's share in
the conduct of foreign affairs lies not in the approval given by
2 Following the colonial precedent of the "Governor's Council."
3 For a more detailed discussion of this theme, see Section I, Chapter 3.
286 AMERICAN FOREIGN RELATIONS
two-thirds of that body, but in the negative power by which a
minority of one-third plus one may reject or compel alteration by
a majority vote of any treaty negotiated by the State Depart-
ment. The power exceeds the need for a check on administrative
usurpation ; the fact that one-third of the Senate are certain of
retaining their seats for five or six years, at the same time that
another third look forward to a continuance for three or four
years, encourages the indulgence of individual caprices and
strengthens the intransigence with which the numerous lawyers in
the Senate assert their collective self-esteem.
Such a division of powers "not only makes possible but, under
certain circumstances, renders inevitable conflict between the ex-
ecutive and the legislative" — to quote Lord Grey — and this con-
flict has too often resulted in weakness, muddle, and delay, some-
times even in the paralysis of one of the most vital functions of
modern government.
THE ADOPTION OF THE COVENANT ELSEWHERE
IT is a commonplace that parliamentary governments are spared
such a conflict in treaty-making by the fact that their execu-
tives remain in office only as long as they enjoy the support of
the legislature. The administration may therefore proceed with
its negotiations with the assurance that ratification of its treaties
will follow as a matter of course as long as its party controls the
legislature, a point on which it is not difficult to assure itself.
Seldom can a minority mutilate the treaty-making work of the
administration while the majority retains power.
Although the formal ratification of Great Britain's interna-
tional engagements devolves upon the Crown, Parliament has the
right to indicate effective assent or dissent by the passage or
defeat of the measures when the treaties affect "the law of the
land," or of any supply bills that may be necessary. Amendment
of treaties is not within the province of Parliament, although the
bills by which they are to be put into effect may be amended in
minor details. In answer to an inquiry as to whether the House of
TREATY-MAKING 287
Commons had the right to modify the texts of the Versailles
Treaty, Bonar Law said :
I am really surprised that the right honorable gentleman should
put the question. Does he really think it possible that any treaty
could be arranged in the world if something like twenty Powers are
to discuss the details of it? It seems to me quite impossible.
On July 3, 1919, following the signature of the Treaty of Peace
and the French security pact, Premier Lloyd George introduced
two bills into the House of Commons to enable the King to carry
out such measures as he might deem necessary for giving effect to
the treaties ; on July 21, these bills had a second and third reading,
were debated and were passed by a vote of 163 to 4. The debate was
in keeping with the magnitude of the issue and was approached on
the part of the Opposition in the spirit illustrated by this passage
from a speech of Mr. Shaw :
To vote against the Treaty is a very serious thing, and no thinking
man can contemplate it without some degree of hesitation. One desires
to recognize the difficulties that have stood in the way of our states-
men, and whilst I personally and my party object strongly to cer-
tain things in the Treaty, I doubt very much whether after all we
shall vote against it, not because we believe in it intact, but because
the greater danger is to refuse it.
In France, where the approval of both chambers was required
to empower the President to proclaim ratification, the attacks,
which were leveled at Premier Clemenceau personally, or at certain
provisions in the Treaty, were not associated with a serious at-
tempt by the large opposition parties to obstruct ratification.
Lacking the power to enact reservations, the Chamber of Deputies
accepted the text as it stood.
Following a favorable report from the Chamber's Committee
on Peace Negotiations, 34 to 1, the debate on the Treaty opened
on August 26. It was expected that this would require a consider-
able delay, but twenty members who had intended to speak
agreed to forego participation in the debate in order to expedite
final action on ratification. Among the important speeches was
that of M. Barthou, who presented the case against the Treaty —
288 AMERICAN FOREIGN RELATIONS
contending that parts of it were obscure and insufficient, criticiz-
ing the financial settlement provided, raising the question as to
whether France was securely guaranteed against future aggres-
sion, and attacking Clemenceau for the manner in which he had
negotiated the Treaty without having currently informed the
Chamber as to its details and progress. He declared, however,
that he would vote for ratification. The other political opponents
of the Premier, while voicing their criticisms, pledged their sup-
port. After the vote for ratification, the dissenting opinions were
put on record by "motions of regret." The only groups whose dis-
approval was expressed by votes against ratification were the
Royalists and a part of the Socialist party, which had split on the
issue. The result was ratification of the Treaty by a vote of 372
to 53. The Treaty was then referred to the Senate which, after a
short debate, ratified it on October 12. On the following day the
President published a decree announcing France's acceptance of
the Treaty of Versailles.
Among the thirteen neutral countries invited to adhere to the
Covenant of the League of Nations as original members, there
were no variations in the manner of ratification of special interest
except in the case of Switzerland.
THE CASE OF SWITZERLAND
SWITZERLAND'S adherence to the League of Nations is of histori-
cal significance as the first case of a "solemn referendum," like the
one President Wilson proposed in America, in which a nation con-
summated the republican ideal of political thinking and passed
an educated judgment on a vital question of foreign policy. For
the student of American history it is of particular interest as a
readjustment of a century-old cardinal policy to meet the re-
quirements of twentieth century international organization. Neu-
trality meant to Switzerland what the Monroe Doctrine meant to
America: the security and independence of the small Helvetian
Confederation depended on the agreement of its powerful neigh-
bors neither individually to encroach upon it nor collectively to
partition it among themselves. Perpetual neutrality was estab-
lished for Switzerland by the treaty of 1815. The issue of the
TREATY-MAKING 289
World War, however, brought in a new order of things, and the
balance of power, which had assured Swiss independence, was re-
placed by a combination of nations to prevent war.
Switzerland's peculiar position in Europe and the tri-racial
composition of her people have always necessitated a constant but
detached interest in international affairs. The developments of
the war during 1917 had given the interest of the Swiss in world
politics an orientation toward the concept of a League of Nations.
The government in 1918 sent Professor Rappard to Washing-
ton to confer with President Wilson on the subject of incor-
porating a system for the prevention of war in the peace settle-
ment. Wilson replied that much as a league was desirable, it was
inopportune to contemplate its formation before the belligerents
had arrived at a just settlement and before the passions of war
had cooled. Assured that the plan would eventually receive the
consideration of the Great Powers, Switzerland was content to
defer the question and to send semi-official observers to the Paris
Peace Conference.
When the Covenant of the League of Nations was, in fact,
drafted as a part of the Treaty of Peace negotiated among the
belligerents, Switzerland was suddenly confronted with an embodi-
ment of her suggestion, adherence to which would entail a revision
of her neutral status. Although Article XXI of the Treaty sus-
tained the validity of previous international agreements intended
to preserve peace, such as the American arbitration treaties, as
compatible with the Covenant, and although Article 4$5, which
had been framed at the instance of the Swiss delegation to the
Peace Conference, confirmed explicitly the treaty of 1815 as
coming within this category, Articles X and XVI appeared to
require Switzerland, if she should become a member of the League,
to abandon a strict neutrality and to cooperate in measures taken
against a state violating the terms of the Covenant. Whether to
abstain from the League and to enjoy her neutrality, which had
thus been reaffirmed and which Italy had joined in recognizing,
or to modify her traditional policy by joining the League, became
the subject of intense discussion in the Swiss Parliament. The
sober consideration of the fundamental principles involved in the
290 AMERICAN FOREIGN RELATIONS
choice was not confused by the discussion of other issues and
special interests.
On August 4, 1919, the Federal Council published a message
to the Assembly in which it recommended that adherence to the
League of Nations be made the subject of a constitutional amend-
ment, in order that it should cease to be a question of treaty-
making, in which Parliament was competent, and become subject
to the approval of a majority of the people and a majority of the
cantons in a national referendum. Attached to the message were
annexes amounting to some 400 pages of commentary upon the
Covenant, article by article, in which the provisions were discussed
in the light of their theoretical meaning, their practical effects and
their application to Switzerland. This document was circulated
and studied throughout the country. The Swiss Parliament then
adjourned until November in order to postpone further action
on ratification until the signatories of the Treaty of Versailles
should have concluded their ratifications.
When the Swiss Chambers reconvened, the situation had been
altered by the fact that of the principal Powers, four had ratified
the Treaty of Versailles, while the fifth, the United States, ap-
peared to be likely to delay her decision. Article I of the Covenant
of the League of Nations provided that upon the exchange of the
ratifications of three Great Powers, the Treaty was to come into
effect, and that within two months thereafter the neutral states
invited to adhere might become original members of the League.
The possible abstention of the United States produced in Switzer-
land an added hesitation whether she should remain as politically
secure within the League as under her guaranteed neutrality.
Moreover, it was pointed out that should the Treaty come into
effect before the adherence of the fifth Great Power, the Council
of the League, to be composed of the representatives of the five
Great Powers and of four others, would remain incomplete. Fi-
nally, the impossibility of organizing a plebiscite within two
months of the impending exchange of ratifications complicated
the question of Switzerland's adherence as an original member.
On November 21, 1919, the Federal Assembly passed a reso-
lution of accession to the League, and for submission of the
TREATY-MAKING 291
question of denunciation or withdrawal from the League to a
vote of the people and of the cantons as soon as the five Great
Powers should have adhered to the League. On December 6, the
Federal Council published a memorandum affirming that the
Council reserved to itself the right to notify the Secretariat of the
League of Switzerland's accession within two months of the coming
into force of the Treaty, and that the vote of the Swiss people and
the cantons need not take place within this time to secure to
Switzerland the advantages of original membership. This declara-
tion was based upon Switzerland's unique constitutional necessity
of popular consultation, which, "being in conformity with the
spirit of the international regime which the League of Nations
wishes to inaugurate," should not result, it was felt, in a disadvan-
tage for Switzerland. The memorandum also stated that Switzer-
land need not submit the question of adherence to a vote until the
accession of all the states receiving permanent representation upon
the Council had established its juridical basis. To this the Supreme
Council of Allied and Associated Powers replied that a resolution
which placed reservations upon Switzerland's membership could
not be considered acceptable under the terms of Article I of the
Treaty.
The Covenant came into effect upon the exchange of the rati-
fications of France, Great Britain, Italy, and Japan on January
10, 1920, on which date, according to the reply of the Supreme
Allied Council, began the period of two months during which
Switzerland might adhere to the League as original member. On
January 13, 1920, the Federal Council published a second memo-
randum which reiterated the opinion that exception should be
made in the case of Switzerland, in view of the fact that the delay
was occasioned by the democratic nature of her institutions. Fur-
ther, it asserted that the neutrality of Switzerland should be rec-
ognized, even in the event of the application by the League of
Article XVI. On January 30, the Federal Council published a
note requesting that these matters — neutrality, and the privilege
of declaring accession to the League before the determining
plebiscite took place — be put on the agenda of the first meeting
in London of the Council of the League. On February 13, the
292 AMERICAN FOREIGN RELATIONS
Council of the League granted both requests, specifying that
Switzerland's neutrality and the inviolability of her territory
should be respected by members of the League, although she
should, as member, cooperate in the event of an economic boycott.
Finally, on February 17, 1920, the Federal Council proposed
that in view of the concessions made to Switzerland by the Council
of the League, the Swiss Assembly should confirm the Federal
resolution of adherence by striking out the reference to the five
Great Powers.
Then opened in Switzerland a thorough and comprehensive
campaign to prepare the voters for the plebiscite to ratify
Switzerland's adherence. The foundation of the hostility to the
League entertained by a large part of the population is summed
up by Professor Rappard :
The concern for neutrality, principle of passivity and isolation,
produced a distrust and hostility towards the League of Nations
founded on the opposite principle of collaboration and solidarity.
This mistrust and this hostility were all the stronger because the
League of Nations owed its birth to a world war from which neu-
trality itself had allowed Switzerland to escape, and because, con-
ceived to assure peace, the League remained closed to those against
whom the peace was made and because, though destined to initiate
a regime of justice and of international liberty, the League derived
its origin from a Treaty judged iniquitous by the major part of Swiss
opinion.4
Despite the reaffirmation of Switzerland's neutrality by the
League Council, there was bitter controversy on the point that
integral neutrality was in certain possible contingencies obviously
irreconcilable with Switzerland's participation in the functioning
of a League of Nations. Another doubt which advocates of absten-
tion suggested was the effect on Switzerland's political life of the
proposal to make Geneva the seat of the League ; this was called a
Trojan horse. Naturally, the German-speaking cantons, although
primarily devoted to patriotic allegiance to Switzerland, came
under anti-League influences of German origin, while the French
* L'Entrtie de la Suisse dans la SocUU des Nations, p. 2. Geneva, 1924.
TREATY-MAKING 293
and Italian minorities were affected by the favorable comment
published in their languages.
The vote was taken on May 16, 1920, the result being a favor-
able vote of 416,870 voices and 12V2 cantons, as against 328,719
voices and 11% cantons. This result came from overwhelming
affirmative majorities in the French and Italian cantons and
among the agricultural population, opposed to less decisive ma-
jorities for the negative in the German cantons and among the
industrial population.
CHAPTER EIGHT
THE PRESIDENTIAL ELECTION OF 1920
A HISTORIAN says of the landslide victory of the British
J7x Whigs in 1840 : "It was a heterogeneous party composed of
diverse and conflicting elements. Its only bond of union was a com-
mon desire to gain political power." Something of the sort was true
of the Republican victory of 1920, with this distinction : the Whigs
offered no platform ; the Republicans of 1920 offered a platform
whose vagueness in the field of foreign policy was designed to cap-
ture men of opposite opinions, while the control of the party was
in the hands of a group who were indifferent to interpretation of
the platform.
In the senatorial election of 1918, the vital question at stake was
the determination of the nation's external policy at the approach-
ing close of the war. The election was contested, however, on local
issues, social and economic, and the Democratic party lost the
psychological moment at which public sentiment was susceptible
of being turned toward the conception of a system to preserve
peace in the world. In 1920 the country had returned to its in-
ternal economic preoccupations. The people were apathetic
toward international questions and exasperated at the long-drawn-
out bickerings which had brought the settlement of peace to an
inconclusive deadlock. "Normalcy" and emergence from post-war
economic crises were uppermost in the national mind. In accord-
ance with such impressions and circumstances the two parties made
up their electoral platforms.
In their reviews of the past years, the party platforms were
equal in recrimination; in their programs for the future they
both promised "Peace, Progress, Prosperity," to quote the Demo-
cratic slogan. They might have been written by the same hand but
for their divergence on the subject of foreign policy: the Demo-
crats unequivocally pledged themselves to ratification of the
Treaty of Versailles, admitting only such reservations as should
be found necessary to define America's obligations under the
League Covenant in terms of the limitations her Constitution re-
PRESIDENTIAL ELECTION 1920 295
quired ; the Republicans drafted a plank which under one inter-
pretation could be accepted by the voters who favored the League
of Nations, and under another would appeal to those strenuously
opposed to participation in the League. The League, the only
issue of the platforms, had been already relegated to a secondary
place in the nation's political consciousness, and contradictions
could pass unnoticed.
The Democratic campaign embodied a position clearly defined
and consistently maintained; the nominations were made with
deference to the expediency of choosing a candidate not too closely
associated with the Wilson administration and of making a bid
for the votes of the remnants of the Roosevelt "Progressives."
Governor Cox was chosen because he was a pronounced "wet," an
Ohioan, and a keen politician who had not been overprominent in
Washington affairs ; Franklin D. Roosevelt was made vice-presi-
dential nominee to attract the support of the Republican liberals.
The League plank and its interpretation during the campaign
may best be summarized in the following excerpts from the plat-
form and from the speeches of Governor Cox :
We promise you this, that after March 4, 1921, with the least
amount of conversation possible, we will enter the League of Nations
of the world. . . . We advocate the immediate ratification of the
Treaty without reservations which would impair its essential in-
tegrity ; but do not oppose the acceptance of any reservations making
clearer or more specific the obligations of the United States to the
League associates.
Governor Cox suggested the following reservations as examples:
In giving assent to this Treaty, the Senate has in mind the fact that
the League of Nations which it embodies was devised for the sole
purpose of maintaining peace and comity among the nations of the
earth and preventing the recurrence of such destructive conflicts as
that through which the world has just passed. The cooperation of
the United States with the League and its continuance as a member
thereof will naturally depend upon the adherence of the League to
that fundamental purpose. . . . The President has repeatedly de-
clared, and this Convention reaffirms, that all our duties and obliga-
tions as a member of the League must be fulfilled in strict conformity
296 AMERICAN FOREIGN RELATIONS
with the Constitution of the United States, embodied in which is the
fundamental requirement of declaratory action by Congress before
this nation may become participant in any war.
In answer to the Republican charge that the President de-
manded that the Treaty be ratified without any modification, the
Democrats pointed out that the President had declared that the
comprehensive Hitchcock reservations were acceptable.
The Republicans solved the dilemma presented by the conflict
between the "irreconcilables" headed by Johnson, Borah, and
McCormick and the pro-Leaguers such as Taft, Root, and
Hughes, by nominating a candidate, Senator Harding, with no
opinions, and by adopting the following plank unfriendly to the
League in implication but announcing cooperative principles :
The Covenant . . . ignored the universal sentiments of America
for generations past in favor of international law and arbitration,
and it rested the hope of the future upon mere expediency and nego-
tiation. . . . The Republican party stands for agreement among
the nations to preserve the peace of the world. We believe that such
an international association must be based upon international jus-
tice, and must provide methods which shall maintain the rule of public
right by the development of law and the decision of impartial courts,
and which shall secure instant and general international conference
whenever peace shall be threatened by political action so that the
nations pledged to do and insist upon whatever is just and fair may
exercise their influence and power for the prevention of war. We be-
lieve that all this can be done without the compromise of national in-
dependence, without depriving the people of the United States in ad-
vance of the right to determine for themselves what is just and fair
when the occasion arises, and without involving them as participants
and not as peace-makers in a multitude of quarrels, the merits of
which they are unable to judge.
This declaration was used by the Republicans in three ways:
Senator Harding fluctuated between suggesting that he favored
ratification of the Treaty of Versailles, suitably amended, and a
categorical rejection of the Covenant as the basis for the proposed
"association of nations"; the pro-League Republicans insisted
that the election of Harding would constitute the surest means to
PRESIDENTIAL ELECTION 1920 297
obtain ratification of the Treaty; the Republican press in the
main deprecated Harding's anti-League pronouncements and
apologized for his evasions as being political necessities.
Harding's speeches contained something to appeal to either
camp. Starting with the "knowledge" that the League was im-
potent as a preventive of wars, at one time he gave the League a
chance :
If in the failed League of Versailles there can be found machinery
which the Tribunal (similar to that at The Hague) can use properly
and advantageously, by all means let it be appropriated. I would
even go further. I would take and combine all that is good and excise
all that is bad from both associations. This statement is broad enough
to include the suggestion that if the League which has heretofore
riveted our considerations and apprehensions has been so intertwined
and interwoven into the peace of Europe that its good must be pre-
served in order to establish peace on the Continent, then it can be
amended or revised so that we may still have a remnant of world
aspirations in 1918 builded into the world's highest conception of use-
ful cooperation.
At another time he did not
want to clarify those obligations. I want to turn my back on them.
It is not interpretation but rejection I am seeking. . . . Our op-
ponents are persistently curious to know whether, if I am elected, I
intend to scrap the League. It might be sufficient in reply to suggest
the futility of scrapping something which is already scrapped. . . .
The Paris League has been scrapped by its chief architect.
Then he became a supporter of the League idea. He declared in
an open letter to the people that the election of Cox would mean
the constitution of a blockade against the League of Nations in
its present form, and stated that the best hope of those who de-
sired America to adopt a generous and humane policy lay in his
own election. "I am talking about the League as an international
political body on the one hand," he said in September, "and pro-
posing a rational substitute for it, or an amended form of it which
may reasonably undertake all that is now said the League intends
to do." He had no desire to fling aside the good in the Covenant
298 AMERICAN FOREIGN RELATIONS
of the League of Nations, and possibly the League as negotiated
was as good as could be expected in view of the manner and haste
in which the work had been done. He even publicly approved a
letter in which Mr. Hoover declared that parts of the Treaty were
so intertwined with the stability of Europe and so necessary to
the rehabilitation of Europe that it must be the foundation upon
which a new organization was to be built.
Though Harding termed the League "a failure and weak be-
yond the possibility of repair" and Senator Lodge called it a
"battered hulk," they were not left in doubt as to the existence
of the League and the progress of its organization. In August,
Elihu Root, who was in Europe, preparing as an adjunct to the
League the statute for a court of arbitration such as Harding
proposed as desirable, sent Harding a confidential cable :
It is unwise to declare the League dead ... it would not be true.
The League has hardly begun to function because the terms of peace
have not yet been enforced by the victorious nations. Polish ques-
tions [mentioned by Harding as illustrating the impotence of the
League], for example, are properly handled by the foreign offices with-
out any reference to League. They are not League's business. In my
opinion a new deal here from the beginning by abandoning the Treaty
of Versailles is impossible. To attempt it would bring chaos and an
entire loss of the results of the war and general disaster involving
the United States. The only possible course is to meet requirements
of League reservations and the Chicago platform in some other re-
spects.1
Throughout the campaign Mr. Taft asserted the belief that
Harding's election would hasten America's entry into the League,
amended in such a way as to remove the objections he opposed to
it. His argument was that among the two-thirds of the Senate
who held over were "the Republican Senators who will have the
power, and will reject Article X and defeat the Treaty." A Re-
publican President, he argued, would save the Treaty by com-
promising with these Senators of his own party, while a Demo-
cratic President, even though the country had pronounced
unmistakably in his favor, would be met by senatorial recalcitrance.
i New York Times, Nov. 9, 1920.
PRESIDENTIAL ELECTION 1920 299
Less than three weeks before Harding's statement on November
4, 1920, that the League was dead, a number of influential Re-
publicans, who came to be known as the "Thirty-one," sincere
friends of the League as founded, addressed an appeal to the
voters to support Harding in the election, assuring them that the
Republicans would enter the League duly modified to meet all re-
quirements, and concluding with the following passage :
The conditions of Europe make it essential that the stability made
between European Powers shall not be lost by them, and that the
necessary changes be made in changing the terms of that Treaty
rather than by beginning entirely anew. . . .
The Republican press was thrown into confusion by the nomi-
nation of Harding and the subsequent course of his campaign.
Several important papers simultaneously printed mutually con-
tradictory interpretations of a Harding speech. The pro-League
New York Tribune excused him for his lack of clarity by pointing
to the importance of the Hiram Johnson group which threatened
to "bolt the party" if it took a pro-League stand ; "it seemed in-
tolerably unwise to make pledges too specific," and "it would be
narrow to make any particular attitude towards the Covenant a
test of party fealty." The Denver News remarked that "Harding
must assume the role of apologist" because he is "bound to look at
certain questions from the senatorial point of view and thereby
cloud his vision." Several papers suggested that although Har-
ding had to propose adherence to a league rather than the League,
economic necessities would make the ratification of the Covenant
a political necessity. The New York Evening Post stated edi-
torially that the Republicans relied upon generous hypodermic
infusions of Root to keep alive their "stand-pat" candidate until
election day, to which the pro-League Minneapolis Tribune re-
torted that "under Root's direction and subject to his counsel the
Republican party will hammer out a clean-cut foreign policy,
retaining the good and replacing the bad in the present organiza-
tion."
After the election the optimism of the New York Tribune in-
creased : "The campaign being over," it said,
300 AMERICAN FOREIGN RELATIONS
there is no longer a pressing partisan motive for misrepresenting the
Republican position. It will soon be recognized that this position is
utterly at variance with the aims of Borah and Johnson and the
assertions of Governor Cox. With an increased Republican majority
in the Senate, the prospects of entering some kind of a league are
greatly improved.
The Republican Public Ledger of Philadelphia saw a responsi-
bility resting upon its party :
Wilson's strategy prevented our entry into the League. That was
not its purpose but that was what it accomplished. But most Repub-
licans favor a league of some sort: and they must now display the
constructive ability to find such a League and put the Nation into
it. They must not fail where Wilson failed. They must not permit
the "bitter-enders" to defeat them as they defeated Wilson, now that
the tidal wave of Republican popularity has inundated the Senate
Chamber.
All ambiguities in Harding's mind ceased after his election.
Eleven days before the first meeting of the Assembly he said:
"You just didn't want a surrender of the United States of Amer-
ica ; you wanted America to go on under American ideals. That's
why you didn't care for the League which is now deceased." He
knew that he had given "pledges" which had escaped the attention
of "the Thirty-one," for he said later to the Associated Press:
In compliance with its pledges the new Administration which came
into power in March, 1921, definitely and decisively put aside all
thoughts of entering the League of Nations. It doesn't propose to
enter now, by the side door, back door, or cellar door.
Of the various attempts made to explain the Republican ava-
lanche of 1920, Walter Lippmann best conveys the public con-
fusion :2
The Republican majority was composed of men and women who
thought a Republican victory would kill the League, plus those who
thought it was the most practical way to procure the League, plus
those who thought it the surest way offered to obtain an amended
League. All these voters were inextricably entangled with their own
2 Public Opinion, pp. 195-6.
PRESIDENTIAL ELECTION 1920 301
desire or the desire of the other voters to improve business, or put
Labor in its place, or to punish the Democrats for going to war, or
to punish them for not having gone sooner, or to get rid of Mr.
Burleson, or to improve the price of wheat, or to lower taxes, or to
stop Mr. Daniels from outbuilding the world, or to help Mr. Harding
to do the same thing.
CHAPTER NINE
THE HARDING AND COOLIDGE
ADMINISTRATIONS AND
THE LEAGUE
fTl HE new administration under President Harding, with Mr.
A Hughes as Secretary of State, found itself in a world which
was trying to organize international relations. Most of the im-
portant nations with which it was necessary to deal in matters of
foreign policy were members of the League of Nations. It was
necessary for the American Government to formulate a policy or
at least to assume an attitude toward the new institution at
Geneva.
The situation was unprecedented, and the Secretary of State
naturally hesitated to commit the country to an official policy. Mr.
Hughes's replies to the accusations of inaction and discourtesy in
correspondence with the League and its officials suggest the per-
plexities which he must have felt when first charged with this re-
sponsibility. "Of course," he said, "whatever your wishes may be,
the fact is that the United States is not a member of the League
and I have no authority to act as if it were." It was only with
caution and in the course of a number of years that the American
Government established a policy; the process was an evolution
which is by no means finished.
At first it was necessary to make a guess as to whether or not the
new institution would survive. Doubt as to the viability of the
League was not confined to this country. The League had been
established largely because of the insistence of the American dele-
gation at the Peace Conference in Paris, and it appeared to all at
that time that the United States was a necessary stone in the arch.
Many important people in Europe, including those who were most
anxious for the League's success, believed that its chance of life
was greatly reduced by the abstention of the United States.
Hughes was personally favorable to the League, but in the
case of those in control of the Republican party machine, hostile
to the League because Wilson had been instrumental in its crea-
HARDING AND COOLIDGE ADMINISTRATIONS 303
tion, the wish that the League would quickly dissolve was father to
the thought. Public opinion on both sides of the Atlantic was at
this time petty, irritable, and contentious, and in 1924 Mr. Root
gave the following account of it. "Unfortunately," he said,
the controversy which resulted in our determining not to enter the
League was violent, and bitter feelings were aroused. Those feelings
came to be carried over to the League itself; and it came to be a
common thing that we could read in newspapers and hear in speeches
and in conversation expressions of expectation that the League would
fail, and evident pleasure when it seemed that it might fail. Reprisals
began to come from the other side — disagreeable things were said
upon the other side, and a period of pin pricks has proceeded for
years.
Added to this ill will was the fear on the part of the administra-
tion that the United States might be drawn into the League un-
wittingly. This fear was aggravated by the confident assertions
of some friends of the League that international society was so
close-knit that the United States would inevitably be forced to
adopt League membership. For a complex of reasons, the State
Department, which acknowledged the importance of the Con-
ference of Ambassadors and the Reparation Commission, turned
a cold shoulder to the League. Indeed, at first, the State Depart-
ment expressed, by way of the American Ambassador in London,
its unwillingness so much as to receive communications from the
Secretary General of the League, making no exception of those
dealing with non-political welfare matters. When communications
did arrive, the delay in acknowledgment or answer was so con-
siderable that public attention was drawn to the matter. It was
then discovered that the letters had been filed by a clerk in the
Department and had never been brought to the attention of the
Secretary.1 On September 22, 1921, more than six months after
the administration had taken office, the Secretary General of the
League received the first reply, and thereafter communication
i An article by Raymond B. Fosdick in the New York Times of October 19,
1924, contains a criticism of Secretary Hughes on this account. Mr. Hughes re-
plied to it in an address in Baltimore on October 23, 1924, printed in the New
York Times next morning.
304 AMERICAN FOREIGN RELATIONS
was prompt and regular. The form was more or less the one
adopted with unrecognized governments with which nevertheless
communication has to be kept up, for the letters were in the third
person, they were unsigned, and they were sent to the United
States legation in Berne or to the Consul at Geneva for delivery.
So convinced was the new administration that the League was,
if not dead, at least dying, that it was unwilling to take cognizance
of the organized health work at Geneva. The Office International
d'Hygiene Publique in Paris had been created by a convention
signed at Rome in 1907 by several governments. This had been
at the time a progressive step in international health organization,
but in seven years of experience before the outbreak of the war
its limitations had been exposed, in a lack of funds and even more
in the inevitable red tape which resulted from trying to carry on
technical health work through the machinery of foreign offices.
The problem of international health was particularly urgent as
part of the disorganization caused by the war and because of the
widespread danger of epidemics. In June, 1919, this office voted
to be placed under the direction of the League. An effort was
therefore made at Geneva to organize international health work on
a more efficient basis through a Health Committee of the League
of Nations and a Health Section in the Secretariat; important
American medical men connected with Red Cross work in Europe
and the League of Red Cross Societies were influential in creating
this new organization. The American Government, however, re-
fused to recognize its existence and impeded its progress by con-
tinuing to support the old Office International at Paris, which all
the other nations were prepared to abandon ; and when the Office
was invited to send representatives to sit on the League's General
Committee to supervise health work it found itself obliged to de-
cline the invitation on the ground that the United States was un-
willing that any international organization on which she was rep-
resented should in any way be attached to the League.
The new administration gave a similar illustration of its first
attitude toward the League in its policy in regard to the interna-
tional control of opium ; it attempted to block the consideration
of the opium problem by the League of Nations. The United
HARDING AND COOLIDGE ADMINISTRATIONS 305
States was interested in this matter on account of the consumption
in the United States itself of narcotics derived from opium, and
also because of possession of the Philippines; and, after con-
tinued public agitation, had taken part in an international con-
ference held at Shanghai in 1904, followed by another at The
Hague in 1912. At the second conference The Hague Opium Con-
vention was drawn up and offered for signature. In the two years
between the drafting of this convention and the outbreak of the
war, the attempt to secure sufficient ratifications to make it of
real importance in international life had produced discouraging
results, and the outbreak of war made further effort practically
impossible. There had been no sufficient period of operation to
permit judgment on the effectiveness of this treaty. In many ways
it met the principal wishes of the American Government ; a number
of important nations had not ratified it, however, and there were
certain weaknesses in the drafting, notably in a clause which has
caused bitter dispute, pledging the various governments to the
"gradual and effective" suppression of the evil. As each nation was
left free to determine for itself what measures were "effective,"
and what rate of speed was implied by the word "gradual," the
door was open to conflicting interpretations.
During the drafting of the Treaty of Versailles, and largely
because of the initiative of Americans who were deeply interested
in this problem, Clause 295 was inserted to make every signatory
of the Treaty of Versailles ipso "facto a signatory of The Hague
Opium Convention. The intent of this move was laudable, but its
effect was that a great many countries, which found it to their
interest to sign the Treaty of Versailles, found it necessary in so
doing to accept the treaty in regard to opium which they had
either not properly studied or had refused to ratify. The number
of signatories to The Hague convention was by this means greatly
increased, but many of the new adherents accepted The Hague
obligations reluctantly, and some opium-producing states such as
Persia and Turkey, as well as some states which were neutral
during the war, have not ratified the convention.
Article XXIII of the Covenant of the League of Nations pro-
vides that the members of the League "will entrust the League with
306 AMERICAN FOREIGN RELATIONS
the general supervision over the execution of agreements with re-
gard to the traffic in women and children and the traffic in opium
and other dangerous drugs." Even if this article had not been writ-
ten into the Covenant, it is probable that the nations interested in
the control of the traffic in dangerous drugs would have felt that
the only way to give effective life to The Hague convention would
be to put its administration in the hands of the League. The Ameri-
can Government, however, refused to recognize the new circum-
stances, and insisted that the administration of The Hague con-
vention should be left in the hands of the Dutch Government. As
the Department of State would not correspond with Geneva on
the subject of opium, the League of Nations, when it desired in-
formation on this subject from the American Government, re-
quested the Dutch Government to obtain it ; on instructions from
his government, the Dutch Minister would then call at the De-
partment of State and inform the Secretary of State that "a
third party" desired certain information, and in due course the
Secretary of State would notify the Dutch Minister in Washing-
ton that the American Government had no objection to his inform-
ing the unnamed third party that such and such were the facts. In
answer to criticisms of this procedure, the Department of State
said that it was impossible to alter The Hague convention and to
accept the new arrangement without submission of a new treaty
to the Senate and ratification of it by that body. As the attitude
of the government has changed, the Department has found it pos-
sible to cooperate with the League in regard to drug control to the
extent of sending to Geneva delegations of an official and weighty
character, in spite of the reasons which during this first period
seemed to present insuperable obstacles.
In a similar way the new administration discouraged American
assistance in the organization of the Permanent Court of Inter-
national Justice at The Hague. The organization of this Court
was one of the first enterprises of the League of Nations, and Mr.
Root, while the Wilson administration was still in power, had with
the approval of the government accepted a position on the com-
mittee which drew up the statute for the new Court. In this statute
it was provided, at Mr. Root's suggestion, that the members of the
HARDING AND COOLIDGE ADMINISTRATIONS 307
Court should be elected by the Assembly and the Council of the
League from lists of nominees made by the judges of the existing
Court of Arbitration at The Hague. The American members of The
Hague Tribunal who had the right to nominate candidates for the
new Court were Elihu Root, Oscar Straus, John Bassett Moore,
and George Gray. When the statute of the new Court had been ac-
cepted by the League of Nations, it was decided to hold the first
election on September 14, 1921. On June 4 of that year the Secre-
tary General of the League sent a letter to each of these four
American citizens asking them to make nominations and, as diplo-
matic usage prescribed, addressed these letters care of the Secre-
tary of State, with the request that they should be dispatched to
the persons for whom they were intended. The letters were not
delivered to the persons to whom they were addressed, and they
would not have known of their existence except for newspaper re-
ports. When the Secretary General at Geneva learned that these
letters had not been delivered, he cabled under date of August 13
direct to Messrs. Root, Straus, Moore, and Gray; inquiry was
thereupon made at the State Department for the original letters
and they were found and forwarded. The four Hague panel-mem-
bers met in New York City on September 7, only seven days before
the date for the election. They decided on nominations but agreed
that, before forwarding them to Geneva, Mr. Root should confer
with Secretary Hughes as a matter of courtesy. Mr. Hughes
pointed out that these American judges had been appointed under
The Hague Convention of 1907 and that they were asked to take
action under another treaty to which the United States was not a
party. Mr. Root thereupon notified his three associates of the legal
obstacle to any action by them, and the four accordingly sent a
joint cablegram to the Secretary General in which they stated that
they had reluctantly reached the conclusion that they could not
make the nominations requested. When the election was held in
Geneva, the American jurist, John Bassett Moore, was elected to
the new Court.
The Harding administration at first also assumed a distrustful
attitude in regard to the help which might be given by private
American citizens to the League; for example, it dissuaded Mr.
308 AMERICAN FOREIGN RELATIONS
Cameron Forbes, former Governor of the Philippines, from ac-
cepting a post on the Mandate Commission.
This attitude, based on the belief that the League would not
long survive, became untenable. Aside from the question whether
or not the people of the United States wished to join the League
of Nations, it became evident that they could only benefit by co-
operation with the rest of civilization in an effort to organize the
world's humanitarian activities. They could not ignore their in-
terest in the post-war reorganization of the economic system, nor
could they be content with a negative attitude toward the preserva-
tion of peace.
Washington accordingly adopted the practice of sending "un-
official observers" to sit with the League committees dealing with
non-political matters. The first appointment of this character was
that given Miss Grace Abbott, Chief of the Children's Bureau,
Department of Labor, on October 13, 1922, "to cooperate in an
unofficial and consultative capacity" with the League's Advisory
Committee on the Traffic in Women and Children. Dr. Marion
Dorsett was appointed shortly afterward as "unofficial observer"
on the Anthrax Committee, which functioned under the Interna-
tional Labor Organization, and in the following month, Dr. Ru-
pert Blue was similarly appointed to attend the fourth meeting of
the Advisory Committee on the Traffic in Opium.
During this second stage of America's relationship with the
League, the covert hostility toward its control of health work
gave place to a reluctant cooperation. When the death of Mr.
Barboza, the Brazilian member of the World Court, made neces-
sary a new election to fill the vacancy, it was not again suggested
that nomination by the American members of The Hague tribunal2
would be an international solecism. Furthermore, the three-cor-
nered channel of communication between Washington and Geneva
via The Hague in regard to opium gradually gave place to direct
correspondence. In this second stage, the attitude of the State
Department can be summed up in the phrase "The League may
be useful to Europe, but it is no concern of ours." This new atti-
2 An account of the relation of the United States to the Permanent Court will
be given in the Survey of 1929.
HARDING AND COOLIDGE ADMINISTRATIONS 309
tude found expression in several presidential messages. On Febru-
ary 2, 1923, President Harding in a special message to the Senate
said:
I have no unseemly comment to offer on the League. If it is serving
the Old World helpfully, more power to it. But it is not for us. The
Senate has so declared, the executive has so declared, the people have
so declared. Nothing could be more decisively stamped with finality.
In his first annual message to Congress on December 6, 1923,
President Coolidge stated :
Our country has definitely refused to adopt and ratify the cove-
nant of the League of Nations. ... I am not proposing any change
in its policy ; neither is the Senate. The incident, so far as we are con-
cerned, is closed. The League exists as a foreign agency. . . .
The indifference or aloofness connoted by these observations
could not be long maintained. In 1923 the United States was in-
vited to participate in a League conference on customs formali-
ties. A refusal was sent on the ground that the government could
not "make the customs formalities of the United States the sub-
ject of an international convention," or lay the customs regula-
tions of the United States before the conference, but when the
government came to understand what was to be considered, it
asked leave to be represented and sent four experts from different
departments.
A similar change of American policy is seen in regard to the
matter of double taxation, a problem of particular interest to
American business. The problem was first commented upon in a
report of the Department of Commerce ; it was then discussed by
the American Chamber of Commerce and by it laid before the
International Chamber of Commerce. As it was obviously a gov-
ernmental matter, the International Chamber referred it to the
League of Nations. The American Government refused the first
invitation to participate, but its point of view has so changed that
it now participates fully in this work of the League.
When the American Government was asked to nominate a dele-
gation of experts for the International Economic Conference of
310 AMERICAN FOREIGN RELATIONS
1927, it accepted the invitation and sent an able and impressive
delegation, for which Congress appropriated funds ; in fact, dur-
ing 1927 the American Government accepted every invitation
from the League, with the exception of one to appoint a repre-
sentative to the Security Committee, to which reference will be
made later.
This evolution from one attitude to another is summarized in
the relations of the United States to the League's effort to deal
with armaments. The first attempt was to control the international
private trade in arms. During the Peace Conference in 1919, a
treaty on this subject was signed at St. Germain ; with the other
group of treaties drafted at that time, it was signed by the Ameri-
can delegates, but like the other similar treaties, was never ratified
by the United States. The control of private trade in arms pre-
sents a problem in which other countries can make no progress
without the cooperation of the United States ; it is not at all likely
that the other countries will sign a self-denying ordinance which
would turn over all the profits of this industry to American muni-
tion manufacturers.
On March 8, 1921, the Secretary General of the League sent a
letter to the American Government in the name of the Council, ask-
ing whether the United States was prepared to ratify this conven-
tion and asking for an early reply ; no reply was received from the
Secretary of State. On November 21, 1921, the Secretary General
again addressed the same question to the Secretary of State and
again there was no reply. On June 3, 1922, the Secretary General
renewed the request. On July 28, the Secretary replied, saying
that the American Government would not ratify the convention of
St. Germain because of its disapproval of the terms of the con-
vention, and because of the laws of Congress (cited in the letter)
against the export of arms "in times of domestic violence5' to
American countries and to countries in which the United States
exercised extraterritorial jurisdiction. At about the same time
the Secretary of State sent a note to the British charge in Wash-
ington who had made personal inquiry regarding the American
delay, explaining in some detail why the American Government
could not accept this treaty, and giving among other reasons the
HARDING AND COOLIDGE ADMINISTRATIONS 311
fact that the convention was "intertwined" with the League of
Nations.
The refusal of the American Government, representing one of
the world's largest munition-manufacturing nations, to ratify this
convention was, of course, a disappointment to Geneva. The matter
was discussed at the Assembly of the League in September, 1922,
and the Council was instructed to inquire the nature of the Ameri-
can objections to the proposed treaty, and to find out if the Ameri-
can Government were prepared to make any counter-proposals.
On May 3, 1923, the President of the Council of the League ad-
dressed a letter to Secretary Hughes asking "whether the gov-
ernment of the United States would be disposed to state its views
as to the manner in which it would be willing to cooperate with
other governments in the control of the traffic in arms and the
private manufacture of arms." Under date of September 12, 1923,
Secretary Hughes sent a reply to the Council stating much the
same reasons as formerly why the American Government could
not adhere to the proposed treaty and making no suggestions for
cooperation on a different basis.
It was evident that the League could make no progress in this
matter without the cooperation of the United States, and the
Council invited the United States to appoint representatives to
sit on a temporary mixed commission to draft a new convention
for the control of traffic in arms. It was hoped that by this means
the American Government would cooperate in drafting a treaty
which would be free from the objections it had found in the treaty
of St. Germain. The American Minister at Berne, Mr. Grew, was
instructed to attend the meeting; in a statement he made at the
first session, he said :
I have been instructed to attend the meetings of this Commission,
in accordance with the invitation extended to my government in
December last, for the purpose of being fully advised as to any pro-
posals that may be made, and particularly to receive information re-
specting any draft convention which may be considered by the Com-
mission.
From this negative beginning participation became more open
312 AMERICAN FOREIGN RELATIONS
and official. The Temporary Mixed Commission succeeded in
drafting a new treaty on the traffic in arms, avoiding the points
which Mr. Hughes had listed as impediments to American adhe-
sion, and the American Government sent a formal delegation
headed by Representative Burton to a diplomatic conference
called in 1925 to consider this draft convention. The American
delegates took an active part in the discussion at this conference,
the draft treaty was amended in certain details to meet their ap-
proval, and they signed the resulting treaty. A separate conven-
tion regarding the control of poison gas was drawn up at the
instigation of the American delegation. These were the first trea-
ties negotiated under League auspices to receive American signa-
ture. They were referred to the Senate by the administration,
but by the end of 1927 they had not yet been reported out for
discussion.
Though the problem of controlling the traffic in arms is still un-
settled, these discussions broke the ice as far as the American Gov-
ernment was concerned, and it has fully participated in other work
of the League of Nations in regard to disarmament. A strong
official delegation was sent to the Preparatory Commission for a
general disarmament conference, which held frequent meetings
through 1926 and 1927.
Reference has been made to the fact that while accepting almost
every invitation received from the League in the course of 1927
for conferences on humanitarian, technical, economic, and arma-
ment conferences, the American Government refused to allow its
representative to sit on the Security Committee, created by the
Assembly of 1927 to work in conjunction with the Preparatory
Commission for a general disarmament conference. In so doing,
the Washington Government emphasized its belief in the possi-
bility of separating questions of a purely political nature from
other international interests. While prepared to cooperate with
the League of Nations in most of its activities, the American Gov-
ernment still maintains its attempt to refuse any participation in
world politics.
Whether or not the use of this word "politics" by the American
Government is more correct than the usage of the rest of the world
HARDING AND COOLIDGE ADMINISTRATIONS 313
is an academic question. Politics in the modern sense is so in-
extricably intertwined with economics that it may be questioned
whether any problems are either purely political or purely eco-
nomic. Someone has said that a question becomes "political" when-
ever enough persons are interested in it to make it worth while
for politicians to give it their attention. An example of the rela-
tion of economics to politics is furnished in the mitigation of
the reparations dispute by the Dawes Committee. Secretary
Hughes made a proposal in a speech at New Haven, December 29,
1922, that an attempt should be made to solve the problem in the
manner afterward called the Dawes Plan. He was explicit in
saying that the United States could properly play a role in this
affair because it was a purely economic and not at all a political
question. To the European countries directly involved in this
reparations tangle, the economic aspects of the problem had been
discussed ad nauseam; with them it had become a political prob-
lem of persuading the various governments to accept the dictates
of common sense.
CHAPTER TEN
THE DEVELOPMENT OF THE
LEAGUE OF NATIONS
WHILE American policy toward the League was under-
going the modifications just mentioned, the League was
beginning to develop the integrity of an enduring political insti-
tution. That development has not corresponded in all respects to
the predictions of Wilson; still less has it flattered those of his
enemies. American collaboration with the League, its secretariat,
its committees and commissions, has not proved contaminating or
"entangling," and what was at first but a grudging experiment is
now approved and even encouraged. The basic observation in
Lecky's History of Rationalism in Europe is that the great issue
between science and superstition, between enlightenment and theo-
logical dogma, was never decided by public opinion on the heels
of a clean-cut debate by the leading antagonists. "It has been ob-
served," he wrote, "that the success of any opinion depended much
less upon the force of its arguments, or upon the ability of its ad-
vocates, than upon the predisposition of society to receive it. ...
Definite arguments are the symptoms and pretexts, but seldom the
cause of the change. Their chief merit is to accelerate the inevitable
crisis." By the time a new thought had been accepted, it had hap-
pened so gradually and persuasively that no man knew whence or
how. American opinion toward the League is undergoing this
change.
The view prevalent in 1921 that the League would not live and
that it was indeed already moribund, was not shared by the
bankers and the investing public, for American banking houses
began to make loans, beginning with $25,000,000 to Austria in
1923 and $7,500,000 to Hungary in 1924, and to other countries
whose chance of survival were doubtful but for the League, or
whose economic security would be so slender but for the League
and the supervision of its Financial Committee as to stamp the
loans with a dubious value.
One view of the League generally prevailing at its birth was
DEVELOPMENT OF THE LEAGUE 315
that if it lived it would exercise all the functions and powers
provided by the document which gave it life. There were plenty
of American lawyers to argue the meaning of Covenant phrases ;
there were fewer statesmen to grasp the essence of a new political
organism, and to foresee the slow and certain coalition of world
forces in disregard of words. The lawyers were blind to the evolu-
tion of their own Constitution — its eighteen amendments, its extra-
constitutional practices, the atrophy of those parts which have
not corresponded to living forces, and its "understandings," more
powerful often than the text itself. Wilson had "particularly em-
phasized the importance of relying on experience to guide subse-
quent action."1 The course the League has taken in its first eight
years is more important than the terms of the Covenant.
One of the 1919 predictions was that the League would become
an organ for the imposition of the majority will by the use of
force. This was perhaps due partly to the fact that the League to
Enforce Peace had prepared the public mind for a League en-
dowed with large police powers and partly to the implications in
Wilson's insistence upon the importance of Article X. The am-
biguity of Article X permitted a wide variety of interpretations,
which were a source of controversy in Europe as well as in America.
League members confessed that they had no definite understand-
ing of the obligation contained in it. The history of its changing
interpretation in the League has shown that no matter what co-
ercive powers are written into the Covenant, force cannot be
employed before the world is willing to be coerced, and that under
the unanimity rule Article X cannot be a menace to the inde-
pendence and sovereignty of states.
During the first four years the Assembly debated various sug-
gestions regarding this article. On December 4, 1920, Canada
made a motion that Article X be struck out; the Assembly de-
ferred its final judgment. On September 25, 1923, an interpretive
resolution, adopted by a majority vote, stipulated: first, that "the
Council shall be bound to take account, when recommending the
application of military measures in the event of aggression or
i Isaiah Bowman's notes on Wilson's talk to a dozen members of the Inquiry,
Dec. 10, 1918, on the trip to Europe: c/. Miller, The Drafting of the Covenant , p. 42.
316 AMERICAN FOREIGN RELATIONS
threat of it, more particularly, of the geographical situation and
of the special conditions of each State" ; second, that "it is for the
constitutional authorities of each Member to decide, in what de-
gree the Member is bound to assure the execution" of its obliga-
tion by Article X "by employment of its military forces"; and
third, that "the recommendation made by the Council shall be re-
garded as of the highest importance," but is not declared to be
binding. Only the vote of Persia prevented the unanimity which
would have given a legally binding value to the resolution.
Article XVI more specifically provides for the use of sanctions,
but it is also susceptible of divergent interpretations. At the First
Assembly the appointment of an International Blockade Com-
mission, as suggested by the Council, was recommended, and pro-
posed amendments to Article XVI were referred to the committee
on amendments. The second Assembly voted four amendments and
nineteen resolutions, which were to "constitute rules for guidance
which the Assembly recommends, as a provisional measure to the
Council and to the Members of the League in connection with the
application of Article XVI." The second amendment stipulated
that "it is for the Council to give an opinion whether or not a
breach of the Covenant has taken place" ; the third that "the Coun-
cil will notify the date which it recommends for the application of
economic pressure" ; the fourth that "the Council may, in the case
of particular Members, postpone the coming into force of any of
these measures for a specified period." The amendments are note-
worthy for the absence of reference to military action, and for the
special provision, responding to the demand of the Scandinavian
countries, for the possible exemption of certain countries from
the duty of cooperating in a blockade. The last of the resolutions
points to the main reason for this new interpretation ; it is that
recourse to the economic weapon would merely endanger the se-
curity of League members and deprive them of their markets, at
small inconvenience to the Covenant-breaking state, which could
transfer its business connections to the United States or to Russia.
Not only have Articles X and XVI been interpreted almost into
desuetude, but in the League's experience in the handling of inter-
national disputes the Council has never used or threatened to use
DEVELOPMENT OF THE LEAGUE 317
its military or economic weapons, even though on the occasions of
Vilna and Corfu the parties themselves used force in defiance of
the League's authority.
Limitation of armament was one of the central objects of the
League as of all projected leagues ; it was so understood by the
framers of the Covenant and by the popular mind everywhere.
Large armies were assumed to be provocative of wars and every-
one looked forward to reduction of armaments.2 The failure to
achieve any drastic reduction shows how easy it is for a Great
Power in the League to block action ; it also shows that, even where
no unanimity rule is written into the Covenant, the principle of
unanimity controls. The ability of Sir Austen Chamberlain, by his
single opposition, to strike a death-blow at the Geneva Protocol,
must be taken into account when considering the argument that
a share in League responsibilities involves a surrender of national
sovereignty.
What the League has failed to accomplish in the way of dis-
armament and the creation of a powerful international police
force, it is making up for less dramatically in the fields of eco-
nomic, humanitarian, and intellectual cooperation. A sense of
security may be bred by acquaintance and by habits of coopera-
tion as well as by guarantees. Rappard's description of this method
is that
checked in its frontal attack on the citadel of war by the as yet in-
vincible forces of national sovereignty, the League is by means of its
technical bodies executing a vast flanking movement around and
against it.
A good illustration of this new method was given by the World
Economic Conference held at Geneva in May, 1927. The twofold
object of the Conference, as defined by the original Assembly
resolution, was concerned with prosperity and with peace. At the
closing meeting, the President of the Conference gave a general
survey and summary ; and, when expressing the object and point
of view of the Conference, he said :
2 The story of the League's handling of the problem of the limitation of arma-
ment is told In Section V.
318 AMERICAN FOREIGN RELATIONS
Economic conflicts and divergence of economic interest are perhaps
the most serious and the most permanent of all the dangers which are
likely to threaten the peace of the world. No machinery for the
settlement of international disputes can be relied upon to maintain
peace if the economic policies of the world so develop as to create
not only deep divergences of economic interest between different
masses of the world's population but a sense of intolerable injury
and injustice. No task is more urgent or more vital than that of
securing agreement on certain principles of policy which are neces-
sary in the interests of future peace.
By unanimous resolution the Conference at its close, "recog-
nizing that the maintenance of world peace depends largely upon
the principles on which the economic policies of nations are framed
and executed, recommended that the governments and peoples
of all countries should constantly take counsel together as to this
aspect of the economic problem," and looked forward "to the estab-
lishment of recognized principles designed to eliminate those eco-
nomic difficulties which cause friction and misunderstanding/'
The League's cooperative activities have a wide scope ; they in-
clude those matters which have come to be recognized as the com-
mon concern of all nations, such as the simplification of customs
formalities, the arrangement of musical, dramatic, and artistic
exchanges, the suppression of epidemics, the supervision of inter-
national highways, the regulation of labor conditions, of the traffic
in women and children, of the opium traffic, consideration of the
problem of fiscal evasion, and the reconstruction of such states as
Austria and Hungary. During the century before the war, states
had resorted increasingly to collective action for the permanent
organization and regulation of the great network of international
interests and transactions.8 The World War provided experience
in the conduct of inter- Allied organization, further persuading
men of the usefulness of joint enterprise, and at the Peace Confer-
ence Lord Robert Cecil asserted that the world was ripe for volun-
tary international organization, though not yet for compulsory
action. The predominating French concern over security and po-
litical guarantees at the Peace Conference had delayed the opera-
» An account of these collective activities will be given in the Survey of 1929.
DEVELOPMENT OF THE LEAGUE 319
tion of these natural forces ; the Covenant contained only slight
mention of the League's cooperative functions, and no special
mechanism was created for them; but the mesh of international
cooperation had already been too finely woven to be broken, and
today month to month organized cooperation and continuous con-
ference about current affairs are among the most important of
the League's functions.
Almost all unions and other international enterprises have
voluntarily come under the auspices of the League, whose perma-
nency and organization has been found to facilitate regularity
and persistence in the carrying out of projects. The permanent
secretariat has shown competence in the handling of these matters ;
it serves as a filter to catch unsound proposals, passes on all
the plans proposed for the consideration of the Council and the
Assembly, and has the power to reject or modify them and to con-
dition their ultimate success by assigning them more or less ad-
vantageous places on the agenda. It can do nothing, of course, to
prevent the individual action of nations, and its power is largely
a negative one, checking the impulsiveness of individual states,
clarifying and bringing to the surface those projects likely to
appeal to the deliberate and collective opinion of mankind.
The United States has been permitted to work with the League
or not, as she likes, and has participated in League activities to
the extent she has desired. The League, for instance, has acqui-
esced in her demand for the reports of the Mandate Commission
of the League, although she in no way participates in the general
machinery set up to control mandates. This peculiar relationship
of the United States constitutes a problem for the League the
significance of which is revealed in Brazil's intimation, in resign-
ing League membership, that she might adopt the American
policy of cooperating in some chosen activities while avoiding all
responsibility. A premium on League membership may have to be
set in order that abstention will not appear too alluring.
Yet the position of the United States is not entirely advan-
tageous, for valuable opportunities are missed. While League
members have been improving the technique of conference and
informal negotiation through eight years of experimentation, the
320 AMERICAN FOREIGN RELATIONS
United States has made little advance and is fearful of sub-
stituting plenipotentiaries for instructed ad hoc commissions. The
withdrawal of the American delegation from a meeting of the
League's Advisory Committee on opium on February 6, 1925, was
commented upon by M. Loudon, head of the Dutch delegation, in
this way :
An international conference presupposed the possibility of re-
ciprocal concession and of true and real exchanges of opinion and
of good will on both sides, and such a conference is doomed to failure
if one of the parties has imperative instructions to impose its will
upon the others under pain of leaving the conference.4
Note-writing is in many matters inferior to the method of con-
ference. In speaking of the sessions of the Council, Dr. Stresemann
is reported as saying :
Their great importance is in the possibility of withdrawing great
questions of debate from consideration by means of written notes and
settling them through personal contacts. If we had held meetings of
Foreign Secretaries before the war, such as we can now hold through
the League of Nations, where personal contacts exist, perhaps we
could have avoided the misunderstandings which then troubled the
reality of things.5
European statesmen seem to have found by personal acquaintance
an appreciation of one another's position, and, in the frequency
of their informal contacts, an opportunity for experimental steps
toward the adjustment of differences. Cabinets and parliaments
of all states who are members of the League contain men who have
had these contacts and have learned from them much about
methods of negotiation and how they can be used to bring about
multilateral agreements. The success of the League will eventually
be measured, not by the number of critical issues it has decided
at the brink of war, but by the number of disputes it has dissipated
or held suspended in their early stages, dissolving them by com-
promise or conciliation or letting them pass unsolved into the
limbo of obsolete controversies.
* Bassett, J. S., The League of Nations, a Chapter in World Politics, p. 351.
5 Journal de Geneve, March 11, 1927.
DEVELOPMENT OF THE LEAGUE 321
The League has not at present — it may never have — the or-
ganization or the precedents for solving through its own ma-
chinery the great questions that divide or concern the Powers of
Europe, but its existence has made Geneva the symbol and the
home of international compromises, for Europe, in the language
of Mr. Simonds, "goes to Geneva and compromises outside of the
actual limits of the Society of Nations itself."6 Sir Eric Drum-
mond did not summon the conferences of Locarno and Thoiry, and
they were as much outside of the constitutional structure of the
League as Republican and Democratic conventions are out-
side of the Constitution of the United States. But international
understandings, though separate from the League, are facilitated
when consummated under its wing. The significant fact is that
without the League the new European mentality would never have
been able to enforce its will upon its governments, and that Right
and Left, conservatives and progressives, must go to Geneva and
there accomplish the popular will to peace. The rampant national-
ism upon which the European nations relied before 1914 to pro-
tect them from the devastation of war failed them utterly. With
the slowness with which fundamental political ideas spread among
great masses of people, it is now realized that nationalism was
as provocative of hatreds as monarchy was unrepresentative, that
agreement is essential, that agreement means compromise, and
that the place where compromise can be obtained most easily is at
Geneva.
The League is the beneficiary of a movement toward interna-
tional organization which has been going on for a long time. Po-
litical and social needs, rather than any special cleverness with
which the institution was put together, supply the vitamines for
robust health and long life. For the problems of the future there
are no simple or final answers ; the problems have to be solved con-
tinuously. To the extent that successful adjustments are made at
Geneva by League organs or in its aura, the sense of security in-
creases; nations will disarm, not in consequence of universal,
plural, or bilateral agreements which attempt mechanically to
match ships against ships, guns against guns, gas factories against
e Simonds, How Europe Made Peace without America, p. 377.
322 AMERICAN FOREIGN RELATIONS
airplanes, but pan pasm with the growth of that individual se-
curity which comes of actual intercourse concerning common
security. In Mr. Root's Woodrow Wilson Peace Prize address of
December 28, 1926, he said:
For these years the League in the political field and the Court in
the judicial field have been rendering the best service in the cause of
peace known to the history of civilization — incomparably the best.
. . , War results from a state of mind. These institutions have been
teaching the people of Europe to think in terms of peace rather than
in terms of war.
IV.
FINANCIAL RELATIONS OF THE UNITED
STATES GOVERNMENT AFTER
THE WORLD WAR
CHAPTER ONE
REPARATIONS
INTRODUCTORY
fTl HE reparation problem has become peculiarly important to
JL the United States on account of the fact that the industrial
revival of Germany has been effected in large measure by Ameri-
can finance and industry. Seventy per cent of the huge long-term
loans contracted by Germany since 1924 have been supplied by
the United States, besides much short-term money destined to be-
come long-term accommodation. Altogether the total amount of
this assistance is estimated at $1,500,000,000. This financial part-
nership has helped Germany meet her reparations, and has also
intensified her takings of American exports, which increased 32
per cent in 1927 over the figure for 1926. Thus has the United
States, besides being the principal artificer of the Dawes Plan,
aided Germany in the reestablishment of her economy, and served
European reconstruction. American financial interests have now
a considerable stake in the future of Germany, a stake that over-
shadows the government's interest of German reparations, which
was in the nature of a special charge and which was fixed by the
agreement providing for the distribution of the Dawes annuities
signed at Paris on January 14, 1925. Under this agreement the
United States is entitled to receive annually from Germany as her
share of reparations certain payments on account of the reim-
bursement of the costs of the American army of occupation and of
the awards of the Mixed Claims Commission established in pur-
suance of the German- American treaty of August 10, 1922. The
outstanding charge against Germany under the head of army
costs as of September 1, 1927, was $220,083,308, $27,783,094
having already been received. The Mixed Claims Commission de-
termines and adjudicates all war claims of the United States and
her nationals against Germany. Satisfaction of these awards is
obtained out of 2.25 per cent of the Dawes annuities after certain
deductions have been made. Th« amounts due American claimants
aggregate over $175,000,000 ; the total receipts under the Dawes
326 AMERICAN FOREIGN RELATIONS
Plan on this account had reached $13,920,134} by September 1,
1927.
PRESIDENT WILSON'S FOUNDATION OF REPARATIONS
PRESIDENT WILSON furnished the official starting point in the his-
tory of reparations. His Fourteen Points, given to the world on
January 8, 1918, together with his elaboration of these points in
addresses delivered between February 11 and September 27, 1918,
were the foundation out of which grew the reparation clauses of
the Treaty of Versailles, albeit in some measure contrary to the
original American conception.
War aims with any claim to reasonableness and practicality had
received scant attention from the Allies prior to the President's
"Decalogue of peace." Among the Central Powers, they had re-
ceived even less attention. As Woodrow Wilson put it, in an ad-
dress beside the tomb of George Washington on September 27,
1918, the statesmen of the world had seemed "to cast about for
definitions of their purpose" and had "sometimes seemed to shift
their ground and their point of view." National passions had
been unloosed; these had generated extravagant and constantly
varying demands and these in turn the war had transformed into
issues.
The main reason for the reticence of the Allies lay in the diffi-
culty experienced by the respective groups of belligerents, even
in their own countries, of maintaining a common front on the dis-
position of victory. Judged by some of the early speeches, victory
seemed to portend a criss-cross of conflict ; whenever any purely
national aims were broached, they had provided cause for resent-
ment among the Allies. The war compelled men's minds and har-
nessed national resources along the one channel of war-making.
Cleinenceau, on November 18, 1917, declared that he desired vic-
tory before a league of nations — a brusque rebuke to those who
insisted on preoccupation with a league while victory had still to
be won. The arrest of world order allowed European states-
manship no opportunity to begin the reorganization of a peace-
ful world until peace itself could be obtained. Early statements
REPARATIONS 327
on both sides, therefore, though parading themselves as elabora-
tions of war aims, were propagandist speeches intended for the
most part merely to add fuel to the fires of national bellicosity.
Into this maze of uncertainty Lloyd George on January 5,
1918, precipitated the first reasoned survey of war aims among
the Allies. Previous consultation had assured the statement of
authority as a summing-up of British opinion. In that part deal-
ing with reparations, the British premier demanded the restora-
tion of Serbia, Montenegro, and the occupied regions of France,
Italy, and Rumania, but disclaimed any demand for a war in-
demnity per se or any attempt to "shift the cost of warlike opera-
tions from one belligerent to another, which may, or may not be,
defensible." At the same time, in his category of reparations, he
included injuries done in violation of international law, and
specially instanced outrages on British seamen. Clemenceau,
promptly wiring his congratulations to Lloyd George, said only
that the statement expressed "the truth that one must never be-
come weary of opposing the Germans."
It was on the heels of these expressions of the Allied attitude
that the President launched his Fourteen Points before a joint
session of Congress as "the program of the world's peace." The
message was firmly anchored, unlike the speeches of Lloyd George
and Clemenceau, to the idea of a league of nations. In regard to
reparations there was no apparent rift in the points of view as
revealed in these January utterances, for the reason, probably,
that little was said beyond generalities.
In the seventh, eighth, and eleventh points, the President set
down as fundamentals of peace the evacuation and restoration of
Belgium, of Rumania, Serbia, and Montenegro, the freeing of
French territory, the return to France of Alsace-Lorraine, the
accord to Serbia of free access to the sea, and the readjustment of
Balkan relationships. In an address on February 11, 1918, he
added these important words : "There shall be no . . . punitive
damages."
All the world greeted the Wilson program as a clarion call to
discussion. Count Czernin says, "In the eyes of millions of people
this program opened up a world of hope." In Germany, the effect
328 AMERICAN FOREIGN RELATIONS
was electrical, for the internal conditions of the Reich had become
desperate, and the armies in the field had already shown signs of
a war-weariness akin to incipient mutiny.
Yet Count von Hertling, the German Chancellor, in his reply
on January 24, 1918, gave little comfort to the seekers after peace
on the Wilson model. "He refuses to apply them [the Fourteen
Points] to the substantive items which must constitute the body
of any final settlement," said the President on February 11.
Hertling's colleague at Vienna, Count Czernin, spoke in "a
very different tone." It was the German commanders who had
still to be persuaded that the disintegration of their war machine
was fast approaching. Both Bulgaria and Austria furnished
warning signals, and these were emphasized by the gradual break-
ing of German "war-will" on the Western front in consequence
of the unity of command introduced by the Allies and Associates.
After the Allied victories from July on, military recognition
of the precariousness of the situation finally communicated itself
to the German Government, and led to the beginning of the corre-
spondence for an armistice, started by the new Chancellor, Prince
Max of Baden, on October 4, 1918. Prince Max's first request
was abruptly worded, but included an acceptance of the Four-
teen Points, which in succeeding messages were apparently re-
garded as the foundation of the hope of the German nation in the
working out of a permanent peace of justice. President Wilson
had insisted on the adoption of his points as "the terms of peace,"
not as "a basis for peace negotiations." The Germans finally
acquiesced in this terminology. Said the second note of the Ger-
man Government, on October 12, "... Its object in entering
into discussions would be only to agree upon the practical details
of the application of these terms." The declaration, which met
with the President's approval, ushered in the negotiations for the
cessation of hostilities.
Before an armistice could be concluded, the Allied Powers had
to be consulted. Germany's overtures had led Allied minds back
to the January outlines of war aims. Most of the President's
speeches had been addressed to the "court of mankind," and had
elicited little response from responsible ministers in Europe. War
REPARATIONS 329
exigencies still precluded any premature thoughts about peace;
sufficient unto the day of peace were the fruits of war. But the re-
quest for an armistice on the basis of the President's Fourteen
Points brought about a reconsideration of those points as a matter
of practical politics. Was there sufficient latitude in them for the
threshing out of divergencies of interpretation over the peace
table? Apparently not; for an Allied qualification approved by
the President and sent by him to the German Government on No-
vember 5 insisted that "compensation" must be made by Germany
"for all damage done to the civilian population of the Allies and
their property by the aggression of Germany by land, by sea, and
from the air." Thus "compensation" took the place of "restora-
tion" as the key word in the pre-armistice correspondence ; it was
specifically connected with physical damage.
Article 19 of the conditions of armistice had the effect, con-
trary at first to American and British interpretation, of still fur-
ther broadening the base of reparation. It read "With the reserva-
tion that any subsequent concessions and claims by the Allies and
the United States remain unaffected, the following financial con-
ditions are imposed : Reparation for damage done ..."
There was no "by land, by sea, and from the air" here, probably
because America and Great Britain considered it, in the phrase
of J. M. Keynes, merely "a casual protective phrase," having no
relation to the peace terms of reference. It was drawn up by Klotz,
the French Minister of Finance, and the French were to make
much use of it in subsequent discussions. Andre Tardieu expresses
their attitude in his The Truth about the Treaty. He says, "The
armistice marked the capitulation of the enemy, a capitulation
which was unconditional surrender."1 The implication was that
the peace-makers had a blank sheet to write on. Neither the United
States nor Great Britain could agree ; they thought, the United
States decidedly and Great Britain waveringly, that terms of ref-
erence had already been written on the paper of peace, namely, the
Fourteen Points and their subsequent qualification. The Allied
and Associated Powers had already built an accepted fence be-
yond which the negotiators could not stray without impairment
i P. 76.
330 AMERICAN FOREIGN RELATIONS
of their good faith. Yet, though some of the Powers continued to
deny the pertinence of the armistice terms in the reparations dis-
cussion, they finally allowed the French to lead them into ad-
herence to the following statement, sent to the Germans on June
16, 1919, in answer to German objections to the Treaty: "The
Allies' proposals confine the amount payable by Germany to what
is clearly justifiable under the terms of armistice." Here was a
clear assertion of the relevance of the reparations clause in the
armistice conditions; an example, therefore, of the "disastrous
doublemindedness"2 of the economic settlement.
HOW THE PEACE CONFERENCE BUILT
ON THE WILSON PROGRAM
WITH the signing of the armistice, on November 11, 1918, the
field seemed set for the implementing of the declarations on repa-
rations. Much activity had still to be expended before the ne-
gotiators could assemble in Paris. A war-scarred world could
not seek peace so easily. An epoch had come to an end; a new
epoch, presaging a new reorganization of society, was to be
ushered in. As General Smuts put it, "the great caravan of hu-
manity" was once more on the march. But humanity was bruised
and battered, and the caravan was rocking so violently that the
British and French Governments deemed it advisable to seek
mandates from their constituents before venturing to speak in
their behalf at the Conference of Paris. At these elections the full
effect of the titanic struggle on the minds of men found painful
revelation.
Keyed up to the highest pitch of enthusiasm and coordination
in pursuit of destruction, the Allied peoples found relief from
their four-year-old strain in an orgy of financial and emotional
extravagance. The governments of Britain and France took their
cue from this manifestation of war's legacy. Demands for the
exaction of full retribution resounded from press and platform.
"Peace without Victory" seemed a mockery in "these strange
weeks of imaginative tumult and vengeful stoicism." "Make Ger-
2 Baker, Woodrow Wilson and the World War, II, 283.
REPARATIONS 331
many pay,55 shouted the British; "Que UAllemagne paye
d'abord," responded the French; "Shilling for shilling, ton for
ton," echoed the British politicians. It was reminiscent of the early
days of the war in Germany, when German politicians envisaged
their enemies "dragging through the centuries the chains of the
indemnities." Allied claims for the total cost of the war were traced
to the traditional right of the conqueror. Almost the first task of
the President was to scotch the use of the word "indemnity," but
as the negotiations bore witness, the prohibition extended only
to the language, not to the minds, of the Allied statesmen.
Armed with mandates erected upon election cries, the Allies as-
sembled in Paris at the close of the year. Paris was to be the capital
of the world for the next six months ; a melting pot in which na-
tional destinies and international relationships alike were to be
brewed. To the minds of the American negotiators, freed by dis-
tance from the intimate stress of Allied commitments, terms of
reference based on vengeance were in entire disharmony with the
Wilson program ; but, as one of the American negotiators put it
"in the reparations clauses, the conference . . . was dealing with
blood-raw passions still pulsing through the people's veins."8 An
atmosphere far removed from the healing acts stipulated by Presi-
dent Wilson !
In these circumstances it was natural that the American dele-
gation should be better equipped than their colleagues both with
reparation data and with the detachment of mind necessary to the
formulation of the settlements on sane principles. While the
European politicians were haranguing their constituents, the
American experts had been conducting field examinations into
war damage in Europe. They brought their data and their prin-
ciples of reparation to the first meeting of the Commission on
Reparation of the Conference on February 3, 1919. In the ab-
sence of a definite program of procedure from any other delega-
tion, discussion immediately centered on the American thesis.
The commission was one of several bodies to which the ramified
interests of peace-making were referred. It was instructed to
» Baruch, The Making of the Reparations and Economic Sections of the Treaty,
p. 7.
332 AMERICAN FOREIGN RELATIONS
examine and report on (1) the amount which the enemy countries
ought to pay by way of reparation; (2) what they were capable
of paying; (3) by what method, in what form, and within what
time, payment should be made.
The United States delegation was composed of: Bernard M.
Baruch, Norman H. Davis, Vance C. McCormick, with Jerome D.
Greene as secretary. Later on, Thomas W. Lamont was named as
alternate to Mr. Davis. John Foster Dulles acted as the delega-
tion's legal adviser, while an imposing corps of experts was assisted
and advised by Professor Allyn Young. Jerome D. Greene became
secretary of the Inter- Allied Reparation Secretariat.
"Unquestionably the industrial and financial development of
the whole world for a long time to come will be largely influenced
by the reparation settlement," says Mr. Baruch. In this spirit
the American delegation approached their task. They were un-
hampered by the territorial conflicts that competed with the
reparation question in many European minds. They had not the
political task of repairing maimed national structures. They had
not been singed by the heat and turmoil of popular feeling. The
link with home politics resided in the person of President Wilson ;
politically speaking, his position was even more difficult than that
of the other principal delegates, but he had entered the peace
councils on the crest of a wave of popular approval for his Four-
teen Points, and hoped to retain that support throughout the
vicissitudes of the working out in Paris of his program, as an
offset to, and perhaps as an influence upon, the political obstacles
in his path in Washington.
In general, President Wilson in Paris was as indifferent to po-
litical expediency as the other delegates were sensitive to it.
Leaders in the Allied groups had to keep one ear to the ground
for home repercussions of treaty-making developments. The
President, on the contrary, assumed a prerogative almost analo-
gous to that enjoyed by the autocratic and near-autocratic nego-
tiators at the Congress of Vienna, who were themselves unfettered
by the responsibilities attaching to elected persons in this day of
universal suffrage and political consciousness. It was the work of
the American delegation to interpret the policy of a man whose
REPARATIONS 333
position as President of the United States had given him the op-
portunity to assume the role of supreme arbiter at a critical stage
in world history, and who, for the nonce, had secured the ratifica-
tion of his people in that high purpose.
Keeping themselves rigidly within Wilson terms of reference,
the American delegation attempted to define the Allied qualifica-
tion relating to compensation as meaning "direct physical damage
to property of a non-military character and direct physical in-
jury to civilians."
As was to be expected, the commission gave a frigid reception
to an interpretation whose purpose was to limit discussions to
physical damage, leaving the costs of war, in insistence upon which
Allied politicians had already poured out oceans of demands, out-
side the pale of reparations. Belgium, as a beneficiary under physi-
cal damages rather than under war costs, and fearful lest the in-
clusion of war expenses might lead to a diminution in her claims
in respect of physical damages, alone supported the Americans.
W. M. Hughes, then Premier of Australia, led the agitation for
the inclusion of war costs as part of the "compensation" required
of Germany. He was head of the British representatives on the
Commission ; hence, it was inevitable that the British case, when
it did not wear the chameleon-like complexion of Lloyd George,
should have a Dominion coloring. The British Dominions, having
suffered no physical damage, were understandably in opposition
to an arrangement that would reduce their compensation almost
to the vanishing point ; they as naturally wanted costs as Belgium
wanted damages.
Mr. Hughes tried to establish a case on grounds both of equity
and the practice of victors. War costs had been demanded from
France in 1815; from Sardinia, in 1849; from Austria, in 1866;
from France, in 1871. Reimbursement of war costs had generally
been a penalty imposed upon the vanquished. On grounds of
equity, he contended that it was absurd to compensate a Belgian
for the destruction of his home and not to compensate an Aus-
tralian for mortgaging his. Or, to put it another way, the nations
who fought in defense of their guarantee of Belgian neutrality
should have the same consideration as Belgium herself.
334 AMERICAN FOREIGN RELATIONS
Vigorous discussion proceeded over the American interpreta-
tion of reparation principles. No others were on the table. When
asked to produce an alternative program, the delegates either
could not supply one, or would not commit themselves. Nor would
they admit the validity of the American construction of compen-
sation. Through Mr. Dulles on February 13, 1919, the American
delegation protested their desire to see reparation made to the
uttermost limit ; that limit being "a fair construction of the agreed
terms of peace."
Starting from such different premises, the delegations, after
much controversy, found themselves in a cul de sac. There was no
alternative but to submit the issue, physical damages vs. war costs,
to the Supreme Council, which was done in March, 1919. To
assure themselves of the highest endorsement, the American dele-
gation obtained on their case the imprimatur of President Wilson
en route to the United States on the George Washington. His wire-
lessed reply read as follows :
I feel that we are bound in honor to decline to agree to the inclusion
of war costs in the reparation demands. The time to think of this
was before the conditions of peace were communicated to the enemy
originally. We should dissent, and dissent publicly if necessary, not
on the ground of the intrinsic injustice of it, but on the ground that
it is clearly inconsistent with what we deliberately led the enemy to
expect and cannot now honorably alter simply because we have the
power.
Here was a reendorsement of "compensation" in its pre-ar-
mistice signification as a peace pledge.
Dilemmas quickly ran into one another. No sooner had one
obstacle been cleared than another arose to obstruct any passage
to a formulation of the Treaty provisions. Demands for war costs
were dropped by the Supreme Council when the statisticians re-
vealed some idea of their staggering proportions.4 The recovery
of these money costs seemed a "great illusion." But, if given a
breathing spell for reorganization and if equipped with the patri-
otic spur to pay, Germany might have been capable of raising
* Tardieu remarks lugubriously that by the abandonment of war costs, the
Conference reduced the German debt by 700,000,000,000 gold marks.
REPARATIONS 335
staggering indemnities. The "great illusion" is the economic
ability to afford such a competitor in the family of nations as a
nation which is harnessing itself without regard for living stand-
ards to the production and transfer of wealth. But this was not an
active fear at Paris.
Having obtained the acquiescence of Lloyd George, Clemenceau,
and Orlando in the limitation of discussions to damages, the
American delegation again found themselves in conflict with their
colleagues over the question of what precisely constituted damages
within the meaning of the peace terms. Discussion resolved itself
into the listing of damage categories, but no agreement could be
obtained on the important item of pensions and separation al-
lowances.
Was payment for a destroyed chimney to be placed above com-
pensation for a lost life or a pension for a blinded or wounded
soldier? This in a nutshell was the Allied attitude, and one that
on political grounds was difficult to counter. The American ex-
perts had originally estimated that probably Germany could not
pay much more than a capital sum of $15,000,000,000,° and this
was about the amount that it was thought would be demanded in
damages under the categories exclusive of pensions and separation
allowances.6 If this or any other lump sum were agreed upon, and
if apportionment were by percentage, what France gained in
pensions and separation allowances, she would lose in relief for
her devastated areas ; or vice versa. On the contrary, Great Britain
would gain by the inclusion of pensions and separation allowances,
for she had suffered little material damage compared with France.
This was only one of many instances of the cross-currents into
which the disposition of victory threatened to lose itself in argu-
ment among twenty-seven participants.
The United States contended throughout the Conference for
the fixation of a lump sum, and a reasonable one, by way of repa-
ration. Preliminary Allied estimates of what Germany could pay
ranged all the way from $8,000,000,000 to $120,000,000,000;
c A dollar is roughly equivalent to four gold marks.
« In a final effort to introduce some deftniteness into the settlement, the Ameri-
can delegation, in conversations on the German reply to the peace terms, suggested
capital sums up to $30,000,000,000, though this maximum figure included part pay-
ment in German currency.
336 AMERICAN FOREIGN RELATIONS
estimates of damages were equally vague. Divergencies in esti-
mating damages were doubtless as much conditioned on the ex-
pectations of the victors as on lack of information. In many cases,
the affected nations showed an unwillingness to produce figures
of the physical damage they had suffered.
American objections had eventually to give way, and pen-
sions and separation allowances found a place in the categories
of damage. This was brought about mainly by General Smuts,
whose memorandum on the subject, though regarded by many
observers as an essay in inverted reasoning, was cogent enough to
persuade President Wilson. According to Mr. Lamont, in What
Really Happened at Paris, the President's advisers "explained to
him that we couldn't find a single lawyer in the American delega-
tion that would give an opinion in favor of including pensions. All
the logic was against it." "Logic ! Logic !" exclaimed the Presi-
dent, "I don't give a damn for logic. I am going to include pen-
sions !"T
The abandonment of war costs had impelled the Allies to look
askance at the Wilsonian principle of the special position of Bel-
gium, and at one time it looked as if Belgium would be left out in
the cold. Mr. Hughes's Australian showed his head again, pointing
eloquently and reprovingly at his mortgaged home. But the
United States delegation's advocacy of Belgian claims received
unexpected endorsement by the dramatic appearance of King
Albert before the Supreme Council. The King of the Belgians,
on April 1, 1919, flew from Brussels to Paris for the purpose of
recalling his country's needs to the Conference. Recognition came
toward the end of the Conference, and Belgium was compensated
for the entire loss to which she had been subjected as a result of
Germany's violation of her neutrality. The Conference went fur-
ther ; in view of her pressing needs, she was to receive on account
about 4,000,000,000 gold marks as preferred payment out of the
first cash, securities, and deliveries in kind received from Ger-
many.8
7 P. 272.
s Belgium also received preferential treatment in the settlement of her debt
with the United States. The entire interest on her pre-armistice debt was can-
celled. See pp. 442-443.
REPARATIONS 337
THE FORMULATION OF THE REPARATION CLAUSES
WHEN these questions of principle had been settled, the Confer-
ence proceeded to inquire into the methods of performance of
Germany's obligations under the categories. These methods fell
into three classes: (1) the restitution of objects removed; (2)
reparation in kind; (3) financial restitution. Under the terms of
the armistice, Germany had anticipated reparation in means of
transportation, war material, and submarines, railroads in Alsace-
Lorraine, and cash securities, animals, and objects sequestrated
and confiscated during the war, to an amount variously calculated
in the region of $1,000,000,000. Further deliveries had also been
effected prior to the deliberations of the Commission on Repara-
tion. Article 19 of the armistice convention stated that "nothing
can be diverted by the enemy from securities that may serve the
Allies as pledge for the payment of reparations." At Treves, on
December 13, 1918, and January 16, 1919, the extent of this
embargo had been set forth. Germany had been compelled to sub-
mit to all manner of limitations on her financial and economic life ;
but for American intervention, exercised through Norman H.
Davis, these would have logically developed into a quasi-control
over her finances. The establishment of a general control of Ger-
man finances was, in fact, the ultimate aim of the French at this
time.9
With one exception, all these items of things surrendered were
to be considered credit deductions from the reparation bill to be
paid by Germany. The exception was the sequestrated and stolen
objects and property which the terms of armistice required should
be restored. Delivery requirements were written into the Treaty to
provide also for the surrender of ships to the Allies and Associates,
for the handing over of animals and material, of coal and deriva-
tives of coal, and of chemical products. All of these contributions
were to be regarded as payments on reparation account, which,
furthermore, was to be credited with the following :
(a) the value of submarine cables ceded by Germany, in so far as
they were private property ;
a Klotz, De la Guerre d la Paix, p. 100.
338 AMERICAN FOREIGN RELATIONS
(b) deliveries made under the provisions of the Armistice, ex-
clusive of war material, mainly material for transportation
and agricultural machines ;
(c) the value of the coal mines in the Saar region, which were
ceded to France ;
(d) any payments which the Reparation Commission was to re-
ceive from the Powers to whom German territory was ceded,
as compensation for their acquiring property of the Reich or
of German states, or on account of their obligation to pay
part of the debt of the Reich and the States ;
(e) the value of the rights and participation of German nationals
in public utilities or concessions in Russia, China, Austria,
Hungary, Bulgaria, Turkey, or in the territories ceded by
Germany under the Treaty, so far as the Reparation Com-
mission might order the transfer of these rights.
What was the reparation account? How much was the bill that
was constantly to be drawn on in this way? It seemed a curious
procedure to make the defeated pay so much on account of a debt
that had not yet been fixed. None but the American and British
delegations would essay any definitive approach to the answer.
On their part, the Americans would not consent to the demand of
any definite sum from Germany unless satisfied of damage to at
least that amount. It soon became hopeless to expect any itemized
list of damages, at least any cash assessment of them; and so,
in the end, the delegates had to confess their inability to come to
any decision on their terms of reference, which required the Com-
mission on Reparation to fix the amount of reparations and the
capacity of the enemy countries to pay them. These problems were
unloaded on to a new reparation commission set up by the Treaty.
M. Tardieu's book provides the best and most authoritative
summary of the French standpoint on the question of the deter-
mination of Germany's liability. "You have established damage
categories," he says in effect.
If you try to fix a lump sum, you might find that it will not cover the
stipulated damages, and France cannot give up her rights to full and
complete reparation for all the destruction to life and property
caused by Germany. Besides, you cannot say what is Germany's
REPARATIONS 339
capacity for payment. At present her economic structure is broken
down ; ten years hence, the sum you fix upon now might look absurdly
low. Improvised estimates would be imprudent; the matter should
therefore be left open.
France did not wish to indulge in the definition of a reasonable, or
even of a conceivable, sum, and in this she received support from
Italy and the smaller states, who wanted an indefinite range for
reparations because their hopes had of necessity to rest upon what
would be left over after the greater Powers had taken their share.
An important section of the British delegation expressed similar
latitudinal views.
The new Treaty Reparation Commission was given many spe-
cific instructions. By May 1, 1921, it was to fix the total amount
of Germany's liability. Concurrently it was to draw up a schedule
of payments prescribing the time and manner for securing and
discharging the entire obligation within thirty years from May,
1921 ; far-sighted statesmanship counselled the wiping out of the
whole debt in the course of a generation. At the same time, much
discretion was left to the commission ; it might extend the date and
modify the form of payments, but it could not indulge in any at-
tempt at cancellation save with the specific authority of the gov-
ernments concerned.
The commission was given a ragged outline of the beginnings
of the reparation account. Payment was first to proceed by the
above-named deliveries in kind. These were to be part-payment of
a first instalment of 20,000,000,000 gold marks, or about $5,000,-
000,000, which Germany was obligated to pay before May 1,
1921. In addition to the deliveries, the expense of maintaining
armies of occupation and of importing urgently needed foodstuffs
by Germany was to be accounted part-payment of the first in-
stalment. Though fixation of the entire cash indebtedness was
avoided, a sort of acknowledgment of it was to be handed to the
commission in the form of bearer bonds. The amount of these was
100,000,000,000 gold marks, and the issue, which was to be in
series, was a kind of guaranty of German fulfilment of her obliga-
tions. The figure selected had no relation to the indebtedness under
340 AMERICAN FOREIGN RELATIONS
reparation; the bond issue remained a form by which some of
the debt might be liquidated if the occasion arose, although the
necessity for building up the credit for these bonds, which could
only be the rehabilitation of Germany, received half-hearted at-
tention from the authors of the scheme.
The provisions for possible default in reparation payments were
as follows :
In case of default by Germany in the performance of any obliga-
tion under this part of the present Treaty, the Commission will forth-
with give notice of such default to each of the interested Powers and
may make such recommendation as to the action to be taken in con-
sequence of such default as it may think necessary.
The measures which the Allied and Associated Powers shall have
the right to take, in case of voluntary default by Germany, and
which Germany agrees not to regard as acts of war, may include eco-
nomic and financial prohibitions and reprisals and, in general, such
other measures as the respective governments may determine to be
necessary in the circumstances.10
These were the "sanctions" clauses that later assumed impor-
tance in reparation history.
The first charge on German reparation account was the cost
of maintaining the armies of occupation. Added to this, yet
divorced from the reparation clauses, and apparently outside the
orbit of the Reparation Commission, were financial provisions
that Germany should be responsible to the nationals of the Allied
Powers for the pre-war debts of her own nationals. Mixed arbi-
tral tribunals11 were also to assess and charge to Germany all
damages suffered by nationals of the creditors as a result of ex-
ceptional German war measures.12 All these payments, coupled
with army costs and deliveries in kind, swallowed up the sums
10 Sections 17 and 18 of Annex II of Part VIII, Treaty of Versailles.
11 Not to be confused with the Mixed Claims Commission for war damages
established by agreement between the United States and Germany. See p. 464.
12 "It is a fact that some members of that Reparation Commission were not
aware until the Autumn of 1920 that Germany had already paid large sums of
money to several of the Powers under the clearing operations. . . . Unquestionably
the arbitral tribunals were thus used to carry on private reparation alongside gen-
eral reparation." Bergmann, The History of Reparations, p. 16.
REPARATIONS 341
paid by Germany up till May 1, 1921, and left nothing for repa-
ration proper.
So it came about that the Germans, when they signed the Treaty
on June 28, 1919, did not know what was expected of them beyond
the fact that they had to harness their economic machine indefi-
nitely to the task of paying reparations. No wonder they were not
able to balance their pre-Dawes Plan budgets when they had no
means of gauging the exact nature of these commitments.
Before one subscribes to the prevalent criticism of the repara-
tions clauses, it is well to ponder the circumstances in which they
were conceived. The Allies came to the Conference weighted down
with immoderate commitments to constituents who had been
thrown off their psychical equilibrium by the ending of an un-
precedented strain on civilization. As Herbert Hoover put it, "the
wolf was at the door of Europe" throughout the Conference.
Without the war to batten on, this pervasive war spirit, attended
by the shadow of famine, might at any time have blazed out in
revolt. To deny the demands of victorious peoples in the white
heat of revenge would have invited widespread rebellion against
established authority.
It has been said that the Treaty of Versailles sowed dragon's
teeth over Europe. So did the Congress of Vienna. So have all
peace parleys involving more than two participants. They have
to be tempered in a furnace of seething ambitions, and no matter
what instrument is brought forth, the furnace remains and con-
tinues to seethe. Furthermore, unlike Vienna, Paris was the venue,
not of princes, but of commoners, who, besides being the bearers
of the mandate of war-crazed peoples, had the task of undoing
world history for the preceding half -century and of incubating a
new ordering of world society. "The conference city," said an ex-
pert observer, "was . . . the clearing house of the Fates, where
the accounts of a whole epoch, the deeds and misdeeds of an
exhausted civilization, were to be balanced."13
The wonder is that the work of Paris, inaugurated under these
auspices, did not destroy German sovereignty. Retribution for a
time overbore common sense ; it was an attitude of mind that the
is Dillon, The Inside Story of the Peace Conference, p. 5.
342 AMERICAN FOREIGN RELATIONS
American delegation sought long and earnestly to remove. Grad-
ually it came to be appreciated in circles other than American
that the amount of reparation was the measure of service that the
world was willing that Germany should render to it. To render
service, Germany must be rehabilitated, and thus the guiding
principle to the Reparation Commission was that they must take
into account the maintenance of the social, economic, and finan-
cial structure of Germany. Coal options were to be enforced sub-
ject to the industrial needs of Germany ; reconstruction material
was to be called for only in proper relation to those needs; the
only defaults by Germany that would subject her to penalty and
retaliatory action were to be wilful defaults. In other words, to
quote the interpretive note to Germany on June 16, 1919, "the
resumption of German industry is an interest of the Allied and
Associated Powers as well as an interest of Germany." This in-
volved a degree of cooperation in the restarting of Europe that
would have gone far to overcome the difficulties of working out the
Treaty. But these economic injunctions were not integrated into
the main premises of the Treaty and were forgotten in the sub-
sequent flaming up of political passions and their domination of
events.14
THE REPARATION COMMISSION— WITHOUT AMERICA
THE Reparation Commission was to be composed of one delegate
and one assistant delegate each from the United States, Great
Britain, France, and Italy; these states were to enjoy permanent
representation. Japan was to alternate with Belgium for the fifth
14 This discussion of reparations is limited to its German aspect; partly be-
cause of the predominance of Germany's position, and partly because reparations
from the other enemy states were either postponed or revised in such a way as to
be withdrawn from the picture of contemporary affairs. Reparations from Austria
were based on the same principles as governed German reparations, but on Janu-
ary 11, 1921, Austria declared herself at the end of her resources, and on Sep-
tember 27, 1922, with the aid of an international loan, floated at the instance of
the League of Nations, acquiesced in a League committee of control. On February
21, 1923, she was granted a twenty-year moratorium on reparation payments.
Reparation payments from Hungary were protected by a system of League finan-
cial control from injuring Hungarian economy. She was also granted an interna-
tional loan. Revision had to be effected for different reasons in the modus govern-
ing reparations from Bulgaria and Turkey.
REPARATIONS 343
seat, and Serbia also was to enter the commission in the event of
discussions on certain subjects. The chairman was to be elected
annually and had the deciding vote in case of a tie. In certain in-
stances, such as questions of postponement of German payments
beyond 1930, and the interpretation of the reparation provisions,
unanimity was necessary.
American non-ratification of the Treaty gave the Reparation
Commission a false start. It threw the mechanism out of the order
ordained by the Treaty, for instead of being represented officially,
the American Government elected to look on merely in an advisory
capacity by means of "unofficial observers."18 Albert Rathbone,
Roland W. Boyden, James A. Logan, and E. C. Wilson, holding
credentials from the State Department, successively held this post,
and in time through them America's services extended even to the
arbitration of questions in dispute.
America "outside looking on" was not American participation.
Radical readjustment had to be effected. Five members with voting
power were to have sat on the commission. It is generally taken
for granted that in the event of her ratification of the Treaty,
America would logically have assumed the chairmanship. The
results of the American refusal to participate are self-evident ; it
reduced the voting strength of the commission to four, and in
the political circumstances of the times, this led frequently to
friction and deadlock. The line-up was generally France against
the others, with Belgium in a cleft-stick between Great Britain
and France, sometimes supporting France and sometimes in oppo-
sition.
Perhaps the German observer attached to the commission, Carl
Bergmann, is best qualified to appraise the meaning of American
non-participation. In his History of Reparations™ he says :
Among all the Powers participating in the war, America was the
least partisan or prejudiced in her attitude toward the struggle.
Under her chairmanship it would have been best possible to apply the
IB The subsequent adjustment of representation on the Reparation Commission
is shown on p. 368.
16 Bergmann, according to Sir Josiah Stamp, acquired "a probably unrivalled
knowledge of the sequence of events."
344 AMERICAN FOREIGN RELATIONS
principles of justice and equity. An impartial leadership was all the
more called for because the Reparation Commission was invested with
far-reaching authority which, in theory at least, amounted to a
dictatorship over Germany. In all important cases, except where the
Treaty expressly required unanimity, the vote of the American dele-
gate would have been the deciding factor. The absence of America
had the effect of throwing the chairmanship and predominant influ-
ence in the Commission to France. Up to a certain point this was
justified, as France had suffered the heaviest damage and had a claim
to receive the largest share of reparation, but it had the important
psychological disadvantage of emphasizing as sharply as possible
the natural antagonism between the Commission and Germany. The
feelings of hatred, bitterness and fear against Germany, bred by more
than four years of war on French soil, were bound to be reflected in
the Commission's deliberations when once France enjoyed decisive
influence. But as a result of this development Germany's disposition
and feelings with regard to the Reparation Commission were also in-
fluenced adversely. With the United States occupying the chair, the
great majority of the German people could have believed that justice
and equity would really be the guiding principles of the Commission.
With French influence preponderant it can only too readily be under-
stood that Germany forthwith looked upon the Commission as an
enemy, from the power of which it sought to escape at the first op-
portunity.17
Be this as it may, the seekers after the appeasement of Europe
pinned their hopes on the continued exercise of America's mod-
erating influence in the body charged with the collection of repa-
rations. Without it they felt it would be as difficult to promote
any softening* in the contacts of reparations as to inaugurate a
let-live policy on which the discharge of Germany's liability in the
last analysis depended.
The commission, minus American cooperation, entered into
formal organization on the date of the deposit of ratifications,
January 10, 1920. To pick a way through the record of their la-
bors is a task calling for infinite patience. George P. Auld, their
former accountant-general, says that not half a dozen men in
17 p. 23.
REPARATIONS 345
Europe could do it. Prior to the adoption of the Dawes Plan, the
Reparation Commission held four hundred meetings and the
Allied premiers met in an extended series of peregrinating con-
ferences. "In the minutes of those meetings, and in the contents
of a vast mass of economic, financial, and legal reports, there were
literally hundreds of items of unfinished business on which it had
been impossible to reach agreement," says Mr. Auld. Repara-
tions became a melange of political jockeyings and economic
fantasies. The Conference at Spa, on July 5, 1920, after hearing
a speech by Stinnes which began "I have risen in order to look
all my adversaries in the eye," never reached its stated objective
of entering upon "the practical application of the Reparation
clauses"; the London Conference on March 1, 1921, was wrecked
by the German failure at the eleventh hour formally to advance
their Besserungsschein18 proposal; the Conference at Cannes on
January 4, 1922, broke down as the result of the fall of the French
Cabinet ; the Conference at Genoa on April 10, 1922, was left high
and dry by the signing of the Treaty of Rapallo between Germany
and Russia. This was the story all the way through — misunder-
standings either by Germany or the Allies, political crises at home,
blunders by the negotiators, and French relegation of discussions
to the back stairs, all contributing to the recession of amicable
settlement and to the development of a "sanctions" attitude of
mind in France. France's repeated ban on the discussion of repara-
tions at the intermittent conferences on European reconstruction
invested these gatherings with incongruity. Avoiding reparations
at French behest, European economic experts examined solemnly
the periphery of the subject, knowing full well that their judg-
ments had no heart in them. Plans, counter-plans, interim meas-
ures, provisional solutions — all of them had their brief moment of
life ; but hopes were no sooner kindled than reaction turned them
into despair, and the dramatis personae of reparation had to go
back to the beginning of the long weary road of negotiation.
is Besserungsschein is the technical term in German law for the written promise
of a bankrupt debtor, given on a general settlement, to make additional payments
when his position improves. It would have given the Allies an obvious interest in
the rehabilitation of Germany.
346 AMERICAN FOREIGN RELATIONS
The Economics of Deliveries.
The business of making Germany fulfil even the advance pay-
ments in materials stipulated by the Treaty quickly uncovered
fundamental economic difficulties. One Ally's meat was another's
poison ; deliveries spoiled markets. They also involved the problem
of adjusting an artificial clog in the mechanism of European in-
dustry as well as commerce and credit. Germany offered material
and labor to repair the devastation in France — the same method
of reparation as was enforced after the Punic wars. It was un-
acceptable tribute in the twentieth century ; in our modern world
goods received for nothing would not be the result of domestic pro-
duction and domestic employment in the creditor country. This
difficulty might be obviated by an extension of financial wealth or
credit in the recipient country simultaneously with the accession of
real wealth. Under the existing credit system, however, the unre-
stricted flow of German material into France would have harmed
France's domestic industry, while German labor on French soil
would have had to run the gauntlet of opposition from French
trade unionists. Even as late as 1927, after deliveries had been
regulated in the light of their effect on national economies, we find
M. Caillaux pleading for revision of the Dawes Plan on the ground
of its serious consequences to French private trade and industry
by its artificial stimulation of German competitive capacity. Ger-
many was benefiting from giving goods away ! The receipt of them,
carried on in the haphazard fashion of the early years of the peace,
would have been ruinous to France's economic life ; it was for this
reason that regulation was resorted to, and that by the end of 1922
Yugoslavia had received the lion's share of deliveries in kind be-
cause of the capacity of her agricultural economy to absorb them.
"Beware of the Germans bearing gifts !" eventually became a
general warning. As in France, so in England deliveries pro-
voked endless arguments concerned with their wisdom or unwis-
dom. Economists at first held that deliveries would enlarge the
purchasing power of recipients. Great Britain's experience soon
falsified this prediction, and was eventually written into safe-
guarding laws against the dumping of certain classes of German
REPARATIONS 347
goods on British soil. The delivery of German ships to Great
Britain, far from increasing British purchasing power, con-
tributed directly to unemployment in British shipyards. Regu-
lated coal deliveries may have been a blessing to France and Italy,
but they were a curse to the British export trade, lessening the
demand for British coal on the continent and bringing down
British prices to meet the competition of reparation coal. The ex-
port price f .o.b. of a ton of British coal was reduced from 81s 2d
in 192(3 to 22s Id at the end of 1922 partly as the result of this com-
petition. The parlous condition of the British coal industry was
so much aggravated by the competition of reparation coal on the
export market that some writers have made out a case to prove
that it was a contributory cause of the paralysis in the coal in-
dustry leading to the disastrous general strike of 1926. The Brit-
ish export trade is still suffering from reparations competition,
witness the following comments in the London Economist, Janu-
ary 28, 1928:
In British coal trade circles it is realized that there are serious
difficulties in the way of securing a modification of the arrangements
between the Italian Government and the Reparation Commission un-
der the Dawes scheme, but it is contended that the execution of the
Dawes Plan should not prejudice the interests of any one of the
Allied countries, and that the maintenance of deliveries to Italy at
the high rate of 420,000 tons per month is a further grievous blow
to the coal export trade of the United Kingdom.
Allied troubles in receiving reparation in kind have been some-
what alleviated by regulation, and the Allied industrialists have
been somewhat mollified by an elaborateness of procedure. Still
the creditors are showing an increasing tendency to take their
reparations in cash. The reichsmark payments, representing
mainly deliveries in kind, have dropped from 69.63 per cent to
45.77 per cent of the annuities, although, since the annuities are
on an ascending scale, this has been accompanied by an increase in
volume. They are hedged around with safeguards more or less in
accordance with the economic interests of Europe, but still posited
on political considerations. The arrangements for coal and other
348 AMERICAN FOREIGN RELATIONS
deliveries to France, which had been in force in the occupied areas
of the Ruhr, were extended by common consent on May 1, 1925,
on a commercial basis. Under these new and revised regula-
tions, contracts are entered into between German sellers and
French buyers, the Germans being under obligation to take pay-
ment through the Agent General in Berlin, and the French buyer
being precluded from reexporting the goods. The procedure is that
the contract is first sent for approval to a joint office maintained
in Paris by the German Government and the Reparation Commis-
sion, and then to the Transfer Committee, payment being made in
the following manner : A representative of the French Ministry of
Finance draws a draft upon the credit of the Agent General, and
delivers it to the French purchaser, and the latter pays the French
Government. The French purchaser then endorses the draft and
sends it to the German seller, who deposits it with his bank, and
the bank presents it to the Agent General for payment through
the Reichsbank.
Then there is the indirect form of deliveries, governed by a
new system of administering reparations under the Allied Repara-
tion Recovery Acts. The creditor governments keep statistics of
their monthly imports from Germany, of which, under the Re-
covery Acts, 26 per cent is a reparation charge. The bill is sent to
Berlin for payment. Meanwhile the German Government collects
the foreign exchange accruing to the German exporters from these
transactions, hands it to the Agent General for transfer, and re-
ceives reimbursement from that official in reichsmarks. The Ger-
man currency is then passed on to the German exporters affected.
These payments to the creditor states appear in the Agent Gen-
eral's reports as "transfers in foreign currencies." The new
procedure was introduced, first, to bring these transfers under the
control of the Transfer Committee, and, secondly, to avoid the
red-tape involved in collecting reparations through individual
transactions at the importing destination.
The Employment of Sanctions.
These lessons had still to be learned. Germany was "reported"
to her creditors on July 30, 1920, for a default on coal ; but after
REPARATIONS 349
the difficulty had been smoothed over, the converse happened, so
much reparations coal being received in France that it had to be
thrown on the world market. So it went on until the occupation of
the Ruhr, economic necessities sometimes influencing the Repara-
tion Commission to wink at non-delivery, political expediency
sometimes calling for sharp rebuke.
Political histrionics served to make the reparation issue a con-
flict between the Allies and Germany, with singularly small ref-
erence to the Reparation Commission, which was hard put to it
to maintain the pace of the Allied discussions. Public opinion,
fomented in large part by the quick-change indignation of Lloyd
George, became inflamed when Germany elected to keep a few
cards up her sleeve at the London Conference of March 1, 1921,
by failing to offer the Allies the increased benefits afforded in the
Besscrungsschein proposal ; and, as Germany continued to be stiff-
necked, Marshal Foch moved troops into Dusseldorf , Duisberg,
and Ruhr or t on March 8, 1921, In this first expression of French
"sanctions" policy Great Britain and the other Allies concurred,
Great Britain in the retention of a percentage of the value of Ger-
man imports, and other Allied states in the sanction of similar in-
struments of reprisal, although it seems open to question whether
the Allies bothered overmuch with any attempt at interpretation
of the "sanctions" clauses of the Treaty.
Enforcement of wholesale sanctions a la Franfaise depended
upon the pillorying of Germany for voluntary defaults and an ar-
bitrary interpretation of the nebulous Treaty clauses which made
such defaults the occasion for reprisal. For months before Janu-
ary 9, 1923, Germany had not handed over the requisite contribu-
tions of coal. Timber deliveries were also backward, but these were
not sufficient reason for the establishment of a case for occupation,
and so the Reparation Commission, urged by M. Poincare's policy,
proceeded to make out a case on the coal defaults. The "posting"
of Germany over the non-delivery of coal, though non-delivery
was known to be entirely involuntary, was done without the ad-
herence of the British delegate on the commission. Britain had
finally decided to abandon her task of placating France; the
Anglo-French rift widened into a chasm, and France, stifling
350 AMERICAN FOREIGN RELATIONS
with budget and currency problems which reparations were not
helping to solve, elected to play her own hand and seize guarantees
herself. No sooner had the dubious authority of the commission
been offered than French and Belgian troops entered the Ruhr on
January 11, 1923.
National nerves became frayed in this inability jointly to trans-
late into action the methods laid down at Paris for dealing with
Germany, keeping the Allies at loggerheads and Europe in a fer-
ment. The Dawes Plan closed the chapter, replacing the guaran-
tees of Poincare with a protected system founded on the resuscita-
tion of German credit. Allied bickerings had repercussions in the
Near East where Greek was pitted against Turk, and in the Mid-
dle and Far East, where French and British policies fell apart for
no other ultimate reason than friction over German reparations.
The difficulty of defining the total bill against Germany
brought with it both economic disturbance and political tension.
So difficult did it appear that it was not until April 27, 1921, four
days before the expiry of the time limit, that the Reparation Com-
mission determined Germany's obligation. This was set at 132,-
000,000,000 gold marks, subject to certain deductions, and ex-
clusive of the Belgian priority of 4,000,000,000 gold marks. No
official statement was ever made as to how it was arrived at, but,
according to John Foster Dulles,19 approximately 45,000,000,000
gold marks was ascribable to material damages and 87,000,000,-
000 to pensions and separation allowances. Under threat of an
ultimatum Germany had to accept the arrangement, and pay-
ments began to be made under what came to be known as the Lon-
don Schedule, decided on May 5, 1921. The payment of 1,000,-
000,000 gold marks was the only cash payment under this sched-
ule ; other credits on reparation account are discussed below.
CONDITION OF EUROPE PRIOR TO THE DAWES PLAN
IT is well to examine the causes of the tension among the Allies, for
the divergencies in attitude toward Germany sprang from many
roots. New political issues raised by the increased subdivision of
19 In an article in These Eventful Years, Vol. I.
REPARATIONS 351
Europe and the overtures and formation of fresh international
combinations had the effect of tearing asunder former friendships.
The break-up of the economic solidarity induced by collaboration
in war-making set in motion what Sir Arthur Salter called an "im-
mense centrifugal force of national separation" and left the na-
tions with weakened mainsprings.20 Problems were now weighed
in individual scales, and those leaders who tried to be good Euro-
peans were quickly elbowed off the stage by peoples impatient to
turn inward to national reconstruction. It was time to call a halt to
adventuring in the common weal and to do a little work on the
homestead, for a legacy of social problems pressed for solution. Fi-
nally, the sharper contact of civilizations busied minds which had
come to take it for granted that no colored race could object to
be treated as an uncomplaining burden for the white man.
To all these problems, calling for solution in domestic terms, the
victorious nations had to address themselves on the termination of
their shoulder-to-shoulder association at Paris.
France's insistence on — and need for — reparations to lighten
the French budget of part of the burden for war expenditure and
reconstruction was coupled with her pressing and natural demand
for military security while she repaired her disorganized economic
fabric. The disconnection of the economic and financial ties with
the United States and Great Britain, involving the drying up of
credits, had the effect of giving a more anxious turn to her expecta-
tions from Germany.21 Her accumulating budgetary deficits were
slated for Germany to pay. Then she carried over into the peace
the species of nationalism whose synonym is negative hostility,
which she expressed at the slightest evidence of non-cooperation
20 Interesting surveys of the triumph of international cooperation wrought by
association in war and of the reaction from it after the peace are given in Germain
Calmette, Recueil de Documents sur I'Histoire de la Question des Reparations, and
Salter, Allied Skipping Control The war proved a hot-house for the economic
organization that transcended the eighteenth century concept of national inde-
pendence and sovereignty.
21 The connection that the Allies during and after the Conference sought to
create between reparations and the war debts, and that at one time was hoped
might lead to America's official assumption of the premier r61e as Germany's
creditor, might be cited here; but as it is dealt with in the discussion on debts,
the reader is referred to that chapter, pp. 402 ff.
352 AMERICAN FOREIGN RELATIONS
in Germany. Clemenceau gave it a crisp expression when he said
on October 2, 1921, "In the pitfalls of peace, as in the upheavals
of war, France above all!" — the voice in another language that
called for "Deutschland ilber Alles!" The French could not easily
soften an attitude of mind which had been hardened by the hatreds
of a protracted war. To a section of the people security came
to mean the maiming of Germany to the point of impotence. Said
Tardieu : "We cannot accept the risk of German industrial revival,
therefore we must compel her to pay mountainous indemnities."
It was necessary to wait until this fever had abated before
French opinion could express itself in support of a sane dispas-
sionate policy. The tragedy of international jealousies, it has been
said, is the conflict between right and right according to the vision
individually manifested in the countries concerned. Although
rights have a way of getting entangled with national expediency,
the point remains, and it is only proper to ponder it in any appre-
ciation of the conditions in Europe leading up to the Dawes Plan.
Great Britain had her problems as well as France; equally
pressing, equally individual. These were connected with the ne-
cessity to British economy of seeking a return to unrestricted
commerce and the rehabilitation of London as a clearing house of
world trade. Dependence on unfettered trade relations, together
with the confidence born of an island existence, has impregnated
Great Britain, as Andre Siegfried illuminatingly points out, with
an international and economic sense which seems unreal to less
isolated and yet more domestic France. It was this sense that in-
spired Lord Castlereagh after the Napoleonic wars to say, "No
arrangement could be wise that carried ruin to one of the coun-
tries between which it was concluded." It was written into the set-
tlement of 1816, but was subordinated a hundred years later at
the Conference of Paris to French urgencies, though spasmodi-
cally it came to the surface, especially toward the end of the dis-
cussions, with a disconcerting but unsustained emphasis. That
Britain's real economic interests did not altogether dictate British
policy at Paris may probably have been due to the predominance
of British imperial interest in the territorial re-shapings indulged
in by the Conference.
REPARATIONS 353
With both the war and the peace-making over, the British were
faced with the need for their peace-time European markets; a
need that became more pressing as time went on, and brought
about a revulsion of feeling in favor of Keynesian economic
thought, which demanded the lightening of the burden on Ger-
many as the best insurance of trade recovery. France remained at
bottom a champion of the Treaty, not as Tardieu says as a
"propylaeum," but as something integral, which is what Poin-
care demanded. What could that convey but dismay and irrita-
tion across the Channel? Germany strained herself almost to dis-
integration in the effort to fulfil the London Schedule; yet Ger-
many was the corner stone in Britain's export structure in Europe
before the war, and had to be restored if British factories and
workers were to regain their activity. At the outbreak of the war
Germany had become the central support around which Great
Britain and the rest of the European nations grouped themselves.
This is evident from the figures of German trade. In 1913, 52 per
cent of German exports were disposed of in western Europe, and
about 24 per cent in central, eastern, and southeastern Europe,
with Great Britain as Germany's best, and Germany as Britain's
second-best, customer.
On the theory that policy is moulded by tradition, perhaps
Britain's change of heart after the peace had its subconscious
prompting in the historic role she has played in continental Euro-
pean affairs of resisting the rise of potential hegemony. In the
early years of the peace France seemed to be striving for pre-
dominance through her accrual of "client states" in central Eu-
rope and the Balkans.
Italy had undergone a similar volte face, the more complete in
her case because of the anxiety she showed at Paris to widen the
well of reparations so that she might have ample room to dip into
it. The Italian change of approach to the reparation problem was
conditioned as naturally on economic necessities as was Great
Britain's. Unhampered commercial intercourse constituted an
irresistible argument to a country so poor in the raw materials
essential to industry. Italy therefore demanded ready access to
German markets, since the crippling of those markets could easily
354 AMERICAN FOREIGN RELATIONS
be translated into the starving of her exuberant population. Then
she had her own political preoccupations, ascendancy on the Adri-
atic being the most vital.
Renewal of American Interest in Reparations.
Save for one or two revelations of interest, the United States
throughout this long period of discord maintained the distance
and detachment which Washington recommended as a counsel of
American conduct in the agricultural days of 1776. One depar-
ture occurred after the first enforcement of "sanctions" on March
8, 1921. Under the impetus of this action, the Reparation Com-
mission developed a peremptoriness over the collection of the
values of the 20,000,000,000 gold marks set down for payment
before May 1, 1921. A week before that date, Germany, rendered
desperate by the hardening of the heart of the commission,
transmitted proposals to the United States agreeing to ac-
knowledge a debt of a present value of 50,000,000,000 gold marks
and to pay this sum in annuities up to a total of 200,000,000,000
gold marks. Viewed in all its details, this offer was a great improve-
ment on the one made prior to the signing of the Treaty, which
would have involved the payment of only 100,000,000,000 gold
marks over a term of years, an offer that then had a cash value of
about 35,000,000,000 gold marks.
The fresh offer had its inspiration in President Harding, who,
in refusing a German appeal to arbitrate the dispute with her
creditors, declared his willingness to examine any new proposals
and, if they seemed suitable, to pass them on to the Allies. "On May
3, 1921, the Allies rejected the German plan, and two days after,
agreed to the imposition of the London Schedule of payments,
which, when closely examined, appeared not much different from
the German offer. On the face of it, it was very dissimilar, the ap-
parent dissimilarity being created for political purposes, in the
name of which most of the reparation plans were rendered ob-
scure. This was due to the conception of "present value," mean-
ing the sum which over a certain period of time and at a given
discount or rate of interest would yield the total obligation called
for. The various plans were never clear in regard to present
REPARATIONS 355
value, even when in other particulars they seemed in harmony,
and some of the schedules were so confusing as to constitute
arithmetical puzzles. Misunderstanding over the ramifications of
the fact that $100 due, say, in 1950 has a very different value
today extended to some of the leading politicians in charge of
negotiations. It gives point to the observation of Paul M. War-
burg22 that "a fair and practicable solution of the problem of
restoring European finance could have been reached nine years
ago if on all sides payments with respect to war debts and repara-
tions had been considered as payments on account of principal,
instead of permitting cumulative interest tables to confuse the
issue." When disentangled from the usual strings, the final de-
termination of the debt at 132,000,000,000 gold marks, worked
out according to the London Schedule, gave a current value of
50,000,000,000 gold marks. Therefore, quite apart from the ac-
companying threat, there was every reason why the Germans, after
committing themselves in despair and under the duress of "sanc-
tions" to the offer they had made through President Harding,
should accept the London plan, once they understood it in its real
implications.
The second case of American action came in the form of the
participation by American banking interests in the Loan Com-
mittee of the Reparation Commission. Germany had never been
given an opportunity to reestablish her economy after the war,
and this fact, coupled with her exertion to pay the first instalment
under the London Schedule, caused her economic linchpin, the
currency, to show progressive weakness. Under the stress im-
posed by the attempted fulfilment of the creditors' demands, the
Germans were rapidly losing the will as well as the capacity to
redeem their liabilities. It might be contended that the will had
never been in evidence in Germany. But enthusiasm for the task
of paying the penalty of defeat is not to be expected from human
nature. The point is that since collaboration was not invited,
it was too much to ask the Germans to assist in the realization
of an aggressively unilateral policy which was directed at the forc-
ing of German submission along a course that economic truth ad-
22 New York Times, January 19, 1928.
356 AMERICAN FOREIGN RELATIONS
vertised as leading to bankruptcy. A nation will not willingly
commit a particular form of suicide at another's behest, although
it may seek other means of self-destruction as a way of escape.
Privately and commercially, the Germans began frantically to
put their money into foreign currencies, the firms because they
needed some stable medium for their working capital, and private
persons because the sag in the currency was so alarming as to
threaten complete obliteration in real values. The "flight from the
mark," as the movement came to be called, had its origin in the
sapping of confidence in the ultimate ability of Germany to bear
the load of reparations, and its impetus in the laissez faire attitude
of the German Government. So rapid was the drop that it halved
tax returns between the time of assessment and the time of col-
lection ; deficits occurred in the budget, and all that the govern-
ment could do in the absence of credits was to call upon the print-
ing press to exercise its devastating function, and to sell the marks
thus created in a market dominated by speculation for the foreign
exchange requisite in the fulfilment of the reparation liability.
As the mark plunged downward, the harassed Allied statesmen
came to gain a "faint indirection" of the importance of safeguard-
ing German currency ; an international loan seemed the only way
to restore German finances. J. Pierpont Morgan was the Ameri-
can representative on the Loan Committee, and at the first meeting
on May 24, 1922, he made it clear that the prerequisite of Ameri-
can interest in the loan proposed was a thoroughgoing settlement
of reparations. In the American mind the time had passed for
half measures.
The French Government under Poincare immediately took
alarm ; here was another effort to damage the Treaty, and as such
it must be resisted. With the French still in agitation, the Loan
Committee felt there was nothing before them but an indefinite
adjournment; but prior to breaking up they issued a statement
on June 10, 1922, which should have provided much food for
thought in the Allied countries but which had to lie fallow until its
fundamental truth had been demonstrated by the logic of events.
The committee said :
REPARATIONS 357
If the Committee have felt obliged to be discouraging as to the
prospects of a loan in the present position of Germany's credit, they
desire to be no less emphatic in stating their conviction that, provided
the necessary conditions for the revival of her credit can be realized,
substantial loans could be successfully floated in all the main mar-
kets of the world. They are deeply conscious of the immense assistance
to the economic recovery of the whole world which would be afforded
by the gradual conversion of the German obligation from a debt to
governments into a debt to private investors, based, like other public
debts, not upon external functions, but upon the general credit of the
debtor country.
Sweet reasonableness, however, could not prevail in the circum-
stances of the times ; notwithstanding the admonition, the French
were pushed by their own domestic troubles toward a policy
that had its consummation in the occupation of the Ruhr. Even
the Belgians at this time could not keep the pace set by Poincare
to the tune of "I demand the strict fulfilment of the Treaty of
Versailles," which he reiterated in "Sunday sermons" through-
out this period. Delacroix labored unceasingly to bring the Loan
Committee together again, but when Pierpont Morgan pointed
out that his cooperation depended upon general recognition of
Germany's need for an extended moratorium, Poincare, supported
by President Millerand and fortified by political successes in the
Near East, dropped abruptly any interest he may have shown in
the resumption of the committee's deliberations. Thus was Ger-
many deprived of the help she sorely needed to energize her
economic life and to produce reparations. A moratorium, which
was now extended from time to time, was not of much use to Ger-
many without the credits required for rejuvenation, and Berlin
officially threw up the sponge in November, 1922, declaring that
Germany was too anaemic to continue payments.
German Payments before the Dawes Plan.
What did Germany actually pay during this time of turmoil
prior to the adoption of the Dawes Plan? Nobody can say: first,
because estimates by the authorities were rendered divergent by
political animosities, and, secondly, because values in terms of
358 AMERICAN FOREIGN RELATIONS
money were inconstant. In 1921, trade depression reduced the
values of goods surrendered much lower than the values envisaged
when the figure of 20,000,000,000 gold marks, which was sup-
posedly the measure of values for surrender, was arrived at. Up
till May 1, 1921, when Germany should have remitted this sum in
goods, the Reparation Commission declared that they had ac-
tually received reparation values amounting to only 2,600,000,000
gold marks. Against this sum, the expenses of the armies of occu-
pation were to be a first charge. By 1921, these had reached 2,100,-
000,000 gold marks for the French, Belgian, and British armies,
and over a billion gold marks for the American army. Receipts on
reparation account were therefore not sufficient to pay even for the
costs of occupation ; in consequence, the American bill was merged
into the Dawes scheme of payment by means of a decision reached
on January 14, 1925.23 By 1923, at the time of the occupation of
the Ruhr, payments on reparation account, according to the com-
mission's figures, amounted to 8,000,000,000 gold marks, 1,800,-
000,000 gold marks in cash and the balance in materials.
Naturally these figures did not correspond with the German
figures. Dr. Simons at the London Conference in March, 1921,
had valued deliveries at 20,000,000,000 gold marks ; Dr. Schroe-
der went even higher, and placed the total at 37,000,000,000
gold marks. At the later date, the beginning of 1923, the German
Government's assessment was 45,000,000,000 gold marks, as
compared with the figure of 8,000,000,000 gold marks furnished
by the Reparation Commission. It is impossible to compare these
figures, since some estimates do not distinguish between "restitu-
tion" and "reparations."
19 19 and 1871.
The difficulty of appraising the value of things restored and
cessions and similar credits makes it impossible intelligently to
present a comparison between this burden on Germany and the
French burden of 1871. In any case, detailed comparison would be
23 Under the army cost agreement of May 25, 1923, which was superseded by the
Paris agreement of January 14, 1925, the United States received $14,725,154. Under
the Paris agreement she had received $13,057,939 out of Dawes annuities by Sep-
tember 1, 1927. The outstanding amount due the United States Government was
then $220,083,308.
REPARATIONS 359
useless, for the reasons that populations were different, the wars
were fought to different stages of exhaustion, the purchasing
power of gold was much less in 1919 than it was in 1871, and the
economic settlements were rendered comparatively simple in 1871
because only two parties were involved and because these two
parties had not then reached the stage of economic advancement
which in this modern industrial world is making economic units
out of groups of nations. The war indemnity paid by France in
1871, apart from enormous requisitions and the upkeep of the
army of occupation, was about 4,000,000,000 gold marks; Ger-
many's liability as fixed by the Reparation Commission was thirty-
three times larger. According to the Institute of Economics at
Washington, the tangible values surrendered by Germany in ful-
filling Treaty obligations of all kinds down to September 30, 1922,
represented a loss to Germany, whatever the values realized by the
creditors, of about 25,000,000,000 gold marks ;24 or about half of
what came to be a generally accepted figure that Germany could
pay, namely, 50,000,000,000 gold marks. The total of Germany's
actual payments had already become in 1922 five or six times as
great as the 1871 indemnity, viewed solely in its arithmetical
dimensions. The great difference between the two sets of conditions
was that whereas in 1871 France's credit on the international
financial market remained perfectly sound, Germany's credit be-
came and was kept non-existent; and this was the crux of the
problem. Germany was economically as well as militarily defeated
in 1918; France in 1871 was only militarily defeated, and the
difference had its reflection in the credit position of the vanquished
Power. In 1872, so eagerly did the nations cooperate with France
in the payment of her indemnity that in two days, July 28 and 29,
"the world offered France the loan of a capital of forty-two mil-
liards25 641 millions" of francs;26 a substantial part of which,
ironically enough, came from Germany. It is also a fact that
France showed far more spirit after 1871 in paying her indemnity
than Germany did prior to the Dawes Plan, although it must be
24 Moulton and McGuire, Germany's Capacity to Pay.
26 Billion in American usage.
26 Simon, The Government of M. Thiers (trans.), p. 223.
360 AMERICAN FOREIGN RELATIONS
noted that French incentive was derived in part from German oc-
cupation of considerable French territory.
What would Germany have done if she had been the victor in
1918? Would she have been as intransigent as France proved to
be? It is a pertinent inquiry, and one that finds a partial answer
in the treatment meted out to Russia and Rumania by the treaties
of Brest-Litovsk and Bucharest respectively. The latter instru-
ment obliged Rumania to deliver to Germany her entire surplus,
and to yield to a company controlled by the German Government
the right to operate all her petroleum wells for 90 years. The trea-
ties with Ukrania, Poland, and Finland were little less harsh, and
the whole scheme of Germany's attitude toward her vanquished
indicates that, had the scales turned in her favor, she might
have imposed a Carthaginian peace upon her principal enemies.
This would also have been quite in accordance with the precedent
of 1871. Five billion francs was a huge sum in those days, and it
was plainly the German intent to hamstring France for a gen-
eration. "The five milliard did not accord with the charges, direct
or indirect, of the German Exchequer, and went beyond the total of
all the losses experienced, even when the reestablishment of our
military was therein included."27 Bismarck was chagrined at
France's wonderful recuperation, and the history of that period
up to 1875 shows that his often-quoted remark, "Next time I hope
we have to pay an indemnity," was merely a faf on de parler; that
the Iron Chancellor's policy was to "bleed France white" at the
first opportunity. All of which shows, as Artemus Ward would
say, that there is a good deal of human nature in man.
The 1871 experience provided the warning that under our mod-
ern economic system the enforcement of heavy transfers of wealth
by way of indemnity has the inevitable effect of adding to the eco-
nomic power of the payer at the same time as it impedes the re-
covery of the recipient. The assumed political expediency and the
economic inexpediency of making the defeated pay have still to be
reconciled, and the difficulty in pre-Dawes Plan years impelled the
creditors to side-step its implications and to keep Germany in
thrall.
27 Wolowski, Journal des Economists, December, 1874.
REPARATIONS 361
THE ENTHRONEMENT OF COMMON SENSE
IT seemed necessary to allow events to reach a stalemate, terrible
though that was in terms of human suffering, before an atmos-
phere could be created favorable to the scientific examination of
reparations. As General Dawes put it when he arrived in Paris
to inaugurate the work of the Dawes Committee, "If France were
not in the Ruhr, we should not be here." Even J. M. Keynes is
constrained to admit "One feels indeed a certain inevitability —
that the various stages, however imbecile and disastrous in them-
selves, had to be passed through. "28 The proposal to appoint a
committee of experts with American participation originated in
the United States. According to Lloyd George,29 "the overture
wras first made to France in October, 1922, by the Secretary of
State [of the United States]. France turned it down. It was then
communicated to our ambassador by the Secretary of State. He
made a speech in December, 1922. He made that speech because
nobody took any notice of the communication. He made that in
despair."
The speech referred to by Lloyd George was delivered by Sec-
retary Hughes at New Haven on December 29, 1922, and con-
tained the proposal rejected by France when submitted through
diplomatic channels. This manner of publicly airing American
views on reparation policy revealed the concern of America in the
troubles of Europe, and seemed to forecast an American return to
the stage of affairs after the abrupt exit marked by rejection of
the Versailles Treaty. That concern had been intensified by the
economic depression in the United States in 1920 and 1921, a de-
pression traceable in part to the economic disturbances in Europe,
which curbed European buying power for American goods. Sales
were abundant, but they were maintained on open account, since
Europe had little ready cash, and the result was that the lack of
settlements helped to precipitate a commercial crisis in America
with widespread repercussions. Neither the manufacturers of the
East nor the farmers of the Middle West could believe with a cer-
tain American ambassador that the United States was "damned
28 The Nation and Athenaeum, Jan. 7, 1928.
29 House of Commons, January 15, 1924.
362 AMERICAN FOREIGN RELATIONS
well out of the whole mess." The shoe was beginning to pinch too
much to make it tolerable even as a political indulgence.
Evidence of a new intimacy of outlook came in the agitation for
the calling of an international economic conference; and though
this was not taken up, President Harding on December 24, 1922,
admitted that "the European situation has been given most thor-
ough and thoughtful consideration for many months.5* Two days
after, the Hughes speech gave point to this official preoccupation,
showing that Washington wished to attend to the heart of the
matter instead of subscribing to any general discussions on Eu-
ropean reconstruction.
The idea remained buried in European minds while France and
Germany fought their "sort of war" over the occupation of the
Ruhr. The separation of its economic nerve center caused wide-
spread confusion in Germany, which political troubles, threaten-
ing chaos and disintegration, intensified. Between June and Oc-
tober, 1923, the mark dropped from 100,000 to the dollar to the
global figure of 1,000,000,000, and these gyrations spelled the col-
lapse of the monetary system, since the mark in this state could
hardly perform its functions as a medium of exchange and as a
measure of value. Real credit, which is confidence, fled Germany
with the marks which the industrialists and the wealthy had ex-
ported. Other liquid assets were sunk into extensions of plant,
freezing the remainder of Germany's mobile capital. Windfall
profits were reaped by paying off mortgages and debts in virtually
worthless currency. The government saw its bonded indebtedness
in process of disappearance, while the rentier watched his income,
either in the form of savings or inheritance, dry up before his
eyes. The workers suffered by reason of the time-lag in wage ad-
justments to price increases. Prices might advance even while the
housewife was waiting in a queue for her turn to be served by a
shopkeeper. Herr Grassmann, a representative of German labor,
speaking before the Dawes Committee, stated that the German
working classes could not withstand another period of inflation.
They appealed to the world for a stable currency "which would
render it possible for them to buy something with their wages even
four weeks after they had received them."
REPARATIONS 363
In its effect on the German economy, the virtual elimination of
government indebtedness did not make much difference, for it was
really a case of robbing Peter the bondholder to pay Paul the tax-
payer, but the debacle caused grievous maldistribution of burdens,
and these the Dawes Committee tried to correct. Nor was the base
of German economy, its plant, damaged; rather it was rendered
potentially more powerful by its absorption of improvements
through the instrumentality of the liquid assets which had been
frightened into this form of immobility. The "sort of war" came
to an end on September 26, 1923, Germany abandoned passive
resistance, and introduced a currency scheme conceived by Dr.
Helfferich. Something had to be done to perform the monetary
functions vacated by the paper mark. A new unit, the rentenmark,
rose phoenix-like from the ashes of the paper mark; that it at-
tracted the confidence of a people riotous and in a semi-panic was
not the least of the remarkable phenomena produced by the post-
war history of Europe. It marked the end of laissez faire by the
German Government which, in accordance with the provisions of
the Dawes Plan, eventually agreed upon the issue of another unit,
the reichsmark.30
The preliminary currency housecleaning had no effect on
reparations. During the occupation of the Ruhr, no deliveries
were made of Germany's own volition, and, since all Germany's
remaining resources were tied up to the subsequent rehabilitation
of her currency, there was no possibility of restarting deliveries.
At the same time, a great step was taken in the direction of
economic revival by the concurrent divorce of the Reichsbank from
the German treasury. The depreciation of the old mark had been
so rapid that the revenue of the Reich, reckoned in gold marks,
was negligible; nevertheless, costs in real values remained un-
affected, with the result that the budget showed a curiously one-
sided aspect. How, then, was the government financed? By note
borrowings from the Reichsbank in return for short-time bills.
Depreciation ensued, and was furthered by a concatenation of
so The reichsmark, like the rentenmark, was made equivalent to 1,000,000,000
paper marks. Hereafter, all figures of German currency will be in reichsmarks,
unless otherwise stated.
364 AMERICAN FOREIGN RELATIONS
circumstances, chief among which was the necessity of using these
depreciated notes for the purpose of buying foreign exchange to
pay reparations. Frenzied finance, indeed ! The end of this regime
spelled the abatement of the fever, but it did not bring on new
economic life. Physically perfect in parts though it was, the Ger-
man industrial structure had to be reinvigorated and nursed back
to economic health and strength with foreign help and by means of
other agencies provided by the Dawes Plan. Under the capitalistic
regime, real wealth means nothing if fenced off from a common
system expressed by the circulation of a common money token.
Britain held aloof from the Ruhr imbroglio, though she con-
sistently proclaimed its illegality, and even went so far, according
to the President of the Reichsbank, Dr. Schacht, as to promise
future cooperation and credit to Germany. These whisperings of
a new attack on the problem of reparations along the lines laid
down by Mr. Hughes undoubtedly gave the Germans fresh heart
to try to put their country in order with the resources remaining
to them. The day of gigantic and immediate forfeits seemed to be
coming to an end. Meantime the British awaited a favorable op-
portunity to urge a reconsideration of reparations ; this occurred
after the assumption of the British premiership by Stanley Bald-
win. It is a commonplace of diplomacy that a change in contacts
often smooths over situations seemingly irremediable when in the
hands of persons whose antipathies have been exacerbated to the
breaking point. Bonar Law had described the reparation problem
as "almost hopeless" ; fresh to the subject, unconnected with pre-
vious controversy, Baldwin succeeded in reestablishing conversa-
tions with Paris. He it was who prepared the ground for an appeal
to the Hughes proposal. Poincare, however, wished to severely
restrict the activities of the proposed expert committee, and his
susceptibilities threatened to frustrate British- American efforts,
which then had to turn to the Reparation Commission. The Repa-
ration Commission secured what diplomatic exchanges had failed
to bring about, and the subsequent accord brought into existence
two expert committees, one to consider the means of balancing the
German budget and the measures to be taken to stabilize German
REPARATIONS 365
currency, and the other to investigate the amount of German capi-
tal with the view of bringing about its return to Germany.
As it was the first committee, commonly named after its chair-
nian, General Charles G. Dawes, that constituted the further his-
tory of reparations, the second committee did not receive the
attention their labors deserved. Presided over by Reginald Mc-
Kenna, the British banker, they revealed that the total amount of
every kind of German capital abroad was 6,750,000,000 gold
marks ; not a large amount, but some measure of the extent of the
"flight from the mark" when we bear in mind that the war had cut
off Germany's commercial connections and had deprived her of
the greater part of her overseas investments. The return of this
mobile capital was provided in some measure by the machinery of
the Dawes Plan.
The American representative associated with General Dawes
on the first committee was Owen D. Young, and Henry M. Robin-
son was later coopted from the second committee. Official Amer-
ica's second advent to Paris renewed German hopes of a thorough-
going readjustment of reparations. "Thus after a long and
devious journey," says Bergmann, "the object which the authors
of the Treaty of Versailles had in mind, i.e., the settlement of
reparations under American leadership, was finally reached."
This, at any rate, had been the hope of the German people. Other
opinion did not envisage settlement ; if there was any optimism, it
was "so well under control as to amount to a chilling lack of con-
fidence," in the words of an observer. Well it might be, with prob-
lems so ramified and the committee's terms of reference to meet
them so restricted. Poincare had said, "France will not accept
that a committee of experts make any changes in the amount of
the debt as fixed on May 1, 1921." In official French minds, Ger-
many's capacity to pay was still a "dangerous sophism," notwith-
standing the fact that it had come to be the measure of settle-
ment of the general indebtedness arising out of the war. Such an
attitude did not presage more than a tinkering by the new com-
mittee, but those who, like Bonar Law, were covered with what
Dr. Johnson would have called "inspissated gloom" by the vicissi-
tudes of reparations, did not take into account either the occasion
366 AMERICAN FOREIGN RELATIONS
or the caliber of the men chosen to meet it. Something had to be
done to recover a unity of thought in Europe, and here were the
men who, being neither doctrinaire nor entangled in the politics
of reparations, seemed most likely to aid in its promotion. This
was the impression produced by the frank opening speech of
General Dawes on January 14, 1924. He referred to the "impene-
trable and colossal f ogbank of economic opinion," whose premises
of fact had changed so rapidly as to make the bulk of them worth-
less. "Common sense must be crowned King" . . . "Fifty medical
experts, gathered around the bedside of a dying patient, would
give fifty different estimates of how far he could run if he got
well." They had been listening so far to the medical experts ; let
them first help Germany to get well by devising a system for
establishing Germany's currency so that "they could get some
water to run through the budget mill." The committee had to
exercise ingenuity in framing a constructive proposal on the
basis of their limited charter.
After working assiduously for four months, the committee pro-
duced their plan on April 9, 1924. It provided an imposing volume
of 124 pages and proved to be an exhaustive summation of the
economic experience gained from reparations, the deductions from
which were applied to the fulfilment of the twin purpose of re-
juvenating Germany and collecting reparations on such a basis as
to leave the revived German economic structure undamaged. "The
amount that can safely be fixed for reparation purposes," says
the Plan "tends . . . to be the difference between the maximum
revenue and the minimum expenditure for Germany's own needs."
— seemingly a commonplace but in truth a lesson from past Allied
misconduct. To be workable, the system had to be bilateral, with
the principle of arbitration firmly attached to it, and these ad-
vantages over the Treaty of Versailles helped considerably in gain-
ing general adhesion for the Dawes Plan. The Plan was accepted
in its entirety, both by the creditor states and by Germany, at the
London Conference, July- August, 1924. Its application required
much organization, providing for a network of controls and ma-
chinery and legislation in Germany, but all parties got the scheme
under way with the minimum of friction. Poincare's displacement
REPARATIONS 367
by Harriot in the French premiership accounted in great part for
the expeditious manner in which the London Conference legalized
the Plan and for the subsequent French withdrawal from the
Ruhr. Thence onward, France made great strides in cooperating
with Germany. When Poincare returned to the premiership, he
concentrated his attention on domestic affairs, leaving Briand at
the Foreign Office comparatively unfettered to adopt for France
an outlook more in consonance with the interests of European re-
construction.
Percentage share of creditor states
in Reparations from Germany.
Did the Plan supersede the reparations clauses of the Treaty of
Versailles? The question is often asked by those in whose minds
the machinery of the Dawes Plan seems portentous enough to
outweigh its authority. The answer is negative ; the Plan came to
have the nature of a sort of supplementary contract, result-
368 AMERICAN FOREIGN RELATIONS
ing from the application of Article 234 of the Treaty,81 and ne-
cessitated by the failure to extract reparations. If it did run
athwart any detail of the Treaty, the transgression had to be made
in order to make the Plan a workable scheme and to relieve the
Treaty itself of economic double-mindedness. The committee them-
selves tried to insure a new modus by insisting that their report be
regarded as an indivisible whole, to be put into operation or re-
jected in its entirety. They were convinced of the necessity of
"some kind of coordinated policy with continuous expert ad-
ministration in regard to the exchange," if maximum reparations
were to be obtainable.
The New Administration of Reparations.
The application of the new scheme, bringing into effect an
entirely new set of administrative machinery, has curtailed the
activities of the Reparation Commission, which, however, though
a reduced and routine body, is still charged with ultimate respon-
sibility. The principle of unanimity in decisions of the commission
has been extended, and, in addition to the establishment of arbitra-
tion in the event of conflict, it is provided that any member may
appeal against a majority decision to an arbitration commission,
whose president must be an American citizen. In the case of wilful
default by Germany, a new appointee, an American citizen, must
be called in, and a unanimous decision of the commission must be
submitted to the creditor governments for action. The danger of
interference by a single Power has practically been eliminated.
The Reparation Commission was thus reorganized to include an
American private citizen, who, though not responsible to his gov-
ernment, was elected to full membership so that he could take part
in deliberations on any point relating to the Plan. The present
representative is F. W. M. Cutcheon. In this way, the commis-
sion has come to have the balance originally provided for under
si Article 234 reads:
The Reparation Commission shall after May 1, 1921, from time to time, con-
sider the resources and capacity of Germany, arid, after giving her representa-
tives a just opportunity to be heard, shall have discretion to extend the date,
and to modify the form of payments, such as are to be provided for in accordance
with Article 233; but not to cancel any part, except with the specific authority
of the several governments represented upon the Commission.
REPARATIONS 369
the Treaty. Technically the Plan organization is subordinate to,
and its officials in great part are appointed by, the Reparation
Commission, but since most of the officials carry out duties under
agreements between the interested parties, the subordination is
more apparent than real. The organization head is: Agent
General for Reparation Payments, appointed by the Reparation
Commission; Coordinating Agent between the Commission and
the Plan commissioners; member and chairman of the Transfer
Committee ; Receiver of Payments from Germany. Owen D. Young
was Agent General until November 1, 1924, when he was suc-
ceeded by S. Parker Gilbert, Jr. The Transfer Committee con-
sists of the Agent General for Reparation Payments as chairman,
and five members appointed by the Reparation Commission after
consultation with the non-German members of the General Board
of the Reichsbank and through them with the central banks of
the countries concerned. The committee receives funds from the
Agent General, applies bank balances to payments for deliveries
in kind, converts bank balances into foreign currencies or invests
them, and remits the proceeds pursuant to the direction of the
Reparation Commission. The first American representative on the
Transfer Committee was Joseph E. Sterrett ; Pierre Jay was his
successor, and now occupies the post. The other four are British,
French, Italian, and Belgian nationals.
For the Reichsbank, the German president of the bank, Dr.
Schacht, is chairman of the German Managing Board and the
mixed General Board. The General Board consists of fourteen
members; seven are Germans and one each of British, French,
Italian, Belgian, American, Dutch, and Swiss nationality. The
members of the German Managing Board are appointed by the
president with the approval of three-fifths of the General Board,
including six foreign members. The Bank Commissioner, M. Bru-
ins, a Dutchman, a member of the General Board, has the duty
"to enforce the provisions of the law and the statutory regula-
tions relative to the issue of notes and the maintenance of the bank's
reserves which guarantee that issue."
The German Reich Railroad Company is a 26,000,000,000 gold
mark corporation which holds the former state railroads. Of its
370 AMERICAN FOREIGN RELATIONS
valuation, 11,000,000,000 gold marks is a reparation asset. There
is a trustee of railroad bonds, a Belgian, and a railroad commis-
sioner, a Frenchman, whose duties are those of inspection, with a
right to receive all reports on operation and finance and all pro-
posals for changes in tariff, etc. If the bond service is in jeopardy,
he has powers appropriate to the circumstances. The board of
directors numbers eighteen, nine appointed by the German Gov-
ernment and nine by the trustee of railroad bonds. The general
manager is elected by this board.
The German Government provided toward reparation 5,000,-
000,000 gold marks of debentures of industrial concerns guaran-
teed by itself. These are in the hands of the Trustee of Industrial
Debentures, an Italian. For managing the issue the German law
established the Bank for German Industrial Obligations (not in
reality a bank, but merely a conduit for payments by the indi-
vidual enterprises to the credit of the Agent General) which has a
German board of directors and a council of inspection. The latter
consists of fifteen members, the German president included. Of the
fourteen others, four are appointed by the non-German members
of the General Board of the Reichsbank, three by the Reparation
Commission, and seven by the German Government, three of these
representing the government and four selected from the officers of
affected industries or their shareholders.
As security for the contributions from the budget and as addi-
tional security for the reparation payments of railroads and in-
dustry, the German Government pledged the proceeds from cus-
tom duties and from excise taxes on alcohol, beer, tobacco, and
sugar. The commissioner of these latter controlled revenues is a
Briton, Sir Andrew McFadyean, formerly of the Reparation
Commission. He is an appointee of the Reparation Commission.
During the first two years Germany made no budgetary payments,
so that the controlled revenue income was simply reported. Begin-
ning with the third year, one-tenth of the annual estimated re-
ceipts was paid to the commissioner, who remits five-sixtieths of
this amount to the Agent General, retaining one-sixtieth to form
a reserve fund eventually to amount to 100,000,000 gold marks,
REPARATIONS 371
after which the monthly payments drop to one-twelfth of the an-
nuity. The commissioner has extensive powers in case the pay-
ments are not forthcoming according to schedule.
After satisfaction of prior charges, such as the service of the
External Loan of 1924 and the cost of the various controls, repa-
rations are distributed according to percentages fixed at the Spa
Conference as modified by the agreement of January 14, 1925.
By this latter agreement Belgium agreed to a reduction of her
share from 8 per cent to 4.5 per cent. This reduction in percentage
operates in full discharge, as between the Allies, of Belgium's obli-
gation to repay to the other Powers the sums received in priority
before the introduction of the Plan. The 3.5 per cent share thus
released was allocated to Great Britain and France in the pro-
portion of 52:22. The shares now stand at: Great Britain, 23 per
cent; France, 54.5 per cent; Italy, 10 per cent; Belgium, 4.5 per
cent ; other Powers, 8 per cent.
WHAT IS THE DAWES PLAN?
THE keynote of the Report is struck in the sentence : "In the last
resort the best security is the interest of the German Government
and people to accept in good faith a burden which the world is
satisfied to be within their capacity, and to liquidate as speedily as
possible a burden which is, and should be, onerous." The phrase
"and should be onerous" might be emphasized, since there are those
who contend that the authors of the Plan had in mind letting off
Germany lightly. On the contrary, the committee reaffirmed the
Treaty dictum that the burden of taxation should be at least as
heavy in Germany as in the Allied countries. In General Dawes's
words, this was "a just and underlying principle." Any limitation
upon this principle, if there was one, must be a limitation of prac-
ticability and general economic expediency in the interest of the
Allies themselves. It is upon its working out that the success of
the Dawes Plan rests.
The first essential to the imposition of reparations had come to
be recognized as the recovery of credit, and the Dawes Committee
372 AMERICAN FOREIGN RELATIONS
aimed throughout their report at the restoration of German credit
both internally and externally for the purpose of recovering the
maximum debt, not of imposing penalties. Only with this restora-
tive aid could Germany become a natural creditor nation and thus
pay her debts. The Plan mechanism set up guarantees in the shape
of a protected system, whose workability was insured by means of
the concurrent opening of the doors of international credit to
Germany.
Germany had become an economic skeleton from the point of
view both of real and of financial credit. The first step was re-
juvenation so that Germany might be energized with the capacity
as well as the will to pay reparations. Thus the committee insisted
on the restoration of the fiscal and economic unity of the Reich and
the removal, or modification, of existing sanctions tending to hin-
der German economic activity. The recognition of these require-
ments led the committee in due sequence to the enumeration of
measures destined to protect the German economy, particularly in
its relation to the exchange. These measures were intended to se-
cure currency stabilization and fiscal reform. The committee had
helped the German Government to keep its new currency at gold
parity while they were in the process of gestating their report. To
insure currency equilibrium, they recommended the reorganiza-
tion of the Reichsbank. An ample gold reserve was subsequently
provided in 1924 by the flotation of a foreign loan sufficient to
realize 800,000,000 gold marks.
A bid was made to arouse the interest of the American investor
in the resuscitation of Germany. The security was well defined;
the Reparation Commission agreed to grant priority for the serv-
ice of the loan over all reparation payments and charges on re-
ceipts held by the Agent General, including deliveries in kind and
other remittances. The result was that more than half of the loan
was taken up in the United States.
The loan service was made a specific charge on all payments
provided for under the Dawes scheme, which payments in turn
hold precedence over the preexisting German debt. On Germany's
part, the loan was a direct and unconditional obligation of the
German Government, based upon all its assets and revenues ; the
REPARATIONS 373
right was waived to create any prior or equal charge upon these
revenues ; and, finally, purchases of the foreign currencies neces-
sary for service of the loan were given absolute priority of remit-
tance over the funds for transfer in discharge of reparation. Part
of the proceeds of the loan assisted in the foundation of the re-
organized Reichsbank and part financed essential deliveries in
kind and provided for army occupation costs in Germany, pur-
poses that were necessary to bring into existence German interest
in the success of the scheme alongside the latent pressure of the
controls. The loan marked the beginning of a process of pumping
credits into Germany in which America was to play a leading part.
The regulations of the bank were drawn up with minute exact-
ness. In many of them, such as those with regard to reserves, ma-
turity of discounts, and powers and status of the commissioner, the
mind of the American representatives, used as it was to the work-
ings of the Federal Reserve system, may be traced.
So the committee rebuilt the central pillar of German finance,
helped Germany meet her first annuity payment, provided her
with an adequate gold reserve through the promotion of the loan,
and made provision for the issue of a new currency, the reichsmark,
on a par with the old gold mark (4.2 to the gold dollar) .
If for political purposes the committee could not afford Ger-
many a complete moratorium, they could give her a partial mora-
torium, and this was accomplished by withdrawing all demands
on budget resources for the fiscal years 1924-5 and 1925-6. To
meet the calls on the budget beginning 1926-7, a redistribution of
taxation was recommended to redress the maldistribution brought
about by excessive inflation. It was suggested that the burden on
the wealthier classes in the form of income tax had so far been in-
adequate and that existing assessments might well be reviewed
and liabilities re-assessed on a gold basis ; that a higher tax be
levied on those who had benefited by the depreciation of currency
by reason of the paying off of pre-inflation debts at low values ;
that the financial relations between the Reich, the states, and the
communes be reorganized ; that a larger revenue be secured from
tobacco manufacture and sale ; and that indirect taxes generally
be increased, turnover tax reduced, and death duties raised.
374 AMERICAN FOREIGN RELATIONS
This was the prescription for the recovery of the German
economy. What was the program for fulfilling reparations from
this revived economy? In addition to the budget contributions, it
was suggested that the state railways be converted into a joint
stock company. These railways, the total mileage of which is 34*,-
000, were worth at least 26,000,000,000 gold marks in 1924, and
profited from the currency debacle by having their indebtedness
practically wiped out. The committee took advantage of this
situation, and made them contribute heavily to reparations, as
well as to the benefit of the German budget. As reorganized under
the Dawes scheme, on the capital cost basis of 26,000,000,000 gold
marks, the company issued to a trustee appointed by the Repara-
tion Commission 11,000,000,000 gold marks of first mortgage
bonds, under German Government guarantee, carrying interest
at 5 per cent per annum with 1 per cent for sinking fund. The
capital consisted of 2,000,000,000 gold marks in preference
shares and 13,000,000,000 gold marks in ordinary shares, all of
which are owned by the government. Thus was the 26,000,000,-
000 go]d marks of capital cost split up.
Toll was also taken of German industry. As we have seen, Ger-
man industrialists had profited enormously from inflation, which
helped them to defeat their creditors and to exploit their wage-
earning fellow-countrymen. The charge took the form of govern-
ment guaranteed first mortgage bonds to the amount of 5,000,-
000,000 gold marks, secured on German industry and bearing
interest at 5 per cent, with a 1 per cent sinking fund charge. These
mortgages are the individual obligations of the concerns levied
upon, for delivery by the German Government to a trustee ap-
pointed by the Reparation Commission who collects the proceeds,
hands them over for the benefit of reparation, and disposes of them
as ordered by the commission. As elaborated in legislation, the
scheme provided that all industrial enterprises having a working
capital in excess of 50,000 gold marks were charged with a first
mortgage to secure bonds valued in the aggregate 5,000,000,000
gold marks, payments being made into the new Bank for Industrial
Debentures. Agriculture, transport, banking, insurance, and
Reich and State enterprises were exempt from this charge.
REPARATIONS
375
Dawes annuities, which are graduated from 1,000,000,000 gold
marks in the first year to 2,500,000,000 gold marks in the fifth or
standard year, include "all amounts for which Germany may be
liable to the Allied and Associated Powers for the costs arising
out of the war, including reparation restitution, all costs of all
armies of occupation, and clearing house operations to the extent
of those balances which the Reparation Commission decides must
legitimately remain a definite charge on the German Government,
commissions of control and supervision, etc." If we recall the
2,500
(In millions of gold marks)
Budget
Transport "Idx
Interest and
Amortisation
on "the German
Industrial Debentures
Interest and
Amortisation
on the German
Railway Bonds
1924-25 1925-26 1926-27 1927-28 1928-29
and thereafter
"Standard Yeer*
* Supplementary Budqet Coniribuiion
How Reparations are raised by Germany under the Dawes Plan.
376 AMEKICAN FOREIGN RELATIONS
trouble occasioned by the uncertainties of Germany's current lia-
bilities, this achievement of unifying indebtedness was not the least
important contribution of the Dawes Committee toward the elu-
cidation of reparation.
The total standard annuity, which commences on September
1, 1928, is 2,500,000,000 marks, but is subject to modification on
two separate grounds. From the year 1929-30, modification may
be permitted according to movements in a composite index of
prosperity, an innovation somewhat resembling the ill-fated
Besserungsschein. A further modification is permitted in the event
of changes in the general level of commodity prices expressed in
gold.
There are some French spokesmen, either animated by the desire
to retain a political lever or obsessed by their regard of Germany
as a miraculous pitcher, who contend that the sum set by the Repa-
ration Commission, roughly 132,000,000,000 gold marks, is the
capital sum of Germany's liability, and that the Dawes Committee
did nothing to change it.32 According to the London Schedule three
classes of German bonds were created, A, B, and C. A and
B bonds amounted to 50,000,000,000 gold marks. They were
definitively described as the obligation of the German Government.
The C bonds, amounting to 82,000,000,000 gold marks, were not
to be issued until Germany's ability to pay them had been proven
by the manner in which she met the service of the A and B bonds.
Later on, Great Britain, in return for a wider arrangement in-
cluding inter-Ally debt settlement, wished to limit the German
liability to 50,000,000,000 marks, and this set the creditors at
loggerheads. The Allied rift, exacerbated by Germain inability to
pay according to the London Schedule, was the setting for the
Dawes Committee, which, though prohibited from debt determina-
tion, showed in their conclusions and their schedule that the ful-
filment of the liability as dictated in 1921 was outside their con-
ception of German capability. This figure was neither confirmed
nor modified ; it was ignored.
32 The Allied conception of the relation between inter- Allied debts and repara-
tions must be taken into account in any understanding of the French attitude
toward reduction of reparations.
REPARATIONS 377
To go back to the 1921 figure one would have to return to the
London agreement which provided its schedule of payments. This
was also ignored by the Dawes Committee in fixing the standard
annuity at 2,500,000,000 marks. Let us take the 132,000,000,000
gold marks at an interest rate of 5 per cent as the starting point for
computing the assessment on Germany. Interest alone would re-
quire an annual payment of 6,600,000,000 gold marks, without
any provision for amortization. The Dawes annuity would there-
fore have to be more than doubled to meet any charge based on the
1921 bill. If this bill remained the capital sum of reparation, and if
the Dawes annuity continued to be the standard payment, Ger-
many at the end of 50 years would still owe the whole of the origi-
nal debt, plus 25,000,000,000 gold marks arrears of simple interest
at 5 per cent, and her indebtedness would be increasing ad in-
finitum; a proposition which, as Euclid would say, is absurd. The
Dawes annuity yields no more than 2% per cent or 3 per cent of
the 1921 definition of the debt. Either the total debt must be
scaled down to a sum possible of eventual liquidation out of the
Dawes annuities, or the period of payment must be determined.
Professor Harold G. Moulton, in The Reparation Plan, starting
from the standard year payment of 2,500,000,000 gold marks,
bases his computation of Germany's bill at 5 per cent for interest
and 1 per cent for amortization over 35 years, and this gives a
capital sum of 42,000,000,000 gold marks, or a cut by three-
quarters of the 1921 figure.
The Transfer Committee.
The most interesting feature of the Plan machinery was the in-
stitution of the Transfer Committee. The Plan says "All payments
for account of reparations will be paid in gold marks or their
equivalent in German currency into the Bank of Issue to the credit
of the Agent for Reparation Payment. This payment is the defini-
tive act of the German Government in meeting its financial ob-
ligations under the Plan.'5 It was the function of the creditors
themselves to carry on the process of converting those funds into
foreign currencies and transferring them to their own accounts.
Hitherto the Germans had been given the responsibility of attend-
378 AMERICAN FOREIGN RELATIONS
ing to both functions, raising the funds and transferring them to
their creditors. The setting of the problem in its two "distinct
though related" parts aroused much controversy among the com-
mentators.
The idea did not originate with the Dawes Committee. It
was borrowed from Hungary, where the League of Nations com-
mittee charged with that country's financial reconstruction had,
on the suggestion of Sir Arthur Salter, inaugurated the system
which the Dawes Committee expounded. If the stability of a
currency is to be permanently maintained, they said, not only
must the budget be balanced, but the country's earnings from
abroad must also be equal to the payments it must make abroad.
Reparations have to be taken into consideration in connection
with Germany's payments abroad, since they have precisely the
same effect on the German economy as any other kind of payment.
"The funds raised and transferred to the Allies on reparation ac-
count cannot in the long run exceed the sums which the balance of
payments makes it possible to transfer, without currency and
budget instability ensuing." In other words, if the purchase of
foreign exchange is not restricted to that sum available from a
surplus in Germany's accounts, then settlements would call for an
outflow of gold from the German treasury, which might result in
the undermining of the credit structure and consequent currency
depreciation of German money relatively to foreign money as ex-
pressed on the exchanges. To guard against this, the Transfer
Committee in Berlin are endowed with wide powers, being assisted
in their duties by the German Government and the Reichsbank,
which engage to facilitate the Committee's work in connection
with transfers, "including such steps as will aid in the control of
foreign exchange." The Transfer Committee's powers include the
suspension, curtailment, expansion, or regulation of remittances
in accordance with the capacity of the exchange market to permit
of them without threatening the stability of the German currency.
If it is thought essential in the interests of the maintenance of
German currency to suspend transfers, the committee may invest
reparation funds "in bonds or other loans in Germany," to a
maximum of 5,000,000,000 gold marks. When that limit has been
REPARATIONS 379
reached the "payments by Germany out of the Budget and Trans-
port Tax would be reduced until such time as the transfers to the
Allies can be increased and the accumulation be reduced below the
limit named." The amount that can be absorbed by foreign ex-
change governs to a certain extent the amount of German pay-
ments under the Plan.
"Balance of payments" and "economic balance" are inter-
changeable phrases all-inclusive of a country's international ac-
count. Either is distinct from a "merchandise balance" or "balance
of trade" in that the former phraseology includes all manner of
services, such as shipping, insurance, interest payments, banking,
and tourist expenditure, that comprise the invisible items in a
country's economic operations with other countries. A country's
economic balance is a veritable will o' th' wisp of economists in
general ; the Dawes Committee themselves say it defies calculation,
but they add that even if it is impossible of exact determination,
its limits arc real, and are marked by the economic disturbances
which it was the province of the Transfer Committee to guard
against in their activities. It was in laying down the interrelation
of currency, the budget, and the international balance of payments
that the committee adjusted themselves to realities; a process
which, as Coventry Patrnore puts it, is the beginning of wisdom.
REPARATIONS STILL A PROBLEM
THE Dawes Plan did not pretend to solve the problem of repara-
tion. It simply sought to put it in a new light — the light of eco-
nomic science ; and it provided "a settlement extending in its ap-
plication for a sufficient time to restore confidence." Its chief virtue
as such a bridge is that it assuaged temporarily the bitterness of
reparation and prepared the ground for the comparative appease-
ment of Franco-German relations through the Locarno treaties
and Germany's entrance into the League of Nations and the "com-
mercial Locarno" contained in the Franco-German agreement of
August, 1927. It also led directly to the restoration of the gold
standard in Europe, or, as Reginald McKenna calls it, the gold
dollar standard, and the resumption of lending activities by the
380 AMERICAN FOREIGN RELATIONS
creditor nations. This aspect of the change that has come over
Europe is put by George P. Auld in this way :33
At the time of the Dawes Plan, the world system was out of gear.
Sterling had passed or seemed to have passed, but the dollar had not
yet arrived. The day when the dollar would be the determining factor
in the operations of the world machine had not begun. The machinery
of foreign exchange was trying to function without its partner, the
machinery of credit. No genuine creditor role was being played by
any nation in the world system.
Many political troubles still surround reparation — the "iron
curtain" of the Rhineland occupation and repeated excursions into
"war guilt" recriminations ; but the Dawes Plan seems to be lead-
ing the parties concerned to what is generally conceived to be the
final solution of reparation, namely, its disappearance as an affair
among sovereign governments involving servitudes and its absorp-
tion in the mechanism of international finance. That the Plan is
generally supported is the verdict of its history ; Parker Gilbert
is able to say in his report of December, 1927, "On both sides the
Plan has been carried out with goodwill and loyalty." Germany's
ability to pay reparations depends more upon these factors than
upon any economic factor. For in this connotation is the German
willingness to submit to a lowered standard of living in order that
Germany might be quickened to capture world markets under ex-
ternal political pressure. The Plan called for an "irreducible mini-
mum" of home expenditure — a tightening of the German belt —
and it would not be extraordinary if German employers gave this
as a reason for resisting demands for wage increases. Statistics
show that the German worker's wages are not benefiting from the
industrial expansion of recent years.
How did the Plan fare up to the end of the third Plan year,
August 31, 1927? Germany met all her payments out of revenue
on due date ; in fact, she took advantage of discounts for certain
payments before due date and increased the third contribution
out of supplementary contributions from the budget to make an
upward gradation between the second and the fourth payments.
33 The Dawes Plan and the New Economics, p. 148.
REPARATIONS 381
As thus revised, the payments are in accordance with the following
schedule :
First year 1,000,000,000 gold marks
Second year 1,220,000,000 gold marks
Third year 1,500,000,000 gold marks
Fourth year 1,750,000,000 gold marks
Fifth year 2,500,000,000 gold marks
The Position of the German Economy.
The Plan proposed to put Germany on her economic feet as a
preliminary to the payment of the standard annuity. The program
goes on : "If reparation can, and must, be provided by means of the
inclusion of an item in the budget — i.e., by the collection of taxes
in excess of internal revenue — it can only be paid abroad by means
of an economic surplus in the country's activities." The Plan em-
phasized this point as it emphasized no other. "Germany's earnings
from abroad must be equal to the payments she must make abroad,
including not only payments for the goods she imports, but the
sums paid in reparation. Loan operations may disguise the posi-
tion— or postpone its practical results — but they cannot alter it."
The Dawes Committee realized that foreign loans were essential
in their scheme, but they did not envisage any undue extension of
external borrowing; "internal resources," they said, "should meet
internal ordinary expenditure and at a very early date should
suffice, in addition, to make substantial contributions toward the
external debt," including reparations. Outside credits were essen-
tial in supplying a broader basis of domestic credit, in providing
for agricultural and industrial rehabilitation, and in replenishing
stocks of foreign raw materials and goods ; so that Germany might
be able to set about the task of building up the former ramifica-
tions of her industry and the requisite external surplus in her
activities which the Dawes Committee recognized as the natural
lien for reparations.
Before we consider the extent of the borrowing that ensued
after the Plan had gone into effect, we shall examine the economic
condition of Germany at the end of 1927 to see if the revival
postulated by the Plan had been achieved.
382 AMERICAN FOREIGN RELATIONS
The stability of the currency, one of the primary objects of the
Plan, has been so firmly established that the new mark has not only
been maintained well within the gold points, but has also oscillated
less on the foreign exchanges than has any other European cur-
rency. For weeks in the latter part of 1927, it was above parity
with the principal gold currencies of the world, the result, how-
ever, of the heavy flight to the mark from abroad, not of a fa-
vorable commercial balance. The level of prices, which furnishes
the measure of the internal value of the currency, rose 13 points
in 1927 (1913 = 100), and rose at a time when there was a declin-
ing tendency in prices in other countries. These latter must rise
higher relatively to German prices before that condition precedent
of the Dawes Plan, an economic surplus, can be attained; the
effect of domestic high prices is both to restrain exports and to
increase imports.
In April, 1924, when the Dawes Committee rendered their re-
port, the reserve in the Reichsbank was 442,000,000 marks; on
December 31, 1927, exclusive of "devisen" (foreign exchange), it
amounted to 1,864,000,000 marks, the highest point reached since
the war, with another 850,000,000 marks of gold currency in
circulation. The Reichsbank, Rentenbank, and private note cir-
culation on December 31, 1927, amounted to 5,469,000,000 marks,
also the highest point reached since stabilization, giving a per-
centage of gold backing of about 50 per cent, an eminently satis-
factory position. The Plan required the maintenance of a reserve
of 40 per cent against circulation, three quarters to be in gold
and the remainder in gold exchange.
The measure of German economic ability "to raise reparations
unaided resides in the creation of internal surpluses between pro-
duction and consumption. Let us look at the figures for pro-
duction first. Production in 1927 showed figures of striking
significance, both in the basic and the finishing industries, and
compares very favorably even with the boom year of 1913. The
Institute for the Study of Trade Fluctuations gives the pro-
duction index for 1927 at 123.2 (average 1924-26 == 100). Coal
production in 1927 was 153,597,000 tons, as compared with 140,-
REPARATIONS 383
750,000 tons in 1913.84 Lignite output was 150,805,711 tons, as
compared with 87,233,000 tons. The loss of metal productivity
through cessions of territory has almost been made good. The
output of potash has undergone a remarkable increase in per
capita output. In spite of the loss of the Alsace potash fields, the
Potash Syndicate's home and foreign sales last year totalled in
pure potash content 1,239,400 metric tons, as compared with
1,099,620 tons in 1913. Cement has advanced in production even
over the output of the larger pre-war area. The greatest growth is
shown in industrial branches that were in course of development
before the war by German inventiveness. Nitrate production
jumped from 121,000 tons in 1913 to 500,000 tons in 1927; alu-
minium from 1,000 tons to 21,000 tons; rayon, from 3,500,000
kilograms to 13,000,000 kilograms. German enterprise is shown
in a great variety of chemical products whose importance in the
economic life of the country is still in the potential stage. On an
index basis of 100 the crop yield in 1927 was 97, as compared with
115 in 1913.
Germany began to amass capital by saving after the Dawes
Plan had effected a return of confidence ; although 20 per cent of
the national income is absorbed in taxes, 15 per cent is saved. From
a variety of German estimates it is gathered that the growth of
net savings has been roughly as follows :
1925 RM 6,000,000,000
1926 RM 7,000,000,000
1927 RM 8,500,000,000
The pre-war savings were about 40 per cent (taking price changes
into account) in excess of the 1927 total.
This saving has proceeded side by side with widespread expan-
sion. The home investment for the last three years is generally ac-
cepted at: 1925: 9,500,000,000 marks; 1926: 5,800,000,000
marks ; 1927 : 12,000,000,000 marks. At the same time the reaccu-
mulation of mobile capital in 1925-26-27 is estimated at approxi-
mately a billion marks. Taking into account the rise in prices, the
34 The 1913 figures are limited to the production in the present area of Ger-
many, except where otherwise stated.
384 AMERICAN FOREIGN RELATIONS
working capital throughout the German economy, according to
Professor Hirsch, was 30 billion marks as compared with 35 bil-
lions in 1913.
These performances are rendered the more remarkable by the
contraction of resources which Germany has sustained. Territorial
cessions, according to Wirtschaft und Statistik, resulted in the
following losses on the basis of 1913 production levels: coal, 26
per cent ; iron ore, 74.5 per cent ; zinc ore, 68.3 per cent ; wheat
and rye, 15.7 per cent ; and potatoes, 18 per cent. In addition, ac-
cording to the same authority, a little over 89 per cent of the mer-
chant marine was lost to the German flag ; since German shipping
before the war was instrumental in bringing into the country a
large part of the invisible funds that served to offset trade deficits,
this is a serious disadvantage in the quest for an external surplus,
but it is a disadvantage from which Germany is rapidly recover-
This is the credit side of the German accounting of perform-
ances under the Dawes Plan. When we come to the German budget,
we find a state of affairs that the Agent General has not considered
so continuously favorable. Two permanent budgets are compiled
by the Reich, ordinary and extraordinary, the latter dealing with
extraordinary non-recurrent items. From the third year after
stabilization, 1926, internal borrowing set in to meet deficits in
the extraordinary budget. Budgetary balancing by such methods,
says Gilbert, is unsound, since "a balanced ordinary budget plus
an unbalanced extraordinary budget means, in fact, an unbal-
anced budget." There was no lack of revenue from taxation in the
ordinary budget; taxation, as a matter of fact, had borne out
Dawes expectations; but extraordinary expenditures out of all
proportion to revenues, and excessive drains upon those revenues
by the states and communes made the Reich turn to internal bor-
rowing to pay its way. In his December, 1927, report, the Agent
General notes with approval the declaration of the German Gov-
ernment promising strict economy and its action in reducing
extraordinary expenditures in the budget for 1928-9 and in with-
holding authorization to borrow. This was in conformity with a
memorandum which Gilbert had sent to the German Government
REPARATIONS 385
criticizing the estimates. So far as the states and communes are
concerned, he continues to criticize their overspending and em-
phasizes the importance of an early definitive settlement of the
financial relations between the Reich and the states and communes,
since the maintenance of the present loose federal system gravely
hampers German public finances.
The abnormal revenues collected under the head of the ordinary
budget heightened the good impression of the corrective applied
to the extraordinary budget. Receipts for the nine months ended
December, 1927 of the 1927-8 fiscal year were 6,337,000,000 gold
marks, or 525,000,000 gold marks above estimate. All revenues
controlled for reparation purposes yielded a large surplus. These
excess yields and savings should counterbalance any strain on
the extraordinary budget.
In the field of foreign trade, the figures show a much wider gap
between imports and exports than was the case in 1913. But in
total volume of trade (reckoning in 1913 values), the figures are
approaching the 1913 level, which is an extraordinary develop-
ment when viewed against the background of Germany's dim-
inished resources :
Difference between
Year Import Export Export and Import
1913 10,769.7 10,097.2 — 672.5
1926 7,966.7 7,340.2 — 626.0
1927 11,419.0 7,627.2 —3,791.83*
It will be seen that the 1927 import surplus showed a tremendous
jump over the 1926 figure ; but conditions in the earlier year were
peculiar, due largely to the impulse that German economy re-
ceived from the British coal stoppage, and the restraint to German
imports and stimulus to exports caused by Germany's own export
of capital.
Loans and German Recovery,
The Agent General calls the present high volume of imports "a
problem of the first magnitude." For the most part the excess com-
prises the tangible transactions made possible by Germany's bor-
35 Wirtschaft und Stattetik.
386 AMERICAN FOREIGN RELATIONS
rowings, and these were called for mainly to replenish depleted
stocks and to furnish mills and factories with working materials.
The rapid growth of production had its origin in the existence of
an unimpaired industrial plant supplemented by rationalization,
but German rehabilitation would have been retarded for decades
without the energizing stimulus of external assistance. "The whole
German economy has been under the influence of inflowing foreign
credit and in some respects has been dominated by it," says the
Agent General. Dr. Curtius likens it to the Nile's fertilizing
flood. Some foreign monetary credits have been explicitly condi-
tioned on German spending in the lender's country ; for instance,
the loan contract between the German Textile Trades Corporation
and the British bank, Helbert, Wagg & Co. (December, 1925),
covering a loan of £1,000,000 for twenty years at 7 per cent, con-
tains a tying clause by which the corporation pledged itself "to
spend not less than £3,000,000 during the year 1926 on purchases
in the markets of the United Kingdom,"36 or nearly 3% times the
sum received.
If stabilization is maintained so that specie has not to be
sent abroad in any quantity an unfavorable trade balance rep-
resents incoming loans or payments for services rendered or for
outgoing loans. Germany's pre-war adverse trade balances used
to be the result of her invisible operations in shipping, insurance,
interest on foreign investments, etc. These made her an important
creditor nation, and the net excess of her credits over her debits
was somewhere between $100,000,000 and $200,000,000. The clip-
ping of Germany's external services seriously diminishes these
channels of revenue. Most of her foreign investments have evapo-
rated ; some were sold during the war, others were confiscated by
her enemies. A certain amount of the remaining German capital
returned from abroad when stabilization set in, but this and similar
invisible items were slight contributions to the adjustment of her
trade account. The German balance of payments may be con-
sidered as approximating the German commercial balance, and
this found its adjustment in foreign borrowing, mostly from the
se Kuczynski, American Loans to Germany, p. 361.
REPARATIONS
387
United States, which has furnished, it is estimated, about 70 per
cent of the stream of foreign long-term credits that have flowed
into Germany since 1924. Altogether, the amount of American
long and short-term credits is estimated roundly at $1,500,000,-
000, or 6,000,000,000 gold marks. This influx" accounts for the
smooth payment of reparations; Germany has been spared the
pains of producing export surpluses.
Exclusive of the 1924 loan, whose service is included in the
reparation transfer, the following table summarizes the nominal
German foreign borrowing between 1924 and 1927, the figures
being those given in the official estimates published by Wirtschaft
und Statistik:
FOREIGN LOANS TO GERMANY, 1924 TO 1927, INCLUSIVE37
Issues
Long-term loans :
Public bodies
Public enterprises
Church corporations
Private enterprises
Total
Short-term loans:
Public bodies
Public enterprises
Church corporations
Private enterprises
Total
Total loans
Long-term loans of
Saar district
(Par value in millions of marks)
42.00
12.60
1925
394.59
259.50
16.49
579.18
1927
Per cent
Total of total
455.18 253.64 1,103.41
333.70 78.12 671.82
63.92 13.86 94.27
722.57 1,038.24 2,381.99
26
16
2
56
42.00 1,249.76 1,575.37 1,383.86 4,250.99 100
21.00
79.80
16.80
126.00
226.80 77
16.80 6
29.40
21.00
50.40
17
50.40 117.60 126.00 294.00 100
42.00 1,300.16 1,692.97 1,509.86 4,544.99
16.80
21.00
50.40
Let us see how this debt compares with reparations paid under
the Dawes Plan. Up till August 81, 1927, Germany paid to her
creditors 3,720,000,000 gold marks. The total German foreign
debt at that time was in the neighborhood of 9,000,000,000 gold
»7 The "short-term loans" in all probability will have to be converted into long-
term bond debts.
388 AMERICAN FOREIGN RELATIONS
marks,88 including the 1924 Dawes Plan loan. The Journal of
Commerce (N. Y.)39 estimates the amount of deposits abroad and
commercial credits extended abroad at about 3,000,000,000 gold
marks ; these credit items subtracted from the indebtedness leave
Germany with a net indebtedness of over 6,000,000,000 gold
marks, or 2,280,000,000 gold marks more than the sum already
paid in reparations.
The Agent General in December, 1927, wondered whether this
increment of credit was still serving the purpose of German recon-
struction. He recognized that foreign loans still had a proper field ;
but "in so far as they have provided the public authorities with
additional spending power at a time when industry was already
actively engaged, the incoming foreign loans have merely stimu-
lated expansion, and so have interfered with the solid work of re-
construction."
The complaint was based on superfluity and misdirection.
Misdirection of credits lay in the encouragement they afforded
to German municipalities to compete with one another in the
erection of statues and in such public improvements as stadiums,
gardens, swimming pools, and gymnasiums. Most of these credits
at the time of issue were labelled "productive," as they were
if social service is reckoned a precursor of productivity, but it
requires a strain to envisage the productivity of, say, the loan
to the Catholic Church in Bavaria, which the Archbishop of Bam-
berg wrote to the issuing house would be "of great assistance in
increasing the productivity of the German people."40 Dr. Schacht
stigmatizes a good deal of the municipal borrowing as "un-
bridled," and reminds his countrymen that "we are creating an
advantage for a political creditor at the cost of a private creditor
in the future." Streseinann and Marx have also condemned it
severely.
Superfluity came as a natural consequence of the cheapness of
money in America contrasted with its dearness in Germany. Money
is attracted where it can command the best rate, and the differen-
ss Dr. Schacht puts it at 10,000,000,000 marks, adding 2,000,000,000 marks to
the figure for short-term debt.
80 December 29, 1927. *o Kuczynski, p. 124.
REPARATIONS 389
tial between 3^> per cent in New York and 7 per cent in Berlin was
enough in 1927 to make exportation from New York at once natu-
ral and profitable. The magnet was irresistible in that it was
located in a country where state finance is under a form of inter-
national control, where the currency is guaranteed, where the peo-
ple are harnessing themselves to industrial expansion, and where
the industrial plant is generally in excellent condition and prac-
tically free from debt. Hence, funds were poured into Germany,
both in loans and in private investment in German securities, and
she had received enough in 1926 to indulge herself in loan-making
to others. There is the example of a recent industrial loan to Russia
guaranteed by the German Government, and the report of the
American Trade Union Delegation to Soviet Russia gives another :
German banks have recently loaned $15,000,000 for five years to
Russian industry for the purchase of German equipment. Sixty per
cent of this was underwritten by the Deutsche Bank, but the prices
charged were so high that a handsome profit was made by the German
firms. An ironical feature of this transaction is that American credits
to Germany made possible this loan to Russia and the consequent
profits to German rather than to American business houses. It also
served to employ German rather than American labor.41
Yet there are difficulties in labelling all loans productive or un-
productive. More exports or less imports — this was the injunction
of the Dawes Committee. Productive loans to build up exports —
this is the new watchword. It is not easy to disconnect exports from
imports. Are harbor improvements any greater assistance to ex-
ports than to imports? Are all the loans to the states, which are
great employers of industrial labor, unproductive? Is not the so-
cial service of the municipalities an aid to German productivity?
The truth is that, apart from Germany's particular needs, imports
are always a concomitant of a natural development of exports in
a manufacturing country dependent to a large extent on outside
sources for raw materials and semifinished products.
But a curb was called for on those foreign credits which spelled
imports without any concurrent stimulation to production for the
4i Russia after Ten Years, p, 87.
390 AMERICAN FOREIGN RELATIONS
export market; in short, to so-called "unproductive" loans. The
virtue of indirect forms of help to productivity furnished by for-
eign credits did not win over home critics in authority. Abroad
there was evidence of a certain chagrin that world investors were
exercising their historic function of raising the vanquished to his
feet again in such exuberant fashion. Sir Josiah Stamp, a member
of the Dawes Committee, says :
It is impossible to go on forever getting rid of a big I O U for
a particular year by means of a series of promises for smaller I O IPs
for succeeding years and then discharging each of these in turn by
a brood of future I O U's and so on ad infinitum.42
Yet the alternative is a more zealous effort to express the economic
power of Germany on world markets at the insistence of foreign
debt payments.
Such general agreement obtained in 1927 of the danger con-
tained in the unrestricted borrowings of the political subdivisions
of Germany that more stringent regulations were adopted toward
the end of the year by the German Loan Advisory Office in Berlin.
Loans by the states and communes must now be limited to those
needed for immediately productive purposes, of a kind that will
benefit not only the locality but also the general economic develop-
ment of the Reich either by helping to increase exports or to de-
crease imports.
Germany, as has been said, has been borrowing at a time when
her internal acquisitions of capital have been mounting in billions
of marks. When looked at in the light of this activity, both the
figures for reparations and those for loans raised abroad are
dwarfed in dimensions. We have already given estimates of Ger-
man resources ; they are supported by the Minister of Industry,
who on January 30, 1928, told the Budget Committee of the
Reichstag, "I estimate our home savings at at least three times as
much as our foreign loans.55 Robert Crozier Long, Berlin corre-
spondent of the Economist, puts all these estimates in tabular
form and contrasts them with the levy for reparations.43 The
result is interesting :
42 London Times, November 9, 1927. ** The Mythology of Reparations, p. 137.
REPARATIONS 391
FUND AVAILABLE FROM ALL SOURCES FOR
REPARATIONS IN 1925-26-27
£ Per cent
Savings 1,281,050,000 65.4
Loans 443,600,000 34.6
Total 1,724,650,000 100
Paid for reparations out of total available fund 198,600,000 11.5
Paid for reparations out of own savings 15.5
Surplus and percentage of total available fund left
to Germany after payment of reparations 1,526,050,000 88.5
Surplus and percentage of savings left to Ger-
many after payment of reparations 1,082,450,000 84.5
The Outlook for Marketing.
It might seem at first glance that Germany could meet her repa-
ration obligations without recourse to foreign borrowings. This is
to overlook those domestic needs which find demonstration in in-
terest rates. As long as these are attractive, foreign funds will
flow into Germany, provided political obstacles do not block them.
An artificial effort was made in 1926 to dispense with foreign
credit; it was thought that German resources were sufficient to
finance the German economy and that the German economy would
be able to finance reparations. But the domestic loans made such a
drain on the home market that foreign credits had to be resumed.
The significant feature of the 1926 experiment was that an ex-
port surplus would probably have been attained had it not been
for the few loans received. When the Germans are no longer obliged
by the needs of their economy to pay a high rent for money, this
would be the logical development, and the keenness to acquire an
export surplus would be stimulated. If Germany were divorced
from borrowing, then she would have to get her foreign exchange
for reparations from these transactions. The process would prob-
ably involve the lowering of the present standard of living to en-
force a reduction of prices in order that more goods might be sold
abroad. The Dawes Plan repudiated as a matter of course the view
that Germany's full domestic demands should constitute a first
charge on her resources and that what was available for her Treaty
obligations was merely the surplus revenue that she might be will-
ing to realize. It insisted on a minimum expenditure for Germany's
own needs.
392 AMERICAN FOREIGN RELATIONS
If we do not wish the product of Germany's stimulated industry
to be absorbed at home, however, we must give her a chance to sell
her goods overseas. While insisting on the eventual creation of an
economic surplus, the Dawes Committee did not disclose where the
Germans were to get their markets or recapture those services
which in the past helped them to balance their accounts. To the
foreign creditor, the capital withdrawn for transfer abroad rep-
resents a command over German goods and services which must
be accepted whether neutralized by return loans or not. When
the question is looked at from this approach it takes on a different
complexion, and one that is not entirely agreeable to manufac-
turers anxious to prevent "reparations competition" in foreign
markets.
Protective tariffs and anti-dumping legislation show that the
creditors are doing their political best to prevent any such creation
of an economic surplus as the Dawes Plan postulated. Germany
cannot export foodstuffs and raw materials as do other debtor
countries; she must pay her debts in competitive manufactured
goods. She is turning a good deal of her energies from the walled-
in West and using them eastward in order to create this sur-
plus. The one important European market in which Germany may
operate free from the harassments set up specially to hamper her
in other markets is Russia. Economically, she is taking advantage
of the political hiatus which is impeding other manufacturing
countries from tapping this reservoir of buying power ; the high
forbidding barriers of the West are driving Germany into an eco-
nomic rapprochement with Russia just as inexorably as she was
driven into the Treaty of Rapallo by her necessity of owning
at least one card in the European pack that was played against
her after Versailles. The marketing loan to Russia already men-
tioned, perhaps made possible by American assistance, was an
outward sign of the efforts which Germany is making to capture
customers for the products that she must dispose of if she is to
pay reparation without any outside assistance to her economy.
Rationalization in industry is in progress in Soviet Russia as
well as in Germany, and is an increasing concern of German manu-
facturers, as may be observed any day in the bustling activity in
REPARATIONS 393
the Berlin offices of the Soviet foreign trade organization. Ameri-
can credits to Germany may be more productive to German
economy when they are relayed to Russia than when they are ap-
plied in Germany itself ! Farther east, Germany has recovered her
pre-war trade with that other vast market, China. Being no longer
trammelled with the political responsibilities of empire, she is
gaining a reversion of the trade which most nations with political
privileges are losing in this far eastern republic. The absorptive
capacity of these markets has to be nourished by long credits, and
these involve the possession of more and more working capital.
Thus are German exports of finished products growing steadily ;
in 1927 they registered an 8 per cent increase over the 1926 total.
It would seem the part of wisdom to face reparation as a trade
problem with a keener regard for the "forcing" of German com-
petitive power in the hothouse of reparations. Competition will
come in any case, and a long view would warrant an approach to
cooperation so that Germany might play her part in world markets
with her specialized products. Export specialization was dove-
tailed before the war by the economies of Great Britain and Ger-
many in their relation to each other, and it is in an extension of
this system through cartels and similar combinations that some
economists are seeing the way to accommodate European and
eventually world surpluses.
Sir Josiah Stamp says there are three ways of looking at repa-
rations :
As investor — interested in getting his return on foreign invest-
ments duly paid ; as taxpayer — interested in getting reparation and
debt interest to the relief of taxation in the national budget; and
as manufacturer and exporter — interested in resisting the outflow of
German exports which are the actual condition of the foregoing.
When all three functions are combined in the same person the re-
sult is a conflict of opinion, subject to the influence of the morning
correspondence !
The "Priority" Question.
The process of pumping funds into Germany proceeded at such
a rate that in the fall of 1927 it brought up a question of priority
394 AMERICAN FOREIGN RELATIONS
in service as between reparations remittances and loans. It was
a question of such importance to the American investor that quo-
tations on existing issues in the United States were dropping at
the end of the period under review and fresh flotations had come
to a standstill. It has already been recorded that the external loan
of 1924 was granted preferential treatment of service over repara-
tion charges. This was necessitated by the floating charge which
Article 248 of the Treaty of Versailles gave the creditor states on
the assets and revenues of the Reich and its constituent states. The
article says :
Subject to such exceptions as the Reparation Commission may
approve, a first charge upon all the assets and revenues of the Ger-
man Empire and its constituent States shall be the cost of reparation
and all other costs arising under the present Treaty or any treaties
or agreements supplementary thereto or under arrangements con-
cluded between Germany and the Allied and Associated Powers dur-
ing the Armistice or its extensions.
The Prussian Finance Minister, in September, 1926, insisted
that no existing obligations involved any restrictions upon the
acquisition of foreign exchange to meet the obligations of a loan
floated at that time by Prussia. He ignored reparations and the
1924 loan entirely. No such exception from the ruling of Article
248 was asked as was granted in the case of the 1924 loan ; priority
of remittance was taken for granted. The Transfer Committee
had to take notice of the Prussian assumption, and declared that
they could not acquiesce in its arbitrariness, since "the service of
the Prussian external loan must necessarily be regarded as sec-
ondary to the obligations in respect to the transfer of reparation
payments which the German Government has assumed by virtue
of the Experts' Plan and the London Agreements." Thus the
Transfer Committee outlined their interpretation of their legal
rights of priority on the exchanges for reparation transfers and
the service of the 1924 loan. The controversy eventually obtained
a public airing, and created a stir in banking circles, but it was
generally recognized that it was as impossible to conceive of a
situation in which all available foreign exchange would be monopo-
REPARATIONS 395
lized by German borrowers to the exclusion of reparation commit-
ments as to picture a Germany forced into general default in the
payment of interest on private foreign obligations while the repa-
ration creditors helped themselves out of German assets. In either
event Germany would be on the highroad to bankruptcy.
The Dawes Plan is a program of detailed method for giving
reparations the precedence accorded in general terms by Article
248 of the Treaty. As long as the Plan is kept at work, Article 248,
being merely a floating charge, has no other exercise. The Plan
sets up the obligations of the Reich in regard to the collection of
funds, and if they are not made, gives the reparation authorities
certain sanctions, but it affords no rights over private property or
the funds set aside by municipalities or corporations for the pay-
ment of their debts. Only in the inconceivable event of a deliberate
ruin of German economy would Article 248 ever find a definite
exercise.
Exchange, upon which the transfers depend, is created by trad-
ing operations. When goods are exported to another country
the German exporter receives a bill of exchange ; vice versa, when
goods are imported the importer must pay for them by buying ex-
change. Exchange is bought from the exporter and sold to the im-
porter at the bank with German money; the bills constituting
exchange largely obviate the necessity of shipping currency in set-
tling international obligations, by setting off import and export
transactions through banking operations. A balance in favor of
exports gives Germany a surplus of exchange. As a practical
matter of everyday commercial life bills are voluntarily sold to
the Reichsbank and as voluntarily resold to customers requiring
them to settle their commercial obligations. The Plan contem-
plated as a permanent policy the rule of convertibility into gold
or exchange for the notes of the new Reichsbank ; as did the Ger-
man bank law that put the banking provisions of the Plan into
effect. But neither the Plan nor the bank law made this rule opera-
tive at once ; both modified it for temporary convenience in such a
way as actually to give the Reichsbank the power to refuse to sell
gold or exchange to applicants presenting marks. This modus
still obtains, the necessary steps to change it not having yet been
396 AMERICAN FOREIGN RELATIONS
taken, but is not applied for practical reasons ; the Reichsbank in
fact has formally pledged itself to transact exchange without re-
striction. If there were any attempt at rationing in reselling, this
would seemingly involve a kind of inconvertibility, and might
smash the exchange value of the mark, thus pushing Germany back
into the economic chaos out of which the Plan retrieved her. This
would also appear to be the result of any application of the Plan
regulation to amass marks in Germany in the event of inability to
buy exchange for the purpose of transfer ; the marks so kept would
seemingly depreciate.
Exchange not only comes into Germany in payment of exports ;
it is created through borrowings, and the exchange from this
source has ultimately provided remittances to Germany's repara-
tions creditors. Any interference with the service of these loans in
the way of rationing would therefore be equivalent to the killing
of the goose that lays the golden eggs of exchange. Germany sim-
ply would not get any more loans.
What is the authority of the Transfer Committee in connection
with the purchase of exchange? The Dawes Plan says: "The
Government and the bank [i.e., the new Reichsbank] shall under-
take to facilitate in every reasonable way within their power the
work of the Committee in making transfers of funds, including
such steps as will aid in the control of foreign exchange." In the
French text, which has equal force with the English text, "con-
trol" was not used; the Transfer Committee were charged con-
jointly with the German Government and the Reichsbank to main-
tain exchange stability, the full text reading :
Le Gouvernement allemand et la Banque devront ^engager a
faciliter, de toutes les fafons raisonnables en leur pouvoir, le travail
du Comite au point de vue des transferts de fonds, et prendre notam-
ment les mSsures necessaires pour aider au maintien de la stabilitS des
changes.
"In the event of concerted financial manoeuvres," continues the
Plan, "either by the government or by any group," for the pur-
pose of preventing transfers, the Transfer Committee are au-
thorized to "take such action as may be necessary to defeat such
REPARATIONS 397
Since the Transfer Committee was created to protect German
exchange and credit, and since any rationing would destroy what
the Transfer Committee was created to preserve, John Foster
Dulles is of the opinion that the Dawes Committee implied that
Germany should exercise self-control, apparently in her public
finances. The Agent General's memorandum could therefore be
construed as recalling the Germans to this obligation, to which
they have shown themselves to be responsive. Control by the Trans-
fer Committee runs counter to the Plan insistence that economic
forces must be allowed to operate unimpeded, as they must if sta-
bility is to be insured.
No transfer question has yet arisen, let alone a transfer crisis
such as is prophesied freely in Europe ; all reparations so far col-
lected have been duly transferred. Furthermore, the Agent Gen-
eral acknowledges that internal values have gone up by several
times the amount of new foreign debt, notwithstanding the repa-
ration charges.
The Plan is a kind of laboratory experiment in foreign exchange
problems, and just as it was reared, as General Dawes said in
effect, on the dead bodies of many economic theories, so its execu-
tion is putting several other theories in question. One of these is
the distinction between the collection of stable reparation marks
in Germany and their transfer to the creditors abroad. It is a
judgment of some observers of the Plan in operation that these two
questions are more related and less distinct than the Dawes Com-
mittee imagined. Some go so far as to say that if stable marks can
be accumulated they can be transferred without mishap.
However casuists may mangle the irrational dispute relating to
priority, there seems to be no question that there can be no tam-
pering with loans to industry, or that new loans other than state
loans do not come within the provision of Article 248. First, the
Dawes Committee insisted that "our plan is strictly dependent
upon the restoration of Germany's economic sovereignty." The
tenor of the Plan shows a clear purpose throughout that German
business should be allowed to function untrammelled, and that
reparation transfers should be made as "in the judgment of the
[Transfer] committee, the foreign exchange market will permit,
398 AMERICAN FOREIGN RELATIONS
without threatening the stability of the German currency." Sec-
ondly, it encouraged foreign financing in the rehabilitation of Ger-
many to reenergize the German plant for its work of creating an
external surplus.
It is evident that no way out of these technical uncertainties
could be provided by recourse to arbitration, because, were pri-
ority granted to private creditors, a political storm would ensue
among the governments concerned in receiving reparation; vice
versa, were priority given to the governments, foreign financing,
the present generator of reparations, would diminish, because
German loans would hardly be attractive to investors.
Possibilities of the Future.
These periodical arguments make it advisable to consider the
materialization and commercialization of the German reparation
debt concurrently with the restriction of borrowing to productive
loans. Germany is paying in the Dawes standard annuity between
2 per cent and 3 per cent of the formal 1921 bill of 132,000,000,-
000 gold marks without any provision for amortization. She is
subject to the humiliations of continued surveillance, a surveillance
that gives such an acid turn to German emotion as Simplicissimus
showed when it pictured the German taxpayer in 1900 pouring his
savings into the lap of the militarist and in 1928 into that of
Uncle Sam.
It is sometimes stated that precisely because of this resentment
at the subordination of their entire economy as a function of
reparation, the Germans are defying the IV.wes Plan t^ iprovi-
dence so as to precipitate a crisis by which to escape theii* obliga-
tions. Naturally the Germans are restive under what the New
York World calls a "receivership" managed by a super-conti{aller,
and will agitate increasingly for its removal, but it is neither i i, de-
duction from the Agent General's reports nor a tenable inference
from the facts that the Germans are trying to torpedo the Dawes
Plan. That way lies ruin for their credit and an appeal to the
sanctions of the Treaty of Versailles — risks too catastrophic to
invite save in revolution. The methods of guaranteeing the pay-
ment of reparations from Germans who are fast losing contact
REPARATIONS 399
with the war is often dismissed as merely a problem in economics.
Political fears and uncertainties sometimes take refuge in eco-
nomic arguments ; indeed, it is hard to resist the conclusion that
this might be the explanation of past transfer worries.
The Agent General, in concluding his report of December 10,
1927, said:
. . . The very existence of transfer protection tends to save the
German public authorities from some of the consequences of their
own actions, while, on the other hand, the uncertainty as to the total
amount of the reparation liabilities inevitably tends everywhere in
Germany to diminish the normal incentive to do the things and carry
through the reforms that would clearly be in the country's own in-
terests.
The Experts looked upon the protected system established by the
Plan as a means to meet an urgent problem and to accomplish prac-
tical results. The only alternative to it is the final determination of
Germany's reparation liabilities, on an absolute basis that contem-
plates no measure of transfer protection. The Experts did not indi-
cate when in their opinion such a settlement would become possible
in fairness to the interests of all concerned. That would indeed have
been beyond their power to foresee ; but they did prescribe the Plan
as providing "a settlement extending in its application for a suffi-
cient time to restore confidence," and they felt that it was "so framed
as to facilitate a final and comprehensive agreement as to all the
problems of reparation and connected questions as soon as circum-
stances make this possible." We are still in the testing period, and
further experience is needed before it will be possible to form the
necessary judgments. But confidence in the general sense is already
restored, and the proof of it is present on many sides. It is, in fact,
one of the principal factors to be relied upon in bringing about a
mutually satisfactory settlement when the time for that arrives. And
as time goes on, and practical experience accumulates, it becomes al-
ways clearer that neither the reparation problem, nor the other
problems dependent upon it, will be finally solved until Germany has
been given a definite task to perform on her own responsibility, with-
out foreign supervision and without transfer protection. This, I be-
lieve, is the principal lesson to be drawn from the past three years,
and it should be constantly in the minds of all concerned as the exe-
cution of the Plan continues to unfold.
400 AMERICAN FOREIGN RELATIONS
These problems cannot be resolved without protracted negotia-
tions on the basis of the experience of the Dawes Plan and in ac-
cordance with its philosophy. At present Germany is paying repa-
rations in the form of interest instalments on some imaginary
capital sum. Though these amount to about 16 per cent of her
public revenues, and though the burden of taxation necessitated
thereby is approximately 5 per cent of her total gross income,
Germany's internal debt, thanks to the practical wiping out of her
bonded debt by inflation, is only a billion dollars, or about a twelfth
of France's. It is not the reparation burden that is intolerable, but
the lack of any definiteness in the obligation. The only mate-
rialization of liability that the Dawes Plan vouchsafed to Ger-
many was in respect of the railroad and industrial bonds, respec-
tively totalling 11,000,000,000 gold marks and 5,000,000,000
gold marks. It cannot be gathered from the Dawes Plan whether
their issuance in the markets of the world, including the German
market, would be considered as extinguishing any capital obliga-
tion of the German Government in respect of reparation. If such a
step were adopted it would place a great amount of the capital
sum in the creditors' hands and would give German industry a
chance to begin redemption of its share of reparations,
Many schemes for commercializing reparations are in course
of canvass. A suggestion that seems to have merit is one which
would involve simply an issue of German bonds and their offer by
the creditor governments to their bonded, debt holders by way of
exchange. The priority question notwithstanding, there does not
appear to be much likelihood of disturbance to the credit position
which Germany has established so firmly in the world of finance
and which she has been able to maintain without any "protection"
from outside. The next step in the scheme whereby the Germans
would take over part of the burden of the Allied national debts
would be the gradual acquisition of the bonds privately by Ger-
man nationals and officially for cancellation by the German Gov-
ernment. This is a process that is going on all the time ; it would be
interesting to know, for instance, what proportion of the post-
stabilization loans to Germany has come into German possession.
It is in the interests of public policy to relieve Germany from
REPARATIONS
the continuing interference involved in collecting reparations. No
civilization can be stable in which sovereign states are permanently
in debt to one another through their governments. Despite the
fact that the confidence adumbrated by the Dawes Committee has
been admittedly restored, a general settlement on these lines is
held up by many factors, not the least of which is the controversy
on the question of relating reparations to the war debts. Political
relationships in Europe thus remain ulcerated with the deadweight
of war debt charges and the sanctions of a war ten years ended —
side by side with arrangements which during 1927 knit the French
and German economies in a rapprochement containing what in
some quarters have been called the seeds of a commercial and cur-
rency union.44
44 Germany paid the fourth annuity with the same promptness as she paid the
previous annuities. She was at the same time a heavy borrower in foreign money
markets.
CHAPTER TWO
DEBTS
FINANCING THE WAR
A^fY assessment of the cost of the war in money terms is bound
to be arbitrary. The loss of potential profits in the devas-
tated areas, local costs as distinct from government costs, the diffi-
culty of computing the economic equivalent of casualties — these
are immeasurables that make all estimates of little scientific worth.
Yet the attempt has been hazarded both by government authori-
ties and by professional economists. The latter have not been de-
terred from examining the French figures even by the knowledge
that a war-time French Minister of Finance once stated: "The
State has no accounts." Professor E. L. Bogart takes his investi-
gations further, and actually works out the money value of a dead
Frenchman — a grossly materialistic occupation were it not for
the fact that the debt policy of the financial creditors left by the
war has made this infelicitous task not altogether inappropriate.
But Bogart, together with Professors Seligman and Thery, admits
that his excursions in computation must be regarded as provi-
sional estimates. Bogart says that the loss of human lives and the
deterioration of the race are among the most formidable and last-
ing elements in war costs. Seeing that these social and moral con-
sequences affect not only the present generation, but also genera-
tions unborn, this is true enough ; this legacy of the war is but part
of a greater legacy, the retardation of civilization, which has its
economic value just as much as have pensions and expenditure of
shot and shell. It remains non-assessable, varying according to the
degree with which a nation had living contact with the war.
Commonly accepted figures for comparative purposes are based
on a rough and ready accounting of the difference between peace-
time and war-time expenditures incurred by the central govern-
ments. It took the French seven years to clear up their 1915
finances, but there is no other way than to accept official figures,
and these are the basis of the following table1 from The Inter- Ally
i P. 21.
DEBTS
403
Debts by Harvey E. Fisk, showing the war costs borne by the
Great Powers relatively to basic items in the national economies —
the only mode in which a comparison of war burdens may be ex-
pressed :
RELATIVE COST OF THE WAR TO
THE GREAT POWERS
(In "1913" dollars)
Gross
Gross cost
Average annual
cost
of war,
cost of war r
Battle
of war
per cent of
per cent of
deaths,
per
national wealth,
national income ,
per cent of
capita
pre-war
pre-war
population
ALLIES
Great Britain
524.85
84.49
36.92
1.44
France
280.20
19.36
25.59
2.31
Italy
124.59
20.59
19.18
.92
Russia
44.01
13.11
24.10
.98
United States
176,91
8.67
15.50
.05
CENTRAL POWERS
Austria Hungary 108.76
Germany 292.57
18.13
24.71
24.18
31.58
1.60
2.35
It will be seen from this table that Great Britain made by far the
largest proportionate contribution of all the combatants to the
cost of the war. In actual cash spent, in "gold" or 1913 values,
Great Britain also led, with France and the United States closely
competing for second place. The 1920 report of the Secretary of
the Treasury puts the American net money costs at $33,455,000,-
000 from April 6, 1917 to June 30, 1920, "the war period." This
includes the net principals of the then unfunded government debts
owed to the United States. In his 1927 report, Secretary Mellon
undertakes to give a more circumstantial accounting, and arrives
at a figure of $35,119,622,144. He extends the war period to the
middle of 1921, or the time of the official termination of the state
of war existing between the United States and Germany. He in-
cludes, as the 1920 calculation did not, a certain amount of in-
terest on the war debts, but excludes the net principals in view of
the funding and prospective funding operations. Additions that
offset the exclusion of the debts embrace additional expenditure
404 AMERICAN FOREIGN RELATIONS
on war account, readjustments of the previous figures, and the
cost of hospital construction and expenditure by the Veteran's
Bureau. The latter item is an example of the imperfection of the
calculation inasmuch as this cost is a charge on the future as well
as on the past and present. Another continuing cost is that part
of the public debt of the United States which was created as the
result of the war.
The need for some token by which partly to envisage the finan-
cial meaning of the war is the excuse for these calculations. Fisk
tries further to bring them to the comprehension of the lay mind
by recomputing total war costs in pre-war gold values. He works
them out at $80,680,000,000— or 90 per cent of the national in-
come2 of the United States in 1926.
How were these huge sums raised? In various ways — by taxa-
tion, currency inflation, internal loans, and external borrowing.
Confiscation was sometimes tried, but inflation, being an indirect
form of confiscation, in that it dilutes purchasing power, rendered
direct levies unnecessary. Of all these methods, taxation is the
most honest, and has the closest relation to reality. "If a nation
can be buoyed up by the excitement of war, hopes of conquest, and
the gambling chances of victory, without any corresponding in-
crease of taxes," said Charles James Fox, "the game would be
played with eager readiness, and the motives would be lightly ex-
amined." The British statesman thus pointed his opinion that the
expenses of war should as far as possible be defrayed by the gen-
eration that encounters its hazards.
But the late war was a cataclysm, and the European belliger-
ents were early driven to other expedients in financing than
taxation, since there is a limit to taxation marked by social dis-
turbances. In the Reichstag in 1915, Dr. Helfferich defined Ger-
man financial policy as consisting of war taxation and loans, the
issuance of paper money, and the reduction of expenditure. The
Germans hoped to recoup themselves out of the spoils of victory.
Their opponents, as we have seen, held the same hopes, only to
have them dashed on the rocks of political impossibility. In 1914,
France was allegedly the most heavily taxed nation in Europe,
2 Based upon the estimates of the National Bureau of Economic Research.
DEBTS 405
and the French, not daring to add to these burdens, relied upon
loan making, the printing press, and external borrowing. In De-
cember, 1914, the Minister of Finance stated plainly, "We pro-
pose neither to create new taxes nor to increase old taxes." Of the
Allies, Great Britain steered the longest course in "paying her
way," but soon the British, too, were compelled to dilute the pur-
chasing power of their currency, a policy of forcing contributions
on all fours with the clipping of coins practiced by that medieval
French king whom Dante consigned to the lower reaches of his
Inferno. Dr. Knauss, in a study of German, British, and French
war finance, calculates that Great Britain raised 20 per cent of her
war expenditure by taxation,3 Germany 6 per cent, arid France
none at all.4 It is difficult as yet to examine the details by which
these proportions were reached, because the official records are not
only incomplete ; as Gaston Jeze observes, "their sincerity is fre-
quently suspect." In the United States, one-third of the war ex-
penditure was raised by taxation and two-thirds by loan.
United fronts were essential to victory ; hence, instead of drop-
ping out of the war when their resources became exhausted, weaker
Allies leaned on richer Allies, postponing their day of reckoning
till the victorious future. The advent of the United States into the
lists on April 6, 1917, found Great Britain staggering under the
financial burdens of the Entente Powers, while Germany, unable
to raise foreign loans, and overweighted with economic responsi-
bility for the Central Powers, was encouraging the sale of marks
abroad. The United States eased Great Britain's shoulders and
became the ultimate banker of the Allies, emerging from the con-
flict financially indebted to none but the creditor of twenty na-
tions. Only six of them, Great Britain, France, Belgium, Italy,
Serbia, and Russia, received loans during war-time. It is these
debts that we shall deal with almost exclusively in this section,
mentioning the remainder of the intergovernmental war indebted-
ness only by way of comparison in the funding arrangements.
When the armistice was signed, the United States Government
had made advances for the prosecution of the war amounting to
3 British official figures put the percentage as high as 28.5.
* Schacht, Hjalmar: The Stabilisation of the Mark, p. 14.
406 AMERICAN FOREIGN RELATIONS
$7,077,000,000; another $2,521,000,000 was lent after the ar-
mistice in connection with the same purpose ; and other advances
were made to neutrals as well as ex-belligerents so that they could
purchase surplus war and relief supplies to tide over the post-
armistice period. Altogether, on November 15, 1922, immediately
prior to the first funding arrangement, the principal of the ob-
ligations of the war debtors held by the United States Treasury
totalled $10,045,000,000, of which $9,386,000,000 represented
loans made under the authority of the Liberty Loan Acts, the
balance being advances under succeeding war supplies and relief
acts.
The entrance of America into the war in 1917 did not mark the
end of loan-making by the Allies among themselves. Great Britain
in particular borrowed from the United States with one hand and
lent to the Allies with the other, the reason being that there were
commodities in America that Great Britain required for her own
use and was obliged to pay for in borrowed dollars. France also
required British commodities, which she had to procure on credit ;
while Belgium, Russia, and Italy likewise called on France for
supplies that they could not produce and for funds to pay for
them. The gross intergovernmental indebtedness incurred in this
way, exclusive of reparations, was estimated in 1923 to amount to
$28,000,000,000.
It would seem that general bankruptcy should have attended
the long-deferred day of reckoning for some of the Allied states.
This was the outcome predicted by many observers who in pre-
war days had freely proclaimed the economic impossibility of
waging a world war such as overtook mankind in 1914. After the
Napoleonic wars Adam Smith gave voice to like pessimism when he
said, "The progress of the enormous debts, which at present op-
press, and will, in the long run, most probably ruin, all the great
nations of Europe has been pretty uniform." But the British debts
mentioned by Adam Smith quickly became bearable after they
had been consolidated and shared by world investors, including
Frenchmen ! Similarly after the 1870 war, French loans to pay the
indemnity were subscribed by the world at large, including Ger-
mans ! Describing the general bewilderment of the world over the
DEBTS 407
speedy payment of this indemnity, a writer in Blackwood's Edin-
burgh Magazine of February, 1875, said, "The fact was that the
commercial world had no idea of its own power." Shall we add : And
the cooperative possibilities of that power, blended by the healing
acts of peace? For we now see American investors helping the
Germans to pay reparations and at the same time absorbing Allied
internal war debt.
It is sometimes forgotten that in the economic sense the world
paid for the war as it was being waged. The debts in this sense be-
came matters of bookkeeping, the principal problem of adjust-
ment for national economies under the present capitalistic system
and in the exigencies of the subdivision of the world into states
being one of redistribution of liquid capital. The money standard
obfuscated the war's economic effects, because its dislocation
hampered the realization of real wealth in terms of productivity.
If real wealth be regarded as human labor and machinery and the
commodities they both produce and fabricate, it did not suffer
sufficient damage in economic terms among the belligerents to
cause stagnation, because those belligerents were left with popula-
tions and equipments physically capable of resuming production,
as has been shown in the recovery of Germany and France. In
fact, several national equipments were left in better shape than
before, the fruit of the enthusiasm and coordination induced by
war-time exertion. The trouble was that working capital had been
scattered and that confidence had been shattered, factors which
delayed the reintroduction of available supplies to productive
processes, and which created the disastrous interregnum between
the armistice and the Dawes Plan. Post-war events confirmed
Henry Ford's dictum that "real wealth is often compelled to wait
upon money."
Consequent upon the violent shifting of the money bases of
economic life between 1914 and 1918, financial ownership flowed
to new sources of control. The belligerents were compelled to re-
strict their output of exchangeable goods, and the finely adjusted
mechanism of international trade fell out of joint; the Allies in
Europe had to call on the neutrals for supplies, which, because
of the engrossment of their own economies with war making, they
408 AMERICAN FOREIGN RELATIONS
could not offset with goods. Gold in peace-time is used very spar-
ingly in the balancing of accounts, and almost automatically, but
the one-way channelling of goods during war-time demanded a
channelling back of the yellow metal to pay for them. America's
excess of exports over imports between 1914 and 1918 amounted
to nearly $12,000,000,000. Payment for this huge volume of
commodities dammed up half the world's gold supply in the
United States, and the European countries, denuded of much of
their reserve, began to pay for their imports out of their holdings
of American securities. According to estimates in the Harvard
Review of Economic Statistics, July, 1919, from $3,500,000,000
to $4,500,000,000 of American securities were held abroad in
1914, principally by Great Britain. Eisk estimates the French
share at $1,200,000,000. The Harvard journal states that about
$2,000,000,000 of the aggregate amount was returned in pay-
ment of imports up till 1919. 5 Thus was diminished a capital lia-
bility which had been incurred over two centuries in the develop-
ment of the United States.
America leaped from the position of a debtor to that of a
creditor nation, and so great was her accretion of financial power
that most of the European nations lay prostrate until the United
States through her bankers and tourists began to disperse finan-
cial ownership. This was merely a continuation of the function
that the United States had undertaken when she declared war ; she
would have cornered all of Europe's gold stock had it not been for
the credits she began to extend to the Allies after her enlistment
as a belligerent.
The Place of Subsidies in War Financing.
It is the verdict of history that war debts have never been re-
garded in the same light as peace debts. They are rendered differ-
ent by the fact that a commercial loan ordinarily finances a pro-
ductive enterprise or a state with immediately potential resources.
In war, states will cheerfully sign huge obligations to pay for
commodities which are to be used for destructive purposes.
&Other estimates add $1,000,000,000 to $3,000,000,000 to these estimates of
United States securities that returned to America.
DEBTS 409
When the time for payment comes round, the debtor state,
being no longer in danger, seems to look upon its burden as
equivalent to paying for a dead horse. When it was suggested
that the Austrian debt to Russia to suppress the Hungarian re-
volt would place Austria under an intolerable obligation, the Em-
peror Francis Joseph replied, "We shall astonish the world by our
ingratitude." French financial assistance, expressed in consign-
ments of munitions and supplies, contributed greatly to the suc-
cess of the revolting North American colonies leading up to York-
town, and for this last victory the revolutionists were indebted in
equal measure to French military and naval support, which is
estimated to have cost France $700,000,000 and for which she
asked no recompense. France's help was expressed in outright
gifts amounting to nearly $2,000,000 and in post-alliance loans
to the extent of some $6,000,000. In making funding arrange-
ments with Benjamin Franklin, the government of Louis XVI
remitted war-time interest charges, a course that the United States
was to pursue after the World War in her funding agreement with
Belgium. Between 1786, when the first repayment fell due, and
1790, no contribution on the debt either of principal or interest
could be made by either the Confederation or the infant Republic,
and repeated calls for a settlement by the new-born French repub-
lic in 1793 fell on ears attuned only to the needs of an impover-
ished people struggling to nationhood. It was left to Alexander
Hamilton eventually to apply his financial genius to a tardy
liquidation of this indebtedness, which was converted into do-
mestic bonds and retired in 1815.
Great Britain is wise in the financing of cooperative wars, hav-
ing had long and bitter experience. Sydney Buxton6 said of Eng-
land during the Napoleonic wars that she paid everybody, and
that her one faithful friend was the only ally she did not pay,
namely, Providence. Her payments took the form mainly of sub-
sidies, which are said to have been the most long-lived feature of
British foreign policy, familiar even in the fourteenth century,
when Edward III paid French and Flemish princelings to win
French territory. When the modern system of European states
e Finance and Politics; an Historical Study, 1783-1885.
410 AMERICAN FOREIGN RELATIONS
evolved, it was the purpose of British policy to secure its main-
tenance by subsidy. Every contender for European dominance
found himself opposed by a combination financed by an implacable
Britain. Great Britain could take care of herself on the sea ; on
land there was always the military organization of an impecunious
ally to be bolstered up with funds. It is estimated that the total
sum of remittances for British subsidies and loans abroad, from
1793 to 1816, was £61,300,000, of which at least £53,000,000 rep-
resented subsidy payments.7
There was another reason for subsidies ; they insured loyalty and
effort. Being granted monthly, they could be stopped promptly
if an ally showed slackness, whereas, such was the morality of the
times, it was always possible that a loan might be absorbed by
Great Britain's allies without any counterpart of exertion on the
battlefield. So the general British attitude was like that of the man
who, remembering Polonius, would give money, but not lend it.
When loans were granted in place of subsidies, they invited
unfortunate consequences. The most famous examples in British
history were the Austrian loans of 1795-7, which amounted to
£6,200,000 in all ; although, after the commission agents had had
their fill, the sum received by Austria had dwindled to around
£3,000,000. Twenty-one years were allowed to elapse without any
attempt being made to settle this clear and acknowledged debt.
We find parliamentarians urging at least a reacknowledgment
from Vienna. But succeeding British governments defended the
debtor and restarted the supply of subsidies interrupted by these
loans. "I cannot admit that Austria ought to be considered as
lying under any reproach in not having yet indicated any disposi-
tion to discharge this debt,"8 says Lord Castlereagh. He appealed
to the House of Commons to exercise forbearance, even in their
demand that Austria should pay a moiety of interest, until Austria
had been helped "more on her legs than she is at present," basing
his appeal on the statement that Austria had fought well. The
debt had accumulated to £17,400,000 by 1821, and Austria, not
having to pay Great Britain, was able to indulge in a war on
Naples. Two years later, Austria at long last funded the debt at
7 Quoted by Gay, in Foreign Affairs (N. Y.), April, 1926.
s Hansard. First Series. Vol. XXXIV, col. 866.
DEBTS 411
£2,500,000, and so pleased were the British with the first instal-
ment of interest they received that they translated it into paintings
to create the nucleus of the National Gallery. Britain's net receipt
on this account was £2,189,286 ; had Britain demanded more, she
would have obtained nothing. According to Lord Liverpool, the
whole question at the time the loan was granted was whether it
would be better "to give Austria six millions in that way or as a
subsidy. Many persons thought it would have been better to have
granted it as a subsidy than as a loan, and certainly at the time
the transaction was carried into effect, there was no individual who
voted for the loan who would not have voted for giving the money
as a subsidy."9
Here was a recognition, which was proved by the settlement,
that the loan was a subsidy with a difference ; this has been urged
in some quarters for the main portion of the World War debts
owed to America. The conditions in the British Parliament a
hundred years ago were almost duplicated in the debates in Con-
gress prior to the opening of war credits to the Allies, but there
the likeness ends.
HOW THE LOANS WERE CONTRACTED
INTERGOVERNMENTAL loan-making was the outstanding feature
of the war's financial history and has proved to be its most lasting
tangible consequence ; but in its American aspect it differed from
war-loan precedents in that, first, it was subject to the principle
of association in place of alliance ; secondly, it was never allowed
to mitigate the energy of military participation by the lender;
and, thirdly, it was founded on a more commercial basis. These
are the broadly conceived differences, for definitions on this sub-
ject are treacherous and subject to constant qualification, which
insinuates itself in and out of any comprehensive discussion.
The United States an Associate, not an
The United States was alien to the system of alliances and ar-
rangements that constituted the pre-war history of Europe. She
had no part in the development of the two blocs of nations that
9 Hansard. New Series. Vol. X, col. 878.
412 AMERICAN FOREIGN RELATIONS
had kept Europe in diplomatic turmoil since the dawn of the twen-
tieth century; diplomatic entanglement had no connection with
America's entrance into the war. Nor had sentimental attachment ;
a state of war had long been thrust upon the United States by the
unrestricted submarine warfare of Germany before it finally re-
ceived recognition from Washington and became the casus belli.
"We enter this war," said President Wilson in his address to Con-
gress on April 2, 1917, "only where we are clearly forced into it
because there are no other means of defending our rights." That
the United States had her own peculiar reasons for embarking on
war with Germany is further proved by the fact that she failed
to make any declaration of hostilities against Turkey and Bul-
garia, two of the Allies' enemies. Congress established this pe-
culiar relationship in their war resolution : "The Imperial German
Government has committed repeated acts of war against the gov-
ernment and the people of the United States of America." Ameri-
ca's collaboration with the Allies, in brief, was forged for the
single purpose of defeating Germany. If her loans had had a rela-
tion to subsidy, she would naturally have been interested in the
apportionment of the spoils of victory, for it is of the essence of
subsidy that the subsidizer shall be the principal artificer of the
rearrangement. Pitt guided the coalition against Napoleon ; his
interest lay in the new map of Europe. America's interest in the
war in Europe was to secure her sovereign rights from an ag-
gressor ; and these secured, the apportionment of the spoils became
a matter for the Allies to settle, while the United States negotiated
a separate treaty of peace with Germany. The Treaty of Berlin
is the final evidence of the lack of alliance of the United States
with her former associates in war.
Because she was only an associate, the United States was not
a party to the understandings and exchanges of views among the
Allies in preparation for the allocation of the fruits of victory. She
was not a member of the fighting Entente. The world had a revela-
tion of this when President Wilson was confronted at the Con-
ference of Paris with all of the secret treaties which the Allies had
concluded while the war was still in progress. These allowed of no
opportunity to realize the war aims which President Wilson had
DEBTS 413
been individually inspired to submit as the program of the world's
peace. Comradeship had been fashioned out of the fervor of
crusading, but when crusading had come to an end, it was seen
how disparate were American and European ways.
This political aloofness of the United States by way of associa-
tion and not alliance is not affected by the intimacy of the military
partnership. The United States could not enter the fray and en-
gage Germany when and where she was not already at grips with
the Allies ; the corollary of war with Germany was to be ranged on
the side of the Allies. A common enemy connotes friends, and, in-
deed, partners in any hostile move against the enemy. The strug-
gle itself was the meeting ground between the Allies and the
United States, involving the kind of military coordination such
as was acknowledged soon after the American declaration of hos-
tilities in a fraternal message from President Wilson to President
Poincare. "We stand as partners," he cabled to the head of the
French nation — a recognition of interlocking defense.
The United States a Combatant as well as a Lender.
The United States was a direct as well as an indirect contestant ;
she fought Germany as well as financed the cause against Ger-
many. Unlike the Austria of the late eighteenth century, the chief
contenders had reached a high degree of nationhood, fighting on
the same plane of equality, and uniting enthusiastically under the
stimulus of a great cause which did not allow of slack performance
or purchased loyalty. Bargained loyalty was obtained from the
lesser contenders.
A factor that disturbs this simple evaluation of American co-
belligerency is that the United States did not come into conflict
a Voutrance for fifteen months after she had declared war. Not till
1918 did American intervention attain equality of human contri-
bution. According to General Pershing's reports, only 300,000
American troops had reached France by the end of March,
1918 ; "if it had not been that the Allies were able to hold the lines
for fifteen months after we entered the war," he says, "held them
with the support of the loans we had made, the war might well
have been lost."10
10 At Denver, August, 1924.
AMERICAN FOREIGN RELATIONS
Nor was the navy ready for battle when the rupture came. On
the authority of Admiral Sims11 we know that months elapsed
after April, 1917, before the American naval arm had gotten into
"proper working order." "We had no plan, no preparation, no
artillery, no transportation, no ships, in fact, nothing," sums up
General Pershing. Who was America's proxy while effective par-
ticipation hung fire? Great Britain, France, Italy, and the other
Allies, whose troops, in the words of Major-General John F.
O'Ryan,12 "died while serving as substitutes for American boys."
Representative A. Piatt Andrew makes the parallel that we
were "virtually placed in a situation like that voluntarily as-
sumed by many men in the North during the Civil War, who,
having been drafted for the Union armies, hired substitutes to
take their places."18 The British and the French alone lost 460,000
men killed and nearly a million wounded in those critical days
when the German battalions, galvanized by the imminence of
American participation, were hammering at the thinning line that
separated them from Calais.
Was there thrown upon America that peculiar liability of an
implied contract whose definition lies in services rendered and
taken advantage of? Such is the contention of a certain body of
American opinion. It is considered that the American loans were
cancelled, in whole or in part, by the military effort of the Allies
during this period of American military impotence. Those who
adopt this stand also emphasize that the loans were intended to
insure a common victory and, furthermore, that in doing so they
conferred an economic benefit on Americans, whose profits on some
of the war transactions, according to Mr. Mellon, ran as high
as 80 per cent. This is emphasized in a Treasury memorandum
issued in 1917 wherein it is stated that the loans were essential
to America's protection, not only in a military way, but also for
her economic welfare, the reason being that the United States
was producing more goods than were needed for her own use.
The Treasury drew attention to the fact that very little of the
money lent went out of the United States; that most of it was
11 World's Work, March, 1927. "How We Nearly Lost the War."
12 Addressing the American Legion, May 30, 1926.
is Congressional Record. 69th Congress, 1st Session.
DEBTS
415
spent in America for war materials and foodstuffs. The truth of
the statement is borne out in the following table, given by Albert
Rathbone,14 former Assistant Secretary of the Treasury in charge
of foreign loans, summarizing the government transactions with
the Allies between April 6, 1917, and November 1, 1920. The net
Allied expenditure in the United States under the Liberty Loan
Acts exceeded by $830,000,000 the total amount of loans, but it
is obvious that a strict accounting was impossible to achieve in the
exigencies of war financing and purchasing. The figures are in
millions of dollars.
Or eat All
Britain France Italy others Total
Cash advanced $4,277 $2,097 $1,681 $680 $ 9,585
Less refunds and repayments 80 31 .... 8 119
Net $4,197 $2,966 $1,631 $672 $9,466
Expenditures :
Munitions and remounts
$1,331
$ 827 j
$ 259
$ 77
$ 2,494
Munitions for other governments
205
205
Exchange and cotton
1,683
807
87
68
2,645
Cereals
1,375
42
5
1,422
Other foods
1,169
295
142
24
1,630
Tobacco
99
41
5
145
Other supplies
215
277
63
68
613
Transportation
32
100
4
136
Shipping
49
122
1
1
173
Reimbursements
19
1,046
784
24
1,873
Interest
388
269
68
16
731
Maturities
353
290
....
5
648
Relief
16
143
16
363
538
Silver
262
6
268
Food for Northern Russia
7
7
Purchases from neutrals
19
19
Spec'l for U. S. war purchases in Italy .
25
25
Miscellaneous
48
41
56
24
169
Total reported expenditures $7,219 $4,196 $1,652 $674 $13,741
Less:
Reimbursement from U. S. credits $1,864 $ 19 $ 1,873
U. S. dollar payments for foreign cur-
rencies 450 1,026 $ 14 $ 1 1,491
Proceeds of rupee credits and gold from
India 81 81
Total deductions $2,385 $1,046 $ 14 $ 1 $ 8,445
Net expenditures $4,834 $3,151 $1,638 $673 $10,296
i* Foreign Affairs (N. Y.), April, 1926. "Making War Loans to the Allies."
416 AMERICAN FOREIGN RELATIONS
Do these points change the character of the transactions as
loans? Or are they vitiated by the overwhelming significance of
America's financial services, leaving them completely unaffected
as loans? When the United States accepted the gage of war, the
Allies were languishing for want of supplies. Franklin K. Lane,
a member of the Wilson Cabinet, writing to his brother, said, "On
all sides they are frank in telling of their distress. We did not come
in a minute too soon. England and France, I believe, were gone if
we had not come in."15 J. M. Keynes confirms this statement in his
book, The Economic Consequences of the Peace, in which he says,
"Without the assistance of the United States, the Allies could
never have won the war." In his address to Congress on April 15,
1917, President Wilson, urging an intensification of the produc-
tivity already attuned by war demands to a high pitch, said that
America must produce food, clothing, equipment, coal, munitions,
and rails, not only for domestic use, "but also for a large part of
the nations with whom we have now made common cause." America
bent herself without stint to produce these essential commodities
for her associates.
The strain of a prolonged war had bereft the Allies of their
financial strength, and, in addition to the imported commodities,
they required outside credits to pay for them. Fisk16 quotes a
British authority of high standing as follows : "At the very mo-
ment that the United States came into the war, the British Gov-
ernment, with commitments in the United States running into
hundreds of millions of pounds,17 was at the end of its tether. It
had no means whatever of meeting them." The United States
shouldered a double burden while preparing to take her elected
place alongside the Allies on the battlefield — as a dispenser of the
"sinews of war" in commodities and munitions and as the financier
of these supplies. Great Britain, the penultimate financial prop
of the Allies, had an additional reason for seeking aid from the
'& Lane, A. W., and Wall, A. W.: Letters of Franklin K. Lane, p. 250.
10 The Inter-Ally Debts, p. 152.
IT According to British official figures, Great Britain at the time of America's
entrance into the war had contracted market loans in the United States to the ex-
tent of about $1,480,000,000, while she herself was owed $4,130,000,000 hy her
allies.
DEBTS 417
United States ; she was in constant need of credits with which to
peg the sterling dollar rate of exchange, which, in consequence of
the abnormal demands for dollars to pay for swollen war pur-
chases from the United States without any concurrent offsetting
by sales to the United States, was sliding against the pound ster-
ling. Balancing by gold shipments proceeded to such lengths that
eventually the British had to apply an embargo against the ex-
port of gold. To maintain the value of the pound sterling while
continuing to purchase American commodities, the British Gov-
ernment had borrowed dollars from New York bankers ; they con-
tinued to borrow dollars from the American Treasury with which
to support exchange by creating an artificial demand for sterling
drafts on the New York market at a fixed price. Similar support
was also arranged for the franc and the lira but the amount in-
volved was much less.
At the same time it was in the interest of the United States
to help the Allies in these exchange operations, since, if the rate
had gone excessively against Europe, it would have become in-
creasingly difficult for American manufacturers to sell goods to
Europe at the enhanced European currency prices called for by
the adverse exchanges, and commerce with those other regions
where the sterling bill of exchange was the only bill relied upon
would have been seriously inconvenienced. Moreover, if Europe
had had to send all its gold to the United States by way of settling
its balances, a situation would have arisen after the war which
might conceivably have transformed the American gold stock
into a Barmecide's feast, for Europe would have had reason for
abandoning gold as the medium by which to express and barter
its real wealth. "When men have commodities to exchange, or
credit to exchange for commodities," says Fullarton in his Regu-
lation of Currencies, "you do not prevent such exchanges by deny-
ing them a safe and convenient medium for the traffic ; you only
force them to invent for themselves some expedient less safe, less
convenient." These considerations, however, were inactive when
the United States was placing her immense resources at the Allies'
disposal.
In reply to the argument that the settlement of the debts should
418 AMERICAN FOREIGN RELATIONS
have taken into consideration the inflated profits of American sales
to Europe, it is urged that these were diminished by the high
prices charged in the Allied countries for supplies for the Ameri-
can armies in Europe. Furthermore, the American armies left a
great deal of wealth in the Allied countries, which, even if it bears
no comparison with the devastation wrought by the Allies and
Associates themselves on French territory, was an important
enough item in the economic sense to merit the attention of the
Italian war debt negotiators, who pointed out that their economy
had not received a similar benefit. Excess profits on American
sales to the Allies were also offset in the eyes of some persons by
the millions of dollars that private American citizens in their
bounty and sympathy poured into Allied countries. Herbert
Hoover estimates that down to the middle of 1921 these sums ag-
gregated $1,204,343,000, of which $200,000,000 was used abroad
after the armistice to feed and clothe the famine sufferers.
Altogether the American war contribution had an economic
value to the Allies of far greater significance than can be rep-
resented in the dollars and cents of the debts. Whether it can-
celled the lack of effective American military participation up till
the middle of 1918 and left the return of the loans unaffected can
be determined only on the moral plane. The fact is that the whole-
sale conscription of the nation's resources placed the United States
in the same category of a nation in arms as the other belligerents.
In this quality of participation from the outset of her entry into
the war, the United States was unlike the financiers of the co-
operative wars of European history.
The Debts as Obligations.
The third point of difference between precedent and the war
loans of the United States contains the least intangible factors.
It is, indeed, the warrant for collecting the debts, and, strictly
from the standpoint of a creditor, no other consideration affects
it. This point is that the American loans were contractual ob-
ligations. After the declaration of war, financial relations with
the Allies underwent a radical transformation. Instead of being
the merchant of both sides, America stopped her exports to the
DEBTS 419
Central Powers, speeded up production for the Allies, and under-
took to replace private by official financing. Open-market borrow-
ing had almost become closed to the Allies, as much because of
the dwindling of the collateral offered as because of investment
absorption. Loan transactions were arranged between treasury
and treasury and created what came to be known as the war
debts, the United States Government standing sponsor for the
credit of the Allied governments, which was growing intangible
as a business risk by reason of the drain of gold and securities, but
which the United States Government was prepared to accept be-
cause, in President Wilson's language, America was constrained
by her enlistment on the Allied side to pledge "our lives and our
fortunes, everything that we are, and everything that we have."
The Treasury swept up almost all available free funds left on
the American market to re-lend to the Allies.
The businesslike basis of these transactions is best defined,
curiously enough, in a British memorandum to France of August
11, 1923, dealing with British loans to France. It is more pertinent
to the American loans than to the inter-Ally loans because of the
special arrangements that sometimes entered into these latter
transactions. "That a French Government Treasury bill given to
the British Government for value received is a less binding obliga-
tion than a similar one given to a private investor is a doctrine in-
admissible both in itself and more especially in view of the circum-
stances in which these particular loans were contracted," says the
memorandum. So far as one can judge from the complicated
series of intergovernmental financial transactions, about the only
arrangement that bore no earmarks of a loan qua loan, and
was related to historical subsidies and near-subsidies, was the
1918 arrangement that France and Great Britain entered into
with Greece. Under this, the manner of payment for munitions
supplied to the Greek forces in 1918 was to be decided after the
war in accordance with the financial and economic situation of
Greece. Reimbursement could hardly have been contemplated
here ; as a matter of fact, it was subordinated to the need of se-
curing allegiance and thus was a harking back to eighteenth-cen-
tury methods.
420 AMERICAN FOREIGN RELATIONS
There were no such arrangements in the American transactions,
which were devoid of political entanglements, and were more
strictly commercial than any of the other lendings. They were
placed on a commercial basis because they were regarded as busi-
ness transactions, and the evidence is contained in the obligations
handed in by the debtor countries.
Contemporaneous construction of these transactions affords
verification of the indubitably commercial character of the debts.
On the part of the Allies, correspondence is cited in the compila-
tions of the World War Foreign Debt Commission to show that
on the eve of borrowing the French Premier and the French Am-
bassador at Washington engaged in an exchange of cables on the
question of the term of amortization.18 On April 11, 1917, the
American Ambassador at Paris cabled the Secretary of State in
part as follows :
The Premier personally expressed the hope to me that no resolu-
tion would be introduced or debated in Congress tending to make a
gift to the Government of France from the United States, however
much the sentiment of goodwill prompting it might be appreciated
by the French people.
The Liberty Loan Act, passed on April 24, 1917, declared that
"for the purpose of more effectually providing for the national
security and defense and prosecuting the war by establishing
credits in the United States for foreign governments, the Secretary
of the Treasury, with the approval of the President, is hereby au-
thorized, on behalf of the United States, to purchase, at par, from
such foreign governments then engaged in war with the United
States, their obligations hereafter issued." The Act of September
24, 1917, was couched in similar language. Two other acts were
passed by Congress, and, in all, these four acts opened credits to
the Allies to the extent of $10,000,000,000. In addition, Congress
authorized the Secretary of War on May 10, 1918, to sell surplus
war materials remaining in Europe in return for demand obliga-
tions ; and finally credits were extended through the United States
is Combined Annual Reports of the World War Foreign Debt Commission
p. 61.
DEBTS 421
Grain Corporation and other organizations for the relief of the
starving peoples of post-war Europe. The effect of this legislation
was that the Treasury became the final arbiter of the extent of the
financial accommodation granted within the limits of the credits
and of the consequent purchases made out of those advances. "The
dollars we loaned, used in this country by the Allied Governments,
were expended for purposes approved by our own governmental
agencies," says Mr. Rathbone. In turn, the Treasury accepted the
obligations of the various governments. Mr. Rathbone proceeds
to give a detailed account of these transactions :
We did not make loans for purposes which in our judgment were
unnecessary and not calculated to help win the war. We kept the
amount of our loans down by requiring the countries borrowing of
us to use to the extent available their other dollar resources for pur-
poses we approved. In conjunction with Great Britain we furnished
the finance required to effect necessary war purchases of other Allied
Governments in neutral markets. Upon final adjustment we held the
promissory notes of each Allied Government to which we had made
loans in an amount corresponding with the financial assistance we
had furnished it. For its own war purposes in Great Britain, France
and Italy, the United States did not borrow pounds or francs or lire.
Our Treasury was obliged to procure these currencies for the use of
our army abroad. We bought pounds, francs and lire from the Gov-
ernments of Great Britain, France and Italy, and made payments
therefor in dollars here. The dollars thus obtained by Great Britain,
France, and Italy were applied by them toward the cost of their war
purchases here, and thus the amount of the dollar loans required by
these countries from our Treasury was diminished in a corresponding
sum . . . Similarly, Great Britain, loaning to France and Italy much
larger values than the British requirements for francs and lire, paid
for the francs and lire required for British use by crediting to France
and Italy the sterling equivalent of the francs and lire turned over
to her.
In the course of the diplomatic controversies that burst out
after the settlements over the complicated facts of the war debts,
Great Britain made use of this statement by Mr. Rathbone to
support her assertion that all the dollars accruing to her by rea-
son of American purchases in Great Britain were used to buy
422 AMERICAN FOREIGN RELATIONS
commodities in the United States. This was undoubtedly true, as
is shown above; the dollars were placed to British credit in the
United States, a fact which Secretary Mellon acknowledged but
which, he said, did not affect his contention that whereas the dol-
lars Great Britain received from the American Government in-
creased her available cash resources, the promissory notes received
by the United States did not increase the available cash resources
in this country. "The fact that the cash employed in purchasing
pounds was borrowed from American citizens and not from the
British Government is the distinguishing difference, and any pro-
gram of cancellation which does not allow for this difference gives
the United States no credit on the amount of its war debt for pur-
chases made in Great Britain and other countries," said the Sec-
retary of the Treasury.19 This was why the United States came
out of the war owing none but owed by all.
There was no common pool into which all the Allies could dip
at will, but, on the contrary, as Mr. Rathbone's article shows, a
definite understanding that each belligerent should pay for any
resources furnished by a co-belligerent. As for the debts to the
United States contracted in the process, there was never any
question but that repayment in full was exigible by the lending
governments in accordance with the terms of the obligations.
The general principle underlying these obligations was that the
Allies should not pay less for accommodation than the United
States had incurred in raising the funds from American citizens.
Thus, as the Ways and Means Committee said, in reporting on
the first Liberty loan bill, the loan "will take care of itself and
will not have to be met by taxation in the future." The history of
the fixation of the rate of interest on the war debt is consistent with
this provision. Upon approval of the first Liberty bond act on
April 24, 1917, the Treasury, in order to meet the emergency then
existing, began immediately to make advances. As the first few ad-
vances were made before it had been definitely determined what rate
of interest the first Liberty bonds should bear, the United States
accepted obligations from foreign governments bearing interest at
10 Combined Annual Reports of the World War Foreign Debt Commission,
p, 629.
DEBTS 423
rates different from those borne by these bonds. The first obliga-
tions taken bore interest at 3 per cent and 33/4 per cent per annum
to a short maturity date. Then they became demand obligations,
similar to all subsequent obligations for cash advances, and bore
interest at 3% per cent, the rate borne by the first Liberty bonds.
Thus the rate borne by all foreign obligations taken under the
first Liberty bond act was fixed at the rate that the government
had to pay to its bondholders in order to lend their money to the
Allies.
The Liberty bond acts further stipulated that if any of the
bonds sold under such authority should be converted later into
bonds of the United States bearing a higher rate of interest, a pro-
portionate part of the obligations of foreign governments for cash
advances should be also converted in like manner into obligations
bearing higher rates. In view of these provisions, it became neces-
sary upon each interest-payment date of the foreign obligations
to determine what proportion of the outstanding Liberty bonds
of the United States had been converted into bonds bearing higher
rates of interest, in order that the same proportionate part of the
foreign obligations could likewise be converted. This procedure
entailed a great deal of clerical labor, and, on account of the many
complications involved, it was difficult to determine exactly the
amount converted up to an interest-payment date ; so adjust-
ments became sometimes necessary. On February 26, 1918, the
Treasury began to take obligations from foreign governments
bearing interest at 5 per cent, with the understanding that the
matter of the rates borne by the other foreign obligations held at
that time would have subsequent attention. Then on October 31,
1918, the Treasury advised the debtors that, since the cost of the
money to the United States was about 5 per cent — in view of tax-
exemption features and costs attendant upon the raising of this
money, — the interest due November 15, 1918, for the previous
six months on the various obligations then held would be computed
so as to return interest on the entire amount at the rate of 5 per
cent. The foreign representatives, upon instructions from their
governments, agreed to the change in rate. All of the obligations
received by the Treasury for cash advances on and after February
26, 1918, therefore, bore interest on their face at the rate of 5
424 AMERICAN FOREIGN RELATIONS
per cent from date, and all obligations received prior to February
26, 1918, at lower rates, bore interest at 5 per cent from May 15,
1918.
The obligations acquired by the United States on account of
the sale on credit of surplus war materials and relief supplies gen-
erally bore interest at 5 per cent, although certain obligations
given by Austria, Czechoslovakia, Hungary, and Poland for relief
supplies furnished through the United States Grain Corporation
bore interest at the rate of 6 per cent. The acts under which these
obligations were acquired did not stipulate any rate of interest,
but left the matter of terms to the discretion of the President and
heads of departments. The interest on all obligations, except Rus-
sian, was paid in full up to and including April 15 and May 15,
1919, and accrued interest up till debt funding was fixed in gen-
eral at 4% per cent.
FUNDING THE DEBTS
EVEN while the war was in progress many suggestions were
bruited among the European chancelleries for the readjustment
of intergovernmental war indebtedness. Communicated infor-
mally to the American delegates to the Peace Conference, they
eventually became the subject of direct overtures. Newspapers
in Allied countries went so far as to urge all-round cancellation
so that the principal financial settlement of the war might be con-
cerned solely with reparations from Germany. The United States
Treasury scotched all such proposals in communications from
Carter Glass, Secretary of the Treasury, and Albert Rathbone.
"I cannot see that any country is concerned in such arrangements
other than the borrowing country and the particular countries
which have made advances to it," said Secretary Glass. To M. de
Billy, French Deputy High Commissioner at Washington, on
March 8, 1919,20 Mr. Rathbone declared that the Treasury
Department "will not assent to any discussion at the Peace Con-
ference, or elsewhere, of any plan or arrangement for the release,
consolidation, or reapportionment of the obligations of foreign
governments held by the United States." This had reference to
20 Senate Document No. 86, 67th Congress, 2d Session.
DEBTS 425
an Allied proposal that the Peace Conference should consider "in-
terallied agreements as to consolidation, reapportionment and
reassumption of war debts." Mr. Rathbone warned M. de Billy
that American advances could not be continued "to any Allied
Government which is lending its support to any plan which would
create uncertainty as to its due payment of advances." Apart from
the premature nature of these proposals, they were generally
looked upon in the United States, where a businesslike attitude was
beginning to displace sentiment, as an attempt by a debtor to
escape his commitments. Then Great Britain proceeded a step
further. Having recovered from the psychological effects of the
war to the extent that she placed reconstruction above repara-
tions, she pressed for reconsideration of the United States Treas-
ury position so as to win general adhesion to a plan for the re-
ciprocal wiping out of all war liabilities, including reparations,
when Europe might be able to cease bickering and return to work
and purchasing power. Britain wished to re-start Europe along
the normal road of trading and to get the pound sterling back to
par. On December 11, 1919, the British Chancellor of the Ex-
chequer, Austen Chamberlain, appealed for cooperation to wipe
clean the slate of indebtedness, since "the moral effect would even
be a greater practical change, and fresh hope and confidence would
spring up everywhere." His overture met with a frigid reception
in Washington.
The French and Italians remained seemingly indifferent. They
regarded the debts as illusory, something that policies, let alone
already confused budgets, need not take account of. The French
attitude, in particular, exasperated American opinion; for it
seemed to take considerable trimming for granted, and appeared
to regard as impertinent any reminder of the score against France
while she was struggling with her twin harassments of reparations
and security, the one to restore her devastated areas, and the other
to circumvent any future German attempt at revanche. Seeing that
she could not obtain a pact of guarantee from Great Britain and
the United States, France began to weld to herself new allies with
whom to build a new coalition against Germany, an insurance of
safety in pre-war diplomatic terminology but a perpetuation of
426 AMERICAN FOREIGN RELATIONS
strife in the facts of national experience. This recrudescence of
European rivalries was repugnant to the American mind, which
thought in the simpler terms of negotiation with the thing feared
rather than in its encirclement with hostility. In time France saw
in this direct and peaceful method of approach the best form of
security, and strove as zealously for European appeasement
as any other country in Europe, but in the immediate post-war
years her statesmen exhumed all the diplomatic devices of com-
binations and counter-combinations. Mention of debts while such
machinations were being brewed acted only as an irritant to in-
flamed French opinion, which wished to put all such matters in the
background (even the complicated debts owed to France princi-
pally by successive Russian governments) until Germany had been
mulcted in the dues of the Treaty of Versailles.
For all these reasons the United States was deaf when reminded
of French poverty, and hardened her heart to calls for the re-
adjustment of debts which she regarded as business affairs. She
also steadfastly refused to entertain the pooling of obligations
whose settlement she made clear concerned only the immediate
debtor and creditor.
Great Britain admitted the justification of debt collection and
testified to her good faith by making payments before funding.
But she did not feel the same urge as the desolation of the home-
land furnished France to hold fast to the Treaty in a world of
slipping credits and mounting debts. She wished to provide Ger-
many with a breathing spell, with or without an American change
of front ; but in view of the American stand she felt she could not
take any unilateral course of cancellation because she was owed
by her Allies (including Russian debts and debts outside of the
American category of war debt) twice as much as she owed Amer-
ica. There did not seem much hope that American policy would
change; it had the support of American public opinion, which
based its opposition to debt abatement almost as much on the
ground that exaction of payment would check military adventur-
ing as on that of the ethics of abiding by international engage-
ments, the indifference toward which in some Allied countries was
widely regarded as endangering the standards of world society.
DEBTS 427
So far the Allies had voiced their opinion on the debts sepa-
rately; on May 16, 1920, Great Britain and France joined to-
gether at the Hythe Conference in urging a parallel liquidation
of debts and reparations. France still insisted on mulcting Ger-
many heavily, but agreed on the unity of the problem, differing
from Great Britain in that she was not prepared to abate one
tittle of her rights under the Treaty of Versailles unless such
abatement were accompanied by reductions on the claims held
against her by Great Britain and the United States, with a con-
siderable balance in favor of France. Great Britain was in a di-
lemma and communicated Europe's difficulties frankly to Presi-
dent Wilson on August 5, 1920, in the hope that he would
reassume the mantle of deus ex machina. But the President, main-
taining a policy insisted upon by the Treasury Department and
supported by public opinion, repudiated the European view of
the inseparability of debts and reparations, and called upon the
Allies to embark on debt-funding negotiations with Washington.
Little progress could be made toward meeting the American re-
quirement as long as Great Britain tried to keep reparations
pace with France, but when the rift occurred over the French occu-
pation of the Ruhr, Great Britain decided to waste no more time in
funding her bill with the United States. Within a fortnight after
the French move, Stanley Baldwin, Chancellor of the Exchequer,
sailed for the United States, and an agreement was finally signed
on June 19, 1923. It was ratified by the British after much heart-
searching. Only the paramount necessity to Great Britain of re-
establishing British financial and political prestige and the con-
viction of many influential authorities that a general resettlement
in the light of economic and political experience would be forced
upon the United States, persuaded the British to agree to the
Mellon-Baldwin terms, which they felt would bring about a
strain on the pound sterling.
Opposition also developed in the Senate against any ratification
of the agreement. Not that it was felt to be too onerous ; it was felt
to be too lenient. In general, however, sentiment appeared to sup-
port President Harding when he declared in words that might
428 AMERICAN FOREIGN RELATIONS
also be regarded as the epitome of the American attitude on the
war debts at this time :
The call of the world today is for the integrity of agreements, the
sanctity of covenants, the validity of contracts. Here is a first clear-
ing of the war-clouded skies in a debt-burdened world, and the sin-
cere commitment of one great nation to validate its financial pledges
and discharge its obligations in the highest sense of financial honor.
Probably the pact had more significance as a determinant of
war debt policy than any other factor. It bound the other debtors
by example to the principle of war debt acquittance ; it put the
American policy in a groove of formalism ; it set the pace for the
treatment of other debtors by allowing of no other deviation than
"capacity to pay."
The British Government had made plain its attitude on the
war accounts in a note signed on August 1, 1922, by Lord Balfour,
Secretary of State for Foreign Affairs, which, after linking debts
and reparations, and offering again to remit its credits and to
surrender its share of German reparations as a step in the writing
off of the whole body of indebtedness, declared that in no cir-
cumstances would more be asked of British debtors than was neces-
sary to pay the United States. In view of America's inflexibility,
it was the last-named statement that constituted the policy of the
Balfour Note. How far this setting off of debts and credits is
working out is periodically revealed in the House of Commons by
Winston Churchill, Chancellor of the Exchequer. In 1927, British
receipts from war debts and reparations were £265250,000 and her
payments to the United States £32,844,755; after 1930, Great
Britain should obtain from reparation and debt payments £33,-
000,000 a year and should pay £38,000,000 a year to the United
States. A study of the figures shows that on the basis of existing
schedules of receipts and payments the gap will not be bridged
until 1967, although beginning with 1933 the balance against
Great Britain will be reduced to £1,800,000 a year.
The Balfour Note won official respect neither from the United
States nor from the Allies. It could not but place the United States
in the light of an exigent creditor, and, being issued when the
DEBTS 429
British were on the point of funding their American debt, gave
offense in the United States as an effort to prejudice the coming
negotiations. The Note also contained a specific cause for dispute.
In referring to the advances made by America to the continental
Allies it stated that the United States "insisted in substance, if
not in form, that, though our Allies were to spend the money, it
was only upon our security that they were prepared to lend it."
This was vigorously controverted by the press of the United States
and in Great Britain by the Economist, and apparently arose out
of the use that was made of the efficient purchasing organization
built up during the war by Great Britain. In these cases, England
accepted reimbursement from the country for which she acted as
purchasing agent, the reimbursement taking the form of money
individually borrowed from the United States. In only one case
did Great Britain make advances after the United States entered
the war for purchases by any of the Allies in the United States.
This exception was a transaction for Russia's account, but the
amount involved was unimportant and had reference to contracts
entered into by Russia and guaranteed by Great Britain before
April 6, 1917. As we have seen, each nation received advances to
meet its own needs and signed its own demand notes.
The statement also gave umbrage to the French, but they were
principally annoyed because of the persistence with which the
British lumped reparations from Germany with British credits
from the Allies, instead of drawing a clear line between repara-
tions and debts. Poincare replied stiffly to the Note, dwelling on
the difference between reparations from enemies and debts among
friends and on the need for deferring payment of the latter until
the former had been collected. He pointed out the distinction be-
tween French purchases of war material after the armistice, which
he called "commercial" debt, and other war debt, which he called
"political" debt. France had met no interest obligations on her
"political" debt but had remitted 5 per cent regularly on the
"commercial" portion, which amounted to $407,000,000. This
sum was subsequently merged in the Mellon-Berenger settlement,
but if the French do not ratify the agreement by August 1, 1929,
430 AMERICAN FOREIGN RELATIONS
they will be under obligation to repay their "commercial" obliga-
tion on that date.
The French distinction is one of many that have been drawn in
connection with the "morality" of repayment. Who could dis-
tinguish between a supply contract made and fulfilled before the
war ended and one which, though entered into while the war was
in progress, was not executed until after the war? Fisk says that
half of the post-armistice expenditures of $2,000,000,000 were
made to clear up war accounts. It is a conceivable figure when one
bears in mind the magnitude of the financial and commercial opera-
tions that got under way in 1918. They were governed in a sys-
tematic way. Instead of giving the Allies credits and cash to meet
all their commitments for war purposes, the United States estab-
lished credits and paid out the cash required from day to day. It
necessarily follows that the United States Government was com-
mitted to establish the credits and advance the cash necessary to
make future payments on contracts approved by the War Indus-
tries Board even though such transactions fell due after the ar-
mistice. Moreover, war-time commitments could not be curtailed
till the prospect of peace that the armistice ushered in had taken
on a more permanent aspect. Relief credits might also be classified
as war commitments, for they were induced, according to the 1920
Report of the Treasury, by the fear of the spread of anarchy in
Europe consequent upon post-war adjustment.
Post-armistice transactions that at first sight are more sus-
ceptible of classification as non-war items were on account of
foodstuffs and surplus war stocks. After the armistice the Treas-
ury began to reduce lending as rapidly as possible, and "abso-
lutely declined," according to Mr. Rathbone, "to make post-ar-
mistice loans for reconstruction or trade purposes." The action
of the Treasury induced the British to cancel their buying orders
in the United States, throwing American exporters into consterna-
tion. Herbert Hoover, as head of the American Food Administra-
tion, communicated their difficulties to the President :
Our manufacturers have enormous stocks ... in hand ready for
delivery. While we can protect our assurances given producers in
many commodities, the most acute situation is in pork products which
DEBTS 431
are perishable and must be exported. ... If there should be no
remedy to this situation we shall have a debacle in the American mar-
kets and with the advances of several hundred million dollars now
outstanding from the bonus to the pork produce industry, we shall
not only be precipitated into a financial crisis but shall betray the
American farmer who has engaged himself to these ends. The surplus
is so large that there can be no absorption of it in the United States,
and being perishable, it will go to waste.21
As a result, credits were continued in order to dispose of
these supplies, which were badly needed in Europe. It is arguable
whether there is more than a shade of difference between the
standing of these credits and that of the definite war transactions,
especially if one holds as self-evident that during war-time the
supply of foodstuffs and the supply of munitions could not be
differentiated in the needs of belligerent nations.
In general, any attempt at classification of all the loans ac-
cording to a "moral" obligation of reimbursement is an attempt
at drawing hair lines and is not fruitful of distinction. From the
larger standpoint of policy, the debts must be regarded as an in-
divisible whole, save for certain special advances, principally to
Great Britain, whose prompt repayment showed clearly their pe-
culiar nature, and for minor advances to neutrals.
Formulas of Negotiation.
The authority to make the loans to the Allies was vested in the
Treasury, but the task of obtaining their liquidation into long-
term obligations was given to a special World War Debt Com-
mission, created by the act of February 9, 1922. Nothing in the
act, it was stated, should be construed as empowering the Com-
mission to extend the time of maturity for new bonds beyond June
15, 1947, or to fix the rate of interest at less than 4% per cent;
but these terms of reference were early abandoned as too strict
even for application to the strongest debtor, Great Britain. The
option left to the debtors was either to sign on the dotted line or
to decline to sign at all. Much broader powers were conceded on
February 28, 1923, allowing the Commission to make "just" set-
si National Industrial Conference Board, The Inter-Ally Debts and the United
States. Preliminary Study, p. 53.
432 AMERICAN FOREIGN RELATIONS
tlements subject to Congressional approval. The consequent va-
ried settlements submitted to Congress caused some debate, par-
ticularly the British ; the French settlement, which the Senate has
still to ratify, may yet arouse controversy, although in 1927 there
was a tendency to expedite the conclusion of arrangements that
had been so difficult to persuade the debtors to enter into.
Despite the added discretionary authority now vested in the
Commission, no state showed any anxiety to follow the British mis-
sion to Washington except Finland, which had been granted a
small post-war credit. The principal war debtors other than
Great Britain were immersed in domestic rehabilitation and
could not know whether they would be able to fulfil any commit-
ment at Washington. American diplomatic pressure continued,
and to it in 1925 was allied a new device of compulsion ; it was
given out by the State Department that no private bankers5 loan
could be approved to those debtor states, or their component sub-
divisions, which had not compounded their war accounts with the
United States. Great Britain also began to use this lever to per-
suade her own negligent debtors to pay up.
Because of the debtors' lackadaisical attitude, the World War
Debt Commission, originally created for three years, had to ob-
tain a further lease of life for another two years, ended February
9, 1927, when they had secured agreements from all of the main
debtors. It was held unnecessary to ask for further extension be-
cause agreements had been concluded providing for the fund-
ing of these obligations in principal amount of $9,811,09^,094},
or over 97 per cent of those held when the Commission started to
function. By the end of 1927, only Russia, Armenia, and Greece
had failed to come to terms ; of these three, Armenia had passed
out of existence as a sovereign state, Russia had not been recog-
nized by the United States, and the Greek situation was under
negotiation.22 France had not ratified her agreement but had con-
tinued to make payments under it ; Austria had been granted a
20-year moratorium until June 1, 1943 ; Cuba and Liberia had
liquidated the entire amount borrowed ; and the Nicaraguan debts
22 The financial relation between the American and the Greek Governments will
be treated in a future volume.
DEBTS 433
had been considered as funded in view of the fact that payments
were being made consistently.
The Commission were told to negotiate "just" settlements.
"Just" is a two-edged word, meaning consideration of the debtor
in the terminology of Representative Piatt Andrew and con-
sideration of the creditor in that of Representative Theodore Bur-
ton. What it meant to the Commission as a whole may be adduced
from the formulas they adopted. The central principle was the
integrity of the principal amounts of the obligations. In the
words of the Chairman, Secretary Mellon, the Commission felt
that "repayment of principal is essential in order that the debtor
might feel that it had paid its debt in full and that we might know
that we had our capital returned to us."2S Another principle to
be maintained intact was the extension of the amortization period
to 62 years in the main settlements. In the negotiations with
Great Britain the Commission realized that repayment within a
generation might be a difficult proceeding for a country con-
valescing from financial exhaustion. "It seemed to have been un-
derstood," said Garrard Winston, former Under Secretary of the
Treasury and Secretary of the Commission, in the course of a
round table conference at the University of Chicago in 1928, "that
the principal of the debt should be repaid by means of a cumula-
tive sinking fund of one-half of 1 per cent. Applying this sinking
fund and the agreed interest rates the payment of principal would
be completed in 62 years."
The third principle was settlement according to "capacity to
pay," a phrase that has entered largely into the popular contro-
versies arising out of the settlements. It is explained in the reports
of the Commission. The Commissioners "felt that the lack of ca-
pacity of a government, . . . can be readily met by appropriate
adjustment or modification of the rates of interest to be paid dur-
ing the period of repayment of principal. And in examining the
capacity of payment the Commission looks not only at the imme-
diate capacity but estimates so far as it is able to do so, the future
development of the nations concerned."24 In this effort to gauge
23 Combined Annual Reports of the World War Foreign Debt Commission,
p. 289.
24 Ibid., p. 38.
434 AMERICAN FOREIGN RELATIONS
present and future capacity, the Commission were assisted by the
overseas agencies of the American Government, and perhaps for
this reason there was at first a tendency to use quantitative meas-
urements. A nation's ability to pay depends upon factors other
than economic, intangible as well as tangible, such as those residing
in Poincares and Mussolinis and the public temper. No matter
how potentially rich the country, its ability or willingness to pay
might in certain circumstances become negligible, as in forms of
passive resistance, non-cooperation, or active hostility. British and
American ability to pay ship money and stamp tax respectively
dropped considerably after John Hampden and Samuel Adams
had inaugurated their anti-payment campaigns. This aspect of
"capacity" might have been taken cognizance of after the fall of
Caillaux consequent upon his failure to come to terms with the
United States, since French ability to pay immediately began to
fall by reason of political disturbances, quite apart from the facts
and potentialities of French economy, and resulted in the nego-
tiation of a speedy agreement with M. Caillaux's successor, M.
Berenger.
"Capacity to pay" could not be scientific amid the post-war wel-
ter of political complications and economic necessities. Among the
latter was the return to the gold standard ; American debt policy
could not be pushed to the extreme demand from fear of inviting
retrogression in the hoped-for progress toward monetary stability
in Europe. Nor could it be assessed in a strictly economic sense ; na-
tions are not collections of robots responding to artificial stimuli,
and, despite all of the intelligence at the disposal of the Commis-
sion, he would have been a wise man who could have foretold early
in 1926 just what French "capacity" would be at the end of
1927, let alone what it will be two generations hence. At best,
"capacity" is almost as impossible to evaluate as the degree of a
belligerent's war contribution. That it was subordinated to the
usual diplomatic practice, which is to obtain for your country as
much advantage as you can, is, indeed, the testimony of Secretary
Mellon, who, looking back on the settlements, said,25 "We have, I
believe, made for the United States the most favorable settlements
25 Combined Annual Reports of the World War Foreign Debt Commission,
p. 302.
DEBTS 435
that could be obtained short of force." He further said, in answer-
ing possible critics of the settlements, "The only other alternative
which they might urge is that the United States go to war to
collect."26
The United States throughout these negotiations steadfastly
refused to accede to any request for a "safeguard clause," which
was intended to secure relief for those debtors whose interest in
reparations should fail to materialize. The French made much
of this proposal and were successful in obtaining certain as-
surances from Great Britain by means of an exchange of letters
when the Franco-British debt was funded. But these were merely
a concession to French sentiment, since any curtailment of Ger-
man reparations would affect the Balfour Note policy of the
British Government, thus necessitating a reconsideration of debts
on their side as well as on the French. This principle of the Balfour
Note was also written into the Italian-British agreement.
The standpoint that debts and reparations were distinct and
separate affairs had passed from President Wilson down through
President Harding to President Coolidge as the expressed corner
stone of American debt funding policy. One of the few Paris
attitudes of President Wilson to survive in the United States, it
had become by constant reiteration an idee fixe. Yet the admission
of the "capacity to pay" formula was in itself a tacit acknowledg-
ment of the link. At the time of their settlements with the United
States, France, Belgium, and Italy all looked to Germany for the
funds wherewith to pay Britain and the United States. French
ability to pay in 1926 depended most obviously upon the extent of
her collections from Germany. One of the important factors in
France's ability to pay the 1871 indemnity was the accumulated
reserve of wealth in the foreign securities owned by her nationals.
By 1914, France had retrieved her position as a nation of rentiers,
but during the war her holdings of Russian, Turkish, Bulgarian,
Rumanian, and Serbian securities depreciated so rapidly that the
French Government was able to mobilize only about two million
francs. Little progress had been made by 1926 to retrieve this
20 Combined Animal Reports of the World War Foreign Debt Commission ,
p. 597.
436 AMERICAN FOREIGN RELATIONS
position, while its own war debts seemed mainly uncollectible. In
these circumstances, German reparations were important assets
to France in connection with the payment of her debt to the United
States. Under the Dawes Plan, France in 1927 received roughly
$191,000,000 from Germany, against which she had to make re-
mittances of approximately $30,000,000 each to the United States
and Great Britain on war debt account. She had also to make con-
siderable payments to the Bank of England for war-time ad-
vances, but still had a handsome net surplus.
Secretary Mellon himself stated the relation between debts and
reparations in a letter to President Hibben, of Princeton Univer-
sity, on March 15, 1927, when he said,27 "It is obvious that your
statement that the debt agreements which we have made impose a
tremendous burden of taxation for the next two generations on
friendly countries, is not accurate, since the sums paid us will not
come from taxation, but will be more than met by the payments
to be exacted from Germany." The United States refused to pay
formal tribute to this fact in the agreement with France; ap-
parently for two reasons, first, that even if reparations received by
France were subsequently reduced, other factors might offset this
injury to her ability to pay her debt to the United States, and,
secondly, that a settlement on such terms would be so indefinitive
as to lead to constant controversy.
The American veto on the attempt to conjoin debts and repara-
tions was partly a reaction from conditions in Europe, when
French coercion against Germany was pursuing its checkered
career ; that it was not lifted after the Dawes Plan seems to have
been due to the fact that it had then become not only a hard-and-
fast ruling, but also the principal support of internationally ne-
gotiated agreements. It is difficult for statesmanship to turn its
back on policies that have been consolidated into precedents.
27 International Conciliation. No. 230. May, 1927. This statement was later
modified to exclude Great Britain, which, owing to a typographical error, had been
omitted from the original statement.
DEBTS
THE SETTLEMENTS
437
THE following table shows the total principal and interest to be
paid to the United States by thirteen war debtors :
TOTAL PRINCIPAL AND INTEREST TO BE PAID TO
THE UNITED STATES BY THIRTEEN
WAR DEBTORS28
Average
interest rate
( approximate )
over the
whole period
of payments,
Country
Principal
Interest
Total
per cent
Great Britain
$ 4,600,000,000
$ 6,505,965,000.00
$11,105,965,000.00
3.3
Finland
9,000,000
12,695,055.00
21,695,055.00
3.3
Hungary
1,939,000
2,754,240.00
4,693,240.00
3.3
Poland
178,560,000
257,127,550.00
435,687,550.00
3.3
Esthonia
13,830,000
19,501,140.00
33,331,140.00
3.3
Latvia
5,775,000
8,183,635.00
13,958,635.00
3.3
Lithuania
6,030,000
8,501,940.00
14,531,940.00
3.3
Czechoslovakia
115,000,000
197,811,433.8829
312,811,433.88
3.3
Rumania
44,590,000
77,916,260.0529
122,506,260.05
3.3
Belgium
417,780,000
310,050,500.00
727,830,500.00
1.8
France
4,025,000,000
2,822,674,104.17
6,847,674,104.17
1.6
Yugoslavia
62,850,000
32,327,635.00
95,177,635.00
1.0
Italy
2,042,000,000
365,677,500.00
2,407,677,500.00
0.4
Total
$11,522,354,000 $10,621,185,993.10 $22,143,539,993.10
In view of the hugeness of the sums involved, it was necessary
to find practicable terms of repayment to replace the demand ob-
ligations and these were mostly secured by spreading payments
on account of principal and interest over a period of years. The
repayment of the original principal amount was provided for in
all cases. But interest payments total almost as much as principal
repayment, and it was around the rate to be charged in the settle-
ments that negotiation revolved. The variability in the settlements
reveal the application of the "capacity to pay" formula in the
fixation of the rate of interest.
The point of major interest to the United States is the extent of
the debtor's contribution to the full value of the debt, which, in
28 Combined Annual Reports of the World War Foreign Debt Commission.
29 Includes deferred payments which will be funded into principal.
438 AMERICAN FOREIGN RELATIONS
the official American reckoning, is the amount of debt prior to
funding, including interest accrued and unpaid up till December
15, 1922. If no interest were chargeable, the task of showing the ex-
tent of this contribution would be easy, but money, like the grain
of mustard seed, expands with cumulative power, and $100 pay-
able today is therefore more valuable than $100 due in 62 years,
since the former amount could be multiplied many times over in
those 62 years. Thus we cannot compare the amount of the debts
prior to funding with the sum total to be received at the end of
62 years. We must calculate the "present values" of the remit-
tances ; these, not the settlements themselves, are the accepted base
of comparison with the amount of debt prior to funding in gauging
the debtor's contribution to the full value of the debt. One pay-
ment of $62 would completely discharge an obligation of $62 and
constitute fulfilment of a demand obligation ; the full value of a
loan would be received. If payment were made at the rate of $1 a
year for 62 years without interest, only a part of the full value of
a loan would be received. It follows that a part of the full value of
the debt would be cancelled. What this concession signifies may be
estimated variously, and is dependent upon a rate of discount arbi-
trarily chosen. If we choose 4% per cent, the present value of a
$1 annuity for 62 years would be a little over $21 ; if 3 per cent, the
present value would be $28.
It has sometimes been urged that present worth should be
figured at the rate of the cost of foreign money to the debtor. In
the case of the debtors to the United States, this would be from
5 per cent to 7 per cent. But this is inadmissible if we are gauging
full value to the creditor.
Is it not fair to assume that actual value is the capitalization of
annual remittances at the interest rate that the United States Gov-
ernment had to pay to American citizens in order to raise the funds
lent to the debtors? If these debtors repaid the United States at
4% per cent, then we should be reimbursed in full for our outlay.
This is a reasoning sometimes indulged in, but it is fallacious be-
cause the maturity dates of the Libertys are much shorter than
those of the debt settlements and, more important still, because the
Treasury has already embarked upon a policy of retiring the
DEBTS 439
Libertys before due date or converting them into low interest bear-
ing notes as part of a fiscal program destined not only to take ad-
vantage of the return to normal interest rates, but also to ex-
tinguish the whole of the public debt.
War debt policy and public debt policy are not easy to rec-
oncile. When it became evident that the Treasury could sell
securities with a maturity in excess of two or three years at 3%
per cent, this was obviously the time to consider the relief of the
taxpayer by refunding our high-priced bonds. It also became the
stated policy of the Treasury to apply all debt repayments to
public debt retirement. Yet the theory of the acts governing them
was that Liberty bonds were to be covered by the repayment of the
consequential war debts. These debts were considered as "bearing
the same rate of interest and containing in their essentials the same
terms and conditions as those of the United States issued under
the authority of this Act.30 What has happened to the war debts?
They have been funded into long-time obligations which mature
in 62 years. What is happening to the original Libertys? They
are marked down for extinction along with the remainder of the
public debt by an abundant sinking fund, bountiful revenue sur-
pluses, and the easier state of the money market. High-priced
Libertys stood in the way of reducing the interest rate of the pub-
lic debt. At the end of 1927 the carrying out of this program had
progressed so satisfactorily that the early extinction of the public
debt was spoken of, retirement having proceeded for the last eight
years at the rate of about a billion dollars a year, leaving the public
debt in the neighborhood of $18,500,000,000. Taking into ac-
count the steady growth of the sinking fund, the expectation of
continued surpluses, and increase in the payments of foreign obli-
gations, it is hoped to extinguish the public debt in about fifteen
years, bureaucracy, porkbarrel legislation, and other mishaps per-
mitting.81 The result of these fiscal achievements, which are un-
paralleled in the history of public finance, had reduced the average
80 First Liberty Loan Act, April 24, 1917, Section 2.
si "At the present rate of redemption it will take Great Britain 150 years to pay
off her internal war debt." — Philip Snowden, former British Chancellor of the Ex-
chequer, Atlantic Monthly, Sept., 1926.
440 AMERICAN FOREIGN RELATIONS
interest on public debt by December SI, 1927, to 3.88 per cent.32
The war debts are scheduled to live on for half a century, testifying
in the advancing stature of the annual payments to the original
prolific sturdiness of their declining parent, the Liberty bonds.
It follows that the going rate of money to the creditor is the only
standard of comparison in finding out the contribution of the
debtor to the full value of his debt. Says Mr. Mellon :
From the United States' standpoint, therefore, the question of
whether a particular settlement represents a reduction in the debt
depends on whether the interest charged over the entire period of
the agreement is less than the average cost to us of money during that
period. The flexibility in debt settlements is found in the interest rate
to be charged.33
What is the present value of money to the United States Govern-
ment? We were able to borrow in peace years before 1914 at rates
ranging from 2 per cent to 3 per cent. Rates then became inflated,
and the war loans were contracted at an interest in the region of
4^/i Per cent; but the price of borrowing has now returned almost
to pre-war levels, and we are able to raise money at between 3 and
3% per cent. Secretary Mellon himself looks forward to a down-
ward tendency, and, imagining conditions over a period of 62
years, favors 3 per cent as the index for computing the actual
worth of the settlements to the United States. In a statement to
the Ways and Means Committee of the House on May 20, 1926,
he said : "If we assume that the average cost of money to the United
States for the next 62 years will approach a 3 per cent basis, and
if we determine the present value of the French annuities on that
basis, we arrive at a figure which would approximate their actual
value today."34
When Secretary Mellon chose 3 per cent as a point of departure
32 Ogden L. Mills, Under Secretary of the Treasury, in a speech at Albany,
Journal of Commerce (N. Y.), March 10, 1928. Conditions altered a good deal
after this date, and the Treasury had to offer 4*£ per cent in connection with its
September financing.
as Statement by Secretary Mellon before the Ways and Means Committee of
the House of Representatives, January 4, 1926. Combined Annual Reports of the
World War Foreign Debt Commission, p. 693.
84 Ibid,, p. 421. But see footnote (32).
DEBTS
in assessing the present value of the payments he was trying to
gain Congressional adherence to the agreement with France. This
was a task of persuasion, for Congress, in delegating liquidation
to the Funding Commission, had been reluctant to substitute dis-
cretionary power for strictly limited authority. They examined
the settlements with the care of a creditor anxious to secure sub-
stantial repayment. In submitting terms that constituted gen-
erous concessions when compared with the original Congressional
requirements, Mr. Mellon had therefore to educate approval by
presenting them as businesslike contributions to the repayment of
(in millions of dollars)
1,786.6 . ''806'7
1349,7
All Others
Belqium
Italy
France
Great Britain
1926-30 1931-35 1936-40 1941-45 1946-50 1951-55
Remittances by quinquenniums of war debtors of the United States.
442 AMERICAN FOREIGN RELATIONS
a commercial debt. For this purpose he worked out the present
value of the French payments at 3 per cent, compared the result
with the debt prior to funding, and showed that, although the
United States had been generous, she had secured as much of a
"deal" as it was possible to get. This was justice to the creditor.
The Secretary was placed between the Scylla and Charybdis of
two sets of judges ; the other judgment came from that section of
public opinion which, for reasons already stated, regarded debt
collection in whole or in part as unjustifiable. In various public
statements the Secretary exhibited the present value of the pay-
ments sometimes at 4% per cent and sometimes at 5 per cent, and
either calculation proved that the settlements fell much below
payment in full, or the debt prior to funding, and so represented
substantial cancellation. This was justice to the debtor.
Having the Treasury's imprimatur on 3 per cent as the proper
discount rate for assessing present value, we may now see how it
compares in detail with the interest charged the various debtors.85
The minor settlements are excluded from detailed comment inas-
much as most of them are irrelevant to the question of the war
debts proper.
Great Britain: Great Britain originally borrowed $4,074,818,-
358.44. The principal of this debt, funded with accrued interest,
is $4,600,000,000, and the total amount collectible is $11,105,-
965,000. Interest is fixed at 3 per cent for the first 10 years, and
3% per cent for the remaining 52 years, making the total annual
payments, principal and interest, about $160,000,000 a year dur-
ing the first 10 years, and about $180,000,000 during the re-
mainder of the 62 year period. The approximate average interest
rate works out at 3.306 per cent.
Belgium: This settlement represents an important departure
from the principles of the British settlement. The debt is divided
into two parts — that contracted before and that contracted after
the armistice. The total amount of the original debt is $377,029r
570.06. As a result of the debt negotiations the pre-armistice debt
is fixed at $171,780,000, which was the amount agreed upon at
Paris during the Peace Conference and approved by President
as Moulton and Pasvolsky, World War Debt Settlements.
DEBTS 443
Wilson for inclusion in the Belgian war debt, which, under the
Treaty of Versailles, was to be assumed in full by Germany. This
plan was not adopted by the United States because she did not
ratify the Treaty; instead, the United States decided to collect
no interest on the pre-armistice portion. The total sum is to be
discharged in 62 annuities, starting with $1,000,000 in 1926 and
rising gradually to $2,900,000 in 1932 until 1987, when the last
instalment will be $2,280,000. The post-armistice debt amounts
with accrued interest to $246,000,000, to be paid over 62 years.
Interest in the first few years works out at much less than 3 per
cent ; starting with the eleventh year, the rate is advanced to 3.5
per cent. The total amount to be paid in principal and interest
amounts to $727,830,500, and the average interest is 1.79 per cent.
France: The original debt was $3,340,416,043.72. The prin-
cipal is fixed at $4,025,000,000. During the first two years, 1926
and 1927, France is to pay $30,000,000 a year on account of
principal ; during the next two years, $32,500,000 a year ; and in
the fifth year, $35,000,000. Then the principal drops to $1,350,-
000 for the sixth year; rises to $11,363,500 in the seventh year;
to $21,477,135 in the eighth; $36,000,000 in the ninth; $42,-
000,000 in the tenth; and for the next 35 years fluctuates
between $51,000,000 and $80,000,000, rising gradually to a maxi-
mum of $100,000,000 during the last six years of the paying pe-
riod. No interest at all is charged during the first five years ; for
the next 10 years, the rate is 1 per cent; for the following 10
years, 2 per cent ; for the next eight years, 2.5 per cent ; for the
next six years, 3 per cent; and thereafter 3.5 per cent. France
will pay altogether $6,847,674,104.17 at an average interest rate
of 1.64 per cent.
Italy: The original amount of the Italian debt was $1,647,-
869,197.96. The principal as funded is $2,042,000,000. The 62
annual payments range from $5,000,000 for the first five years
to $79,400,000 in 1987. No interest at all is charged during the
first five years. The interest rate is % of 1 per cent for the next
10 years; % of 1 per cent from 1940 to 1950; % of 1 per cent
from 1950 to 1960; % of 1 per cent from 1960 to 1970; 1 per
cent from 1970 to 1980 ; 2 per cent from 1980 to 1987. Italy will
444 AMERICAN FOREIGN RELATIONS
pay altogether $2,407,677,500, the average interest rate being
.405 per cent.
The minor settlements were more or less modelled on the major
settlements. Those with Finland, Hungary, and Lithuania con-
form to the British. Five others carry the same rates of interest,
but differ in the options provided for the initial period. Of these
five, Poland, Latvia, and Esthonia are given the privilege of defer-
ring three-quarters of the payments due for principal and interest
during the first five years, the deferred payments being funded
at 3 per cent. Czechoslovakia and Rumania have the right to
defer a quarter of their payments during the first 18 years and
11 years respectively. Yugoslavia follows the model set for Italy.
The percentages that the present value of major payments dis-
counted at 3 per cent represent to the debts prior to funding are
as follow :
Great Britain 104.4 per cent
Belgium 62.5 per cent
France 64.6 per cent
Italy 36.4 per cent
The proportions of the other settlements, except that with
Yugoslavia, which shows a percentage of 45.8, work out at over
100; these states, therefore, repay their debts in actual present
value to the United States, although in actual value to the debtor
states this was a profitable transaction, seeing that the commer-
cial price of money to them in the United States is from 5 per cent
to 7 per cent. This factor should be taken into consideration in
evaluating the provisions of these minor settlements, for they are
in a different category from the major settlements; but this can-
not be said to explain the difference between the two classes be-
cause the index used was in all cases "capacity to pay."
We now find that the percentages of remission accorded three
of the four chief war debtors were : Belgium, 37.5 ; France, 35.4 ;
Italy, 63.6. Italy, which has been treated most generously of all,
has been asked to pay little more than the amount of her post-
armistice borrowings. These remissions are responsible for an
average abatement of the whole of the funded debts of 23.8 per
cent ; we have received 76.2 per cent of full value.
DEBTS
Some calculations are based upon the funded debt, not on the
debt prior to funding. On a 3 per cent basis, the present value of
the payments to be made by Great Britain is $4,922,702,000.
The debt as funded is $4,600,000,000; therefore, the excess is
equivalent to 7 per cent, as compared with 4 per cent, when the
debt prior to funding is considered. However, to match the present
value with the funded debt is apparently not considered appro-
priate by the Treasury inasmuch as the United States was owed
accrued interest,36 which, it is contended, must be taken into ac-
count to arrive at full value.
Whether the funded debt or the debt prior to funding be chosen
for purposes of comparing present value, the British arrange-
ment is in effect a 100 per cent settlement, although it must be
borne in mind that it was reached when the cost of money to the
United States was about 4% per cent, on which basis 17 per cent
of the British debt has been remitted. Mr. Mellon's method is to
contrast the estimated money cost over the 62-year period, and
this would show that even now Great Britain is paying the United
States .3 per cent more in interest than the rate that the Secretary
of the Treasury envisaged, namely, 3 per cent. She is paying
less by .5 per cent than the present rate of America's public debt,
and the United States is therefore not yet exacting any excess in
this connection ; nor, of course, can be said to have exacted the
bond, which allowed for 5 per cent.
The present values of all payments under the settlements on the
basis of varying rates of interest may be worked out :
3 per cent 4^ per cent 5 per cent
$9,175,655,000 $6,862,285,000 $5,873,688,000
The present values of the payments to the United States of the
principal reparation creditors are :
Belgium
France
Great Britain
Italy
S per cent
$ 302,239,000
2,734,250,000
4,922,702,000
782,321,000
4^ per cent
$ 225,000,000
1,996,509,000
3,788,470,000
528,192,000
5 per cent
$ 191,766,000
1,681,369,000
3,296,948,000
426,287,000
Total $8,741,512,000 $6,538,171,000 $5,596,370,000
SB At funding this back interest was in general fixed at 4% per cent.
446 AMERICAN FOREIGN RELATIONS
Comparison with British Settlements.
The case of Great Britain invites further treatment, first, be-
cause of her leading position among America's debtors, and, sec-
ondly, because of the comparison she furnishes in her own debt
settlements. Great Britain's debt to America totals less than half
of the original aggregate of the American loans and is only
$600,000,000 more than France's. Yet the schedule of her re-
mittances to Washington in the early years is proportionately
much the heaviest of all the schedules ; to what extent may be ap-
preciated from this comparison.37
Amounts paid under all funding arrangements with the
United States up till 1927 : $847,734,721.
Amount contributed by Great Britain :
$802,980,000, or 95 per cent.
One reason for the striking contrast is the fact that Great Britain
arrived at the first agreement with the United States; but even
current payments on all the debt so far funded bear roughly the
same disparity. Out of $96,544,830.88 received by the Treasury
on account of the last half-yearly payments in 1927 all but $3,-
979,830 came from London.
The settlements of the United States and of Great Britain with
their respective debtors are hardly comparable by reason of the
differences in classification of war debts and in the manner in
which the original debts were contracted. First, the war debts
owed us are all-inclusive, even of relief loans and credits for sup-
plies of materials after the armistice ; the war debts owed England
have been pared in official accounting of all transactions save
those for war purposes between governments. Many of the finan-
cial transactions between France and Britain were concluded
between the Bank of England and the Bank of France ; these are
outside of the category of official war debts within the meaning of
the settlements. Secondly, British debts had a considerable dash
of politics mixed in with them. Taken altogether the inter-Ally
»7 This does not include cash payments made by Great Britain prior to the
signing of the agreement amounting to $100,526,380.
DEBTS
Percentage Distribution
4,47
Rumania
Yugoslavia
Esthonia
Finland
Lithuania
Latvia
Hungary
Principal
Interest
Percentage distribution of principal and interest in the
war debt settlements with the United States.
debts in Europe are a web of complications, sometimes created,
like historical war loans, to persuade participation in the struggle.
This was well brought out by Mr. Winston Churchill in defend-
ing his settlement with Italy in Parliament. At the time of "the pro-
posed imminent entry of Italy into the war," he said, "very con-
siderable offers were made to Italy which carried with them, sub-
ject to numbers of conditions which have not been fulfilled, the
principle of the virtual cancellation of the overwhelming bulk of
the obligations, and although it was never argued by Italy that
anything of a legal nature or of a definite and final nature had
taken place, yet at the same time we have felt bound to consider
what had happened in the intervening period. ..." This excerpt
448 AMERICAN FOREIGN RELATIONS
is enough to make the student quail before the task of labelling the
various British loans to Italy.
French commentators have always argued that the terms of
the agreement concluded at Paris in February, 1915, by Great
Britain, France, and Russia, bound the signatories to the system
of settlement by contribution. Had not Lloyd George signed the
joint communique by which these governments informed the world
that they were determined to unite their financial as well as their
military resources?
When it became apparent that there was no reconciliation be-
tween the debt policy of the United States and the reparation
policy of France, Great Britain settled down to her own policy of
the Balf our Note, and began to look around for the best means of
persuading her debtors to clear their obligations. Like America's
debtors, Britain's did not refuse to honor their bonds ; these bonds
were contracted at a time when the principles of borrowing had
been scattered to the four winds, and they had been signed without
any thought of provision for future discharge. With peace had re-
turned peace-time caution, and the debtors, like the honest mer-
chant, were loath to sign new notes which they were not convinced
they could cover. It was the principle of "he that hath no credit
oweth no debts," and until some credit standing had been restored,
Britain's debtors stood aloof. Understandings were eventually
reached, but Great Britain, like the United States, had to accept
what she could get, and the diversity of the settlements marked
that measure.
To contrast the funding arrangements on the mathematical
principles adopted above, it would be necessary that a similar out-
look for internal borrowing face Great Britain as faces America,
and that interest rates on public debt should be similar. This is
not so; the internal cost of money to Great Britain is around 5
per cent.
With the reservations inherent in this contrast, a comparison
is given of the proportion that the present value of French and
Italian payments to Britain and the United States discounted at
5 per cent represents to the debts prior to funding :
DEBTS 449
p j Debt to Great Britain 38 per cent
Debt to the United States 42 per cent
Italy
Debt to Great Britain 14 per cent
Debt to the United States 21 per cent
Considerable cancellation is thus shown by both creditors when 5
per cent is taken as the base of computation.
In the schedule of payments, however, Great Britain has come
off better than America, in that she has secured much heavier
annuities in the early years, on the assumption, judged from Par-
liamentary speeches, that all-round revision is more than a proba-
bility of the future. On the contrary, the United States viewed her
settlements as permanent, and, animated by considerations of ca-
pacity to pay, postponed the main burden of payments to future
generations.
France has her own debt problems as well as Great Britain and
the United States, and has only in recent years taken notice of
them, partly because they are not so collectible as are Great
Britain's and America's, and partly because of her 54% per cent
interest in German reparations. France shared with Great Britain
the financing of Russia in the wrar years, and continued her work
after the Russian Revolution, when she subsidized various eva-
nescent Russian governments before the advent of the Soviets. She
also financed the small states in cooperation with Russia, and when
the Czarist regime fell, took this share also upon her shoulders.
France's post-war political activities in building a cordon sani-
taire around Germany caused other inroads upon her purse. It is
impossible to estimate in francs the amount of all these debts,
owing to fluctuations in the exchange, which provided an aggrava-
tion of France's debt problem to which the other creditors were
not subject. Altogether the maximum amount of French credits
on foreign governments, excluding counter-claims and the loans
to different anti-Bolshevist governments, may be placed at $457,-
000,000,88 of which half represents credits to Russia. It is doubtful
whether over one-fourth of this sum will be received by the
French Government.39 This is the reason why French assets in the
as Batsell, The Debt Settlements and the Future, p. 85. 39 Ibid., p. 85.
450 AMERICAN FOREIGN RELATIONS
accounting of war liabilities in 1926 lay almost solely in German
reparations. That France still clings to the expectation of revision
is shown not only by her refusal to ratify her agreements with
Great Britain and the United States, but also in her agreement
with her Rumanian debtor, which contains a clause providing for
revision in case of the readjustment of French payments.
EFFECTS OF THE SETTLEMENTS
i. Economic.
IN consequence of what President Coolidge describes as "a posi-
tion unsurpassed in former human records," the United States
has undertaken a program of domestic debt extinction equally
unparalleled, averaging a billion dollars annually for the last
eight years. Only a fifth of that sum comes out of Allied debt re-
payments, which are $200,000,000, rising gradually till they
reach $425,000,000 in 1985. Compared with the government reve-
nue, the first annuities are only 5 per cent, or about the average an-
nual fluctuation in Treasury surplus. They are only 5 per cent of
the total value of American imports, less again than the yearly fluc-
tuation of this item. These contrasts show how negligible are the
debt payments in America's economic calculations. Placed side by
side with the national income, the annuities are dwarfed almost to
insignificance, being only ^4 °f 1 Per cent °f **• Otherwise figured,
the annuities represent an amount equivalent to $1.80 per capita.
The annuities bulk larger in the smaller economies of Europe,
involving an effort to create the necessary surpluses for trans-
ference; a dollar means much more to the European than it
does to the American. Many examples could be cited to show this
difference in values. A French army pension rarely reaches a sev-
enth of the amount paid to an American war victim. Secretary
Mellon used another illustration in a speech to the Union League
Club in Philadelphia on March 24, 1926. In telling his audience a
few details of the Funding Commission's exploratory work into the
"capacity to pay" of one of the smaller debtor states, he said that
the scale of living of the bulk of the peasants in that country
worked out at $31 per man per year. This standard included no
DEBTS
meat, one suit of clothes, and one pair of sandals a year.40 This im-,
poverished debtor was a small country but its condition was symp-
tomatic of the low standard of living of post-war Europe. All
surveys of comparable wealth and income are inexact, partly be-
cause of lack of uniformity of conception, partly because of vary-
ing standards of computation ; but the one below, submitted by the
Italian debt negotiators to the Funding Commission, has received
general acceptance as reasonably accurate, at least in its evidence
of proportion, which is the object here sought:
RELATION OF WEALTH AND INCOME
(In billions of dollars)
Country Wealth Income
1914 1925 1915 1925
Italy 21.4 22.3 3.76 4.06
France 57.9 51.6 7.24 7.74
Belgium 10.6 11.5 1.40 1.75
Great Britain 68.1 117.8 10.95 19.00
United States 200.0 380.0 33.00 70.00
For more reasons than those cited in presenting the above table,
comparison of taxation is a highly speculative undertaking, but
the following statement of the relation of taxation to national
income, taken from the Index of July, 1925, published by the New
York Trust Company, may be regarded as revealing trends faith-
fully enough. The figures are based on national and local taxes
in 1923-4, converted at average exchange rates, and are adapted
from the computations of the National Industrial Conference
Board :
RELATION OF TAXATION TO NATIONAL INCOME
Proportion of
Taxation National income national income
per capita per capita absorbed by taxa-
in dollars in dollars tion per cent
Great Britain 86.94 374.74 23.2
France 39.07 186.98 20.9
Italy 19.04 99.17 19.2
Belgium 24.83 146.06 17.0
United States 69.76 606.26 11.5
*o Annual Report of the Secretary of the Treasury, 1926, p. 259.
452 AMERICAN FOREIGN RELATIONS
The United States is the only one of these countries whose taxation
has since declined. According to the National Industrial Con-
ference Board,41 the percentage for 1926 was 10.8, and at the end
of 1927 the question was being canvassed whether Federal taxes
should not be cut by as much as $250,000,000. Altogether, the
Federal tax per capita has been cut from $45.23 in 1921 to $27.17
in 1926. In Europe, on the contrary, the tendency has been up-
ward, and in some cases steeply, because of the travail of recon-
struction. By a small margin France would seem to have displaced
Great Britain as the most severely taxed nation, the proportion
of her taxation to national income being generally placed at 25
per cent. This has been the work of Premier Poincar6 and his Na-
tional Union government, under which France's economy has
revealed instead of concealed its vitality. Forced to desperation by
the costs of repairing the devastated areas, which according to
the 1928 budget amount to about $3,430,000,000, and with war
pensions of $1,200,000,000 also to meet, the French embarked
on the Ruhr adventure only to find it unprofitable. When this
realization had been borne in on the French people, they recovered
confidence in their own ability to provide for reconstruction and
faced realities by submitting to a stern ordeal of retrenchment.
French funds, which had left the country in millions, have re-
turned and have brought back with them the money of foreign
speculators who anticipated "stabilization by law" of the franc
at an advanced level from that which obtained in 1927. These
factors, combined with the fruits of a reanimated industry and a
hard-working people, had been successful by the end of 1927 in
building up a billion and a half dollars in foreign exchange to the
credit of the Bank of France. The transformation seems almost
magical when contrasted with the position on July 24, 1926. At
that time, the date of Poincare's assumption of office, the Treasury
had no more than a margin of a million francs in the Bank of
France, a sum insufficient even to cover impending maturities. In
the United States, the French Government held only $1,000,000;
on August 1, it had to remit $10,000,000 to the Treasury; at
home, domestic bondholders were demanding reimbursement. More
4i Cost of Government in the United States, 1926.
DEBTS 453
inflation seemed the line of least resistance, but the Government
began a policy which, by restoring confidence and enlisting popu-
lar cooperation, produced budgetary equilibrium and de facto cur-
rency stabilization. The conclusion is hard to resist that France
was never so stricken as she had thought she was.
The effort to reestablish a gold standard in Europe42 has also
been retarded by the politics and economics of war debt adjust-
ment.
How the Payments Are Absorbed.
America's war debts were extended in commodities ; the United
States asks their repayment in dollars or in United States Gov-
ernment securities at par. The face value of these debts is $2,000,-
000,000 more than the world's gold holdings. The completion of
the syllogism is that nolens volens the United States must accept
remittances in commodities or services in order to provide Europe
with dollar exchange. Ignoring the factor of the excess of debts
over gold stock, the economics of debt payment involve liquida-
tion in commodities or services. It is true that securities might be
surrendered, as was done during the war, but only Great Britain
could make the surrender, and even this process would connote
contributions to interest account, which must be settled in the last
analysis by commodities or services.
These war debts were extraordinary in that they were created
by an extraordinary demand for goods. This extraordinary de-
mand in turn produced an extraordinary liquidation of America's
pre-war debts to Europe. The present debts are now subject to
an ordinary manner of repayment (conditions having returned
to normal), with economic law, which in war-time was in fetters,
once more operative. This law is succinctly stated by Moulton and
Pasvolsky :
In all discussions regarding the debt problem there is one primary
fact that must be constantly borne in mind, namely, that all debts,
42 See Section II, Chapter 4, "International Implications of Gold Distribution."
This chapter also treats of the extra burden imposed on the war debtors by the
fall of prices since the time when the goods representing the loans were bought in
the United States.
454 AMERICAN FOREIGN RELATIONS
whether between individuals or governments, whether domestic or
foreign, represent at bottom an exchange of goods or services. Debts
are created when goods or services pass from the lender to the bor-
rower. When debts are repaid, the direction is reversed, and goods or
services pass from the borrower to the lender.
Though war debt remittances constitute capital payment and not
trade transactions, though the United States enforces a high
tariff to restrain importation of goods, the proceeds must even-
tually accrue to the United States either directly or in a round-
about way, in imports or in services rendered. Mr. Hoover43 him-
self admits that the process may be triangular, but he goes on to
say, "The loans were individual to each nation; they have no
relation to other nations or to other debts." The mechanics of debt
repayment from one nation to another are as intricate as a na-
tion's commerce, which is as ramified as the world itself. Great
Britain may sell cotton goods or machinery to China ; to pay for
which China may supply the United States with wood oil, thereby
providing the dollar exchange wherewith Great Britain may pay
her war debts to the United States.
Such a triangulation of debt consequences is necessitated in the
adjustment of world accounts and it cannot be effected without
competition in neutral markets with American manufacturers. All
the factors that go to make a debtor nation an exporter and a
creditor nation an importer have been treated exhaustively by Dr.
Benjamin M. Anderson, Jr., in various issues of the Chase Eco-
nomic Bulletin and in the Proceedings of the Academy of Political
Science (N. Y.).44 This economist points out that when a debtor
nation levies taxes in order to accumulate the treasury surplus
necessary to the liquidation of its external debt, it thereby reduces
the domestic purchasing power and the ability of its people to pur-
chase goods in foreign markets. At the same time the demands of
the domestic treasury for bills of exchange lessen the available
supply and cause the foreign exchange rate to rise, thereby dis-
couraging imports and encouraging exports. Because of this ex-
change situation and of this lower purchasing power, the country
43 At Toledo, October 16, 1922. ** Vol. XII, No. 3.
DEBTS 455
becomes a world "bargain counter" and the export of goods is
strongly stimulated. It follows that, as in Germany, the mechanics
of debt repayment organizes production and exportation in the
debtor state.
In America's accounts the manner of admittance of debt pay-
ment may be suggested, although with the qualification that noth-
ing can be proved explicitly, because all figures of current transac-
tions are susceptible of changes in international price levels and
in business conditions here and abroad. First as to goods :45 to re-
ceive payments, the United States either adds to her normal im-
ports or decreases her normal exports. There is little likelihood of
much diminution in exports ; many of the agencies of government
and the country's economic life are directed toward their stimula-
tion. It stands to reason, however, that with these remittances to
make, the Allies have less free money to spend in the United States,
and as is admitted by Secretary Mellon when he says that the
prosperity of Europe is worth more to the United States in dollars
and cents than the repayment of all of the war loans put together,46
the effect is inexorably to depress European buying power. Mer-
chandise exports since 1923, the date of the first funding agree-
ment, have gone up from $4,167,000,000 to $4,865,000,000 in
1927, but since 1925 have been stationary. This is how European
takings figure in the statistics :
1923 $2,093,000,000
1924 2,445,000,000
1925 2,604,000,000
1926 2,310,000,000
1927 2,314,000,000
That European purchases from the United States have not
moved more progressively is the more remarkable in that a large
part of them were subsidized by American loans. In 1927 Euro-
pean capital flotations offered in the United States totalled $650,-
000,000, most of which went to Germany, which spent most of the
*B For further treatment of the trade of the United States, see Section II, Chap-
ter 1, "Commercial Expansion."
*6 Combined Animal Reports of the World War Foreign Debt Commission, p,
697.
456 AMERICAN FOREIGN RELATIONS
proceeds in absorbing the American surplus, her purchases in the
United States showing an increase of 32 per cent over the 1926
total. Secretary Mellon said at Philadelphia,47 "The farmer and
the laboring man would rather have a market for our surplus in
Europe than save a dollar of Federal taxes." The combined war
debts to the United States amount to only $1.80 per capita per
annum on capital account : some idea of what they subtract from
American income account may be inferred from the static condi-
tion of European takings from us, part of the responsibility for
which must be placed at the door of the war debts.
The United States has created a high tariff wall against the re-
ceipt of debt repayments in commodities. But it would be a task
akin in futility to King Canute's utterly to stem the flow of goods
America-ward in eventual payment both of war debts and interest
on American credits abroad. Imports are creeping up as well as ex-
ports, improving from $3,792,000,000 in 1923 to $4,184,000,000
in 1927. Because of the barrier against the manufactured goods
of Europe, the balance of trade with that continent shows over a
billion dollars in America's favor. Importations from Asia and
South America are more acceptable, and in the appreciable in-
crease in takings from these continents may be traced some ele-
ment of war debt repayment, as well as the influence of the posi-
tion of the United States as a manufacturing nation and as the
nation with the highest standard of living in the world. Mr. Hoover
said at Toledo that in seven years the proportion of products
from the tropics which we imported has increased from 36 per cent
to 53 per cent of our total imports. "The shipment of European
manufactured goods, of the sort that might compete in our home
market, to the tropics, and in turn the shipment to us of tropical
goods that will not interfere with our domestic manufacture or
employment, is not only possible but is going on all the time." But
this is not altogether an agreeable process to the United States,
first, because we wish ourselves to sell manufactured goods to the
tropics, and, secondly, because some of the tropical products we
wish to import are subject to control by our European debtors. The
United States needs rubber, but Britain in 1922 virtually con-
*7 Combined Annual Reports of the World War Foreign Debt Commission
p. 302.
DEBTS 457
trolled the world price, and one reason for the scheme sponsored
by the British Government that for several years restricted out-
put and advanced prices was alleged at the time to be the raising
of the dollar exchange needed for debt payment.
It is in the category of services that the United States mainly re-
veals the method of adjusting the war debt annuities. Loan-making
has proceeded since 1924 at a rate above a billion and a quarter
dollars annually. The return in interest payments must be added
to the receipts by way of war debts ; but these might easily be swal-
lowed in new issues and refunding. The United States is beginning
to follow the system that has built up the importance of Great
Britain as a creditor nation. Every year Great Britain has re-
turned in loans more than she has received in interest, with the re-
sult that the balance of world indebtedness to her has steadily
grown in volume. Other American services to Europe lie in con-
tributions by tourists and immigrants. Whereas war debt pay-
ments total only $200,000,000 a year, American tourists left
$617,000,000 abroad in 1927, most of it in our debtor countries.
There is every likelihood that these contributions will maintain
this level. Immigrant remittances, which showed a net outgo of
$206,000,000 in 1927, are also equal to the task of taking care of
the war debts ; and there are many other items of American gov-
ernmental and private expenditure and remittances whose eco-
nomic effect amounts to considerable offsetting in the American
balance of payments.48 As Ray Hall explains :49
Our war-debt receipts are an invisible export. As such they tend
to detract from all other exports — including not only merchandise
exports but invisibles — as well as to promote every import, whether
visible or invisible.
In all that has been said on these interacting forces connected
with international debts may be found the difference between them
and debts between individuals. The process of getting money out
of a country is far more involved than that of getting money out
of an individual. A person is a unit and his repayment of debt may
48 See Section II, Chapter 2, "The United States as a Creditor Nation."
40 Department of Commerce, The International Balance of Payments of the
United States in 1986.
458 AMERICAN FOREIGN RELATIONS
not affect anybody but himself and his creditor. A person does not
necessarily combine within himself the roles of customer and neigh-
bor. A person can be haled before courts of law and in the last
analysis before a bankruptcy court. A person's house is not his
castle to the same extent as is a nation's ; you can take his assets,
his gold, his securities, you can mortgage his estate ; in time you
can press an individual to the limit without harming either your-
self or a third party. Contrast this method of treating a private
debtor with the treatment of Germany for non-payment of repara-
tion debts. It is the consensus of opinion that all the measures taken
by the Allies to force payments out of Germany inflicted more
harm on the creditors than on Germany herself.
ii. Psychological.
VERY few subjects are as confusing as this subject of intergovern-
mental indebtedness. It is a spider's web of complexity. Statesmen
have been tripped up by its tangled facts ; it has been contorted
out of all recognition in controversy, and equities complicate many
otherwise plain issues. It has enmeshed European diplomacy in a
maze of debits and credits. The confusion of approach to which it
has given rise is amply demonstrated in this survey. What is clear
is that, first, the immediate post-war years spelled disorganization
for Europe, secondly, that it is futile to apply a tape measure to
war contributions, and thirdly, that those contributions whose ad-
justment was left over to the peace were more susceptible of settle-
ment on what General Pershing calls the "middle ground," because
post-war statesmanship should have worked for the resumption
and progressive continuance of normal, i.e., peace, relationships.
The failure to look at post-war problems in this light is attribu-
table in large measure to the psychology of prolonged conflict.
"Europe, if she is to survive her troubles, will need so much mag-
nanimity from America that she must herself practice it," warned
J. M. Keynes.60 Europe did not practice magnanimity, and
war's aftermaths in continued hostility provoked an unwillingness
on the part of the United States to adopt a wide survey by way of
judgment.
80 Economic Consequences of the Peace, p. 135.
DEBTS 459
"The legitimate object of war is a more perfect peace," says
the inscription on General Sherman's statue in Washington. This
object has precedent back of it. Castlereagh's policy was that a
peace should mollify; he wrote it into the 1816 treaty. Bismarck
adopted the same principle in 1866 in respect of Austria. He de-
parted from it in 1871 and the French in 1919 improved upon
his model. The Allies' treatment of Germany provided reasons in
political expediency for the American insistence on the separate-
ness of the American debts ; who can tell what the consequences
would have been if she had thrown her own comparatively business-
like debts into the pool of debts and reparations that prior to the
Dawes Plan had become a maelstrom? Americans thought them-
selves well out of it, and the settlements were negotiated without
much domestic opposition and without enough division of opinion
to make them a political issue.
But in recent months the question has sometimes been asked:
Was it wise to enter into an agreement with Great Britain in the
midst of these involvements? America's position became set as a
consequence; it was difficult to offer any contribution through
the debts to European appeasement after it had begun through
the Dawes Plan. The inevitable pursuance of American war-debt
policy on this model, in spite of the change in Europe, was re-
garded by the altruistic as a "stroke of the moment" at the expense
of nations in distress similar to that against which George Wash-
ington declared in 1791. Have conditions changed enough in Eu-
rope to warrant any move toward a meeting ground? European
statesmen and writers assert that they have ; that since the Dawes
Plan the tendency has been to sink differences in the promotion of
productivity, trade, and goodwill. Europe's complaint is that this
understanding is rendered difficult of achievement without the po-
litical collaboration of the United States.
In France at least the debts remain open to discussion, not-
withstanding the fact that they were officially closed in Washing-
ton as an issue by the winding up of the World War Foreign Debt
Commission. France does not regard her settlement as negotiated ;
she regards it as brought about by diplomatic pressure, and jus-
tice is still appealed to for a resettlement. In England the official
460 AMERICAN FOREIGN RELATIONS
attitude is passive, but a resettlement is also envisaged, and in the
meantime her statesmen "view with great misgiving the divergence
of opinion and the estrangement of sentiment which is growing up,
in regard to these war obligations."51
The psychological effect of the settlements on European senti-
ment is deep-rooted. It produced cabinet crises and domestic dis-
sension when the negotiators returned to Europe. It is related to
the ethics as well as the economics of the case. "Equity,"52 said
Grotius, "is the correction of that wherein the law by reason of
its universality is deficient." That the law of debt repayment is
grossly deficient of this correction is the ground of European
agitation, and leads back to the old conflict between two rights, one
of ethics and one of legality. The average Frenchman, for example,
has not the vaguest idea about the schedules ; all he feels is that
while his house appeared to be falling about his ears he was dunned
to pay for uniforms, food, and munitions used in a joint crusade.
Was our blood of no value compared with a box of corned beef?
Were you only creditors fighting on the side of debtors? These
are a few of his questions that crop out from time to time in French
comment, and may have been the fruit of the lack of finesse in some
respects of American war-debt diplomacy.
If he is intelligently informed the Frenchman will pass coldly
over the extent of the cancellation accorded and tell you that
the settlements were conditioned strictly on well-known busi-
ness formulas and were finally boiled down to what Newton D.
Baker describes as "the amount thought possible of collection
without causing revolutions in the paying countries." To him it
smacks of hypocrisy to deny the reimbursement of war costs to the
Allies while collecting them ourselves.53 Toward "capacity to
pay," he is especially resentful, because it pillories the Allies as
near-bankrupts, admittedly the basis of the Congressional
speeches urging the acceptance of the arrangements. "It is a ques-
tion whether you want half a loaf or no loaf," said Representative
si Note to Secretary Kellogg, May 2, 1927.
C2 This term is used in the sense given to it by continental jurists.
53 Although French claims to war costs at the Conference of Paris sometimes
exceeded the entire value of all the real and personal property in Germany.
DEBTS 461
Crisp.54 National pride in France was piqued when these matters
were discussed as if Congress were a bankruptcy court. This was
true also in the other debtor states, and, although they have been
less vocal than the French, they, too, have a conviction of Amer-
ica's inequitableness, a conviction that is revealed from time to
time in invidious comparisons and the suspicion that the settle-
ments have been used as an instrument of national policy.
The worst psychological consequence, however, is the tendency
of debt policy to keep alive national self -laudation of war effort
and to cause constant rehashing of the extent of war contribu-
tions. "Who won the war?" has been asked most often in connec-
tion with the debts.
A nation must eventually be sensitive to a continent's opin-
ion. That section of American sentiment which opposed the set-
tlements has been sensibly strengthened thereby in its opposition.
It regards the American solution as a solution dictated by neither
statesmanship nor finance ; rather as the solution of bureaucracy.
Statesmanship has now to bear the brunt in dealing with a con-
tinent given to expressions of unfriendliness toward the United
States. Sometimes unfriendliness has gone to extremes of street-
rioting ; more often it is expressed in the flaring-up of controver-
sies like that with France over her discrimination against Ameri-
can goods. In Great Britain it sometimes takes the form of
sarcastic references to the repudiated debts of the southern States.
Envy of the American standard of living is one ingredient of this
attitude, and resentment of American preachments and moraliz-
ings on international obligations are also contributory. The New
York Times correspondent in Paris55 has the following to say in
this latter connection : "Europe long ago got enough of American
evangelism, even when it was pure." Finally, the necessity that
Europe is under to borrow from her creditor is stigmatized as
placing Europe in a debtor's prison.56
Will this criticism clog international understanding over the
two generations during which the debtors are scheduled to pay
04 Combined Animal Reports of the World War Foreign Debt Commission, p.
406.
BB March 8, 1928. ce Quoted by Caillaux in The Banker, January, 1926.
462 AMERICAN FOREIGN RELATIONS
their debts ? The increasing articulateness of American anti-settle-
ment opinion argues some approach to reconciliation. The pro-
tests against the settlements by professors of Columbia and Prince-
ton universities57 reveal a drift toward a general recognition of
the link between debts and reparations. The connection has long
been more or less self-evident ; it is now rendered obvious by Ameri-
can financial operations in Germany, which have made American
investors feel more or less bound up with the future of the Dawes
Plan. The simple facts are that about half of German reparations
are retransmitted as through a conduit pipe by way of war debt
remittances to Washington. This conjures up an unfair picture
when divorced from the correlative picture of the territorial and
other spoils which the Allies have wrested from Germany; it is
mentioned as showing the connection between the financial legacies
of the war. The New York Times of December 21, 1927, says :
Our government may protest as long and loudly as it pleases, and
with copious citations of the law and of international agreements,
that reparations have nothing to do with war debts, but in the end
it will be found that they have. It is well to have Mr. Gilbert raise the
question of the fixed amount to be demanded of Germany, but it is
also well to keep steadily in mind that the problem of war debts is
closely related to it. The two must finally be discussed and solved
together.
At the end of 1927 it was the hope in Europe that the United
States would join in a scheme of readjustment of both debts and
reparations by transplanting them from the political bed of inter-
governmental relationships to a wider field where they would be
absorbed by private investors in the world markets of interna-
tional finance. The idea was gaining ground in the United States,
but the approach of responsible opinion, while recognizing the
advisability of taking debts and reparations out of international
politics, was lukewarm to European suggestions of a conference.
It was felt that such a conference would seek to disturb settlements
that are considered inviolable. The hope of a meeting ground lies
in a preliminary settlement of the reparation problem. If, as is
67 International Conciliation, The Interallied Debts. No. 230. May, 1927.
DEBTS 463
foreshadowed, this should take the form of delivery to Germany's
creditors of negotiable German securities, then the creditor states
would market them to realize cash, with which they would be in a
position to ask the Treasury Department for terms for a cash set-
tlement of the war debts. "War debtors could very well approach
the United States Treasury," said Garrard Winston, at the round
table conference previously referred to, "and suggest cancelling
future instalments on the debt settlements by discount for cash.
At reasonable current interest rates the discount would reduce
payments for the later years of the term to quite attainable figures,
and the menace of a continuing burden on generations not yet
born would end."
It is possible that we should be the biggest buyers of these Ger-
man securities, with or without official participation in such a
rearrangement. The consideration that we should be buying repa-
rations or relending money to the Allies to pay us their debts
would not be active if the terms offered were attractive enough.
CHAPTER THREE
THE GERMAN DEBTS UNDER THE
TREATY OF BERLIN
THE TREATIES OF BERLIN, VIENNA, AND BUDAPEST
fTl HE struggle between the Wilson administration and a Senate
M, organized under the leadership of the "irreconcilable"
groups of Republican politicians precluded the negotiation of a
peace with the Central Powers compatible with the administra-
tion's foreign policy. The final rejection by the Senate of the
Treaty of Versailles in March, 1920, caused the suspension of
further action in the formal restoration of peace until the elections
had gone against the Democratic party. The Wilson administra-
tion might then have negotiated a skeleton treaty assured of the
general approval of the country and inoffensive to isolationist and
internationalist politicians alike ; but a tradition of good sense re-
quired that the administration leave to the decision of the party
coming into power the questions which were to have important and
more than temporary bearing upon national policy. The resolution
of Senator Knox for repealing the declaration of war with Ger-
many, which was passed May 21, 1920, was therefore vetoed by
President Wilson on May 27, 1920.
Thus the Republican administration on coming into office in
1921 found itself confronted with the necessity of ending the state
of war between the United States and the Central Powers. The
formulation of a peace with Germany was required to retire the
war-time laws remaining on the statute books, to assure to the
United States certain of the advantages arising out of the suc-
cessful outcome of the war, and to prepare for the restoration of
normal diplomatic and commercial relations.
Reiterating his declarations in favor of the Treaty of Versailles
which he had mixed with hostility toward it, President Harding
delivered a message to the Senate on April 12, 1921, in which he
suggested that "the wisest course" would be "to engage under the
existing treaty," with reservations suitable to the political com-
plexion of the Senate. This was the administration's last gesture
GERMAN DEBTS UNDER THE BERLIN TREATY 465
in favor of reconsidering the Treaty of Versailles as an instrument
to secure peace. It was followed shortly afterward by a conference
between the President and Senator Lodge at which the latter ap-
parently effaced what vacillations there may have been in the
President's mind.
Congress took the first step by redrafting and expanding the
Knox resolution declaring at an end the state of war with Ger-
many, Austria, and Hungary. It was jointly passed as the Kn ox-
Porter resolution on July 1, the Senate voting for it 38 to 19/
and was signed by President Harding on the following day. This
act repealed the laws which had been enacted for the duration of
the war ; affirmed the rights to which the United States might have
become entitled by reason of her participation in the war, under
the terms of the armistice, under the terms of the Treaty of Ver-
sailles, and as one of the Allied and Associated Powers ; and pro-
vided for the retention of property confiscated or sequestrated
during war-time until the Central Powers should satisfy all of the
claims against them for losses and damages suffered by American
nationals since the outbreak of the war in 1914.
The joint resolution served to put an official end to the war as
far as American law was concerned, but it did not lay the bases for
peace, nor did it create within the meaning of international law a
new relationship between America and the Central Powers. Dur-
ing July the American Commissioners to Germany, Austria, and
Hungary were instructed to negotiate formal treaties of peace
with those countries.
Until August 20 the negotiations proceeded in secrecy, and
the Senate displayed the same impatience which had character-
ized its criticism of President Wilson's silence during the Paris
Peace Conference. The expectations expressed in America were
that the treaty would incorporate the stipulations of the Joint
Resolution ; of prime importance were the confirmation of Amer-
ica's title to the German ships which had been confiscated, the
recognition of America's claim to a share in the disposition of
the German possessions surrendered to the Allied and Associated
i The majority consisted of Republicans and some anti-Wilson Democrats; the
"Wilson Democrats" and some independent Republicans made up the minority.
466 AMERICAN FOREIGN RELATIONS
Powers under the terms of the Treaty of Versailles, notably of the
trans-Pacific cable station of the island of Yap, and the inclusion,
should the contemplated treaty incorporate commercial clauses,
of a most-favored-nation clause in conformity with traditional
American diplomatic policy. Germans expressed the hope that the
United States would accord more lenient terms than were provided
in the Treaty of Versailles, that German property in America
would be restored to its original owners, that agreements would
be reached protecting German owners of American patents, par-
ticularly those who had lost the monopoly of the manufacture of
certain chemicals, and that America would accord reciprocal treat-
ment to German nationals. In general, however, German opin-
ion conceded that the terms of the Treaty of Versailles, with the
exception of the hated acknowledgment of responsibility for the
war, would be an acceptable basis for the treaty with America, for
Germany was optimistic about the individual advantages that
were expected to accrue to her from a "separate peace."
THE TREATY OF BERLIN
IN these circumstances, which favored a meeting of minds, the
American Commissioner to Germany, Ellis Loring Dresel, con-
cluded the negotiations with Dr. Rosen, German Minister of For-
eign Affairs, on August 22, and signed the treaty of peace with
Germany on August 25. Commissioner Frazier at Vienna and
Commissioner Grant Smith at Budapest signed corresponding and
almost identical treaties with Austria on the 24th and with Hun-
gary on the 29th.
The Treaty of Berlin was a skeleton treaty whose sole inde-
pendent affirmation was the intention to restore friendly relations.
The preamble quoted in extenso the applicable parts of the Joint
Resolution of Congress and by Article I Germany accepted its
stipulations. Article II mentioned the parts of the Treaty of Ver-
sailles which the contracting parties accepted and confirmed, and
enumerated the parts of that Treaty which the United States ex-
pressly declared to be not binding upon it. Article III consisted of
the formula providing for the ratification and proclamation of
the Treaty. The multitude of details falling within the province of
GERMAN DEBTS UNDER THE BERLIN TREATY 467
a treaty of amity and commerce for the governance of complete
resumption of economic intercourse were left for future negotia-
tion.
The principal clauses which the Treaty of Berlin adopted from
the Treaty of Versailles were those relating to the surrender of
Germany's colonial possessions, the repatriation of prisoners of
war and the care of soldiers' graves in enemy territory, the dis-
armament of Germany, Germany's acknowledgment of "war-
guilt," reparations, the Reparations Commission which was con-
stituted to control the discharge of reparations, the financial and
economic provisions imposed upon Germany, the rulings govern-
ing aerial navigation, ports, waterways, and railways within Ger-
many, the army of occupation of the Allied and Associated Powers
in western Germany, the abrogation by Germany of all treaties
and agreements made by her with the Soviet, the Ukrainian and
the Rumanian Governments, the evacuation of the Baltic provinces
and Lithuania by German troops, and the recognition by Germany
of the disposition made of the territories of her former allies. The
clauses of the Treaty of Versailles which the United States speci-
fied as not binding upon her dealt with the Covenant of the League
of Nations ; the prescription of the new boundaries of Germany ;
the territorial and administrative dispositions of annexed German
provinces and of the countries contiguous to Germany's new fron-
tiers ; the demilitarization of the left bank of the Rhine ; the cession
to France of the rights of exploitation in the Saar basin ; the re-
nunciation of Germany's extraterritorial rights in Asia and Af-
rica and the abrogation of her leases and titles in Shantung ; and
the establishment of an international labor office connected with
the League of Nations.
It was of course impossible to undo the Treaty of Versailles and
to revise the map of Europe. The Treaty of Berlin therefore dis-
tinguished between the provisions of the Treaty of Versailles
which concerned the United States and those which were exclu-
sively of non- American significance. This was in harmony with
the policy which the Harding administration practiced in the
conduct of foreign relations. The difficulty of the method of "in-
corporation by reference" is shown by the fact that in three in-
468 AMERICAN FOREIGN RELATIONS
stances the Treaty of Berlin ignores the essential relation between
the parts of the Treaty of Versailles which it accepts and the parts
which it rejects. Although it adheres to the provisions for the dis-
armament of Germany, it rejects Section 3 of Part III requiring
the demilitarization of the left bank of the Rhine ; notwithstanding
its acceptance of the articles relating to reparations, it repudi-
ates the political clauses interwoven with them assuring security
for their payment ; despite its acceptance of the renunciation by
Germany of her colonies, it refuses to accept responsibility for
their future administration as mandated territories, and it does
not assume responsibility for the surrender of the leases and
capitulations formerly enjoyed by Germany in Bulgaria and Tur-
key, Africa, and the Far East.
/The publication of the Treaty produced a wave of disappoint-
ment among the members of the League of Nations which had
hoped for the ultimate adherence of the United States. It seemed
to close the possibilities of American reconsideration of the Treaty
of Versailles by mdicating _a disposition to exclude from th^cpn-
of the^UnA^
political situation of Europe. The Frencj^presj^commented
bitterly^^Q^tiie iactthat_^raii(;e had made sacrifices duringJJie
Peace Conference on the promise of American cpoperatiQjj., ip, „ jji-
suring her security. The United States, it was said, had assured
herselfof "all possible advantages without assuming any of the ob-
ligations considered morally incumbent upon her as the result of
Jher participation in the Peace Conference. The American press
was divided between praise and censure of the Treaty, but united
in the belief that it should be ratified and that peace be established.
In Germany the general feeling favored ratification, although the
Communists were opposed to the reparation clauses, and the right
wing of the Nationalists objected to the inclusion of the article of
the Treaty of Versailles in which Germany accepted responsibility
for causing the war.
When the Treaty of Berlin and its counterparts, the Treaties
of Vienna and Budapest, came before the Senate, circumstances
as clearly assured their ratification as they had, during 1919 and
1920, predetermined the rejection of any treaties negotiated by
GERMAN DEBTS UNDER THE BERLIN TREATY 469
the Wilson administration. In 1921 the treaties presented to the
Senate had been negotiated by a newly elected administration en-
joying majority support; they contained no provisions entailing
upon the United States responsibilities at variance with American
traditions ; in fact, they imposed no burdens on the United States
vis-a-vis Germany, and assumed no inter-governmental responsi-
bilities as the Treaty of Versailles had done. The Senate was anx-
ious to show that it possessed a treaty -making mind, and the public
was anxious to make an end of our anomalous relations with the
Central Powers with the least possible trouble. After a debate in
which a few Democrats expressed a formal and unimpassioned op-
position, the treaties were ratified by a vote of 66 to 20 on October
18, and were signed by President Harding on October 21. Austria,
Germany, and Hungary ratified them on October 8, November 2,
and December 12 respectively, and all three treaties were pro-
claimed before the end of December, 1921. Although the interested
parties attached small importance to the contents of the treaties
themselves, they welcomed them as opening the way for the regu-
larization of relations under the treaties. This came through the
agreement of August 10, 1922, providing for a mixed claims com-
mission, the convention signed May 19, 1924, to prevent the
smuggling of intoxicating liquor, and the Treaty of Friendship,
Commerce, and Consular Rights signed December 8, 1923, and
proclaimed October 14<, 1925.
The Senate made the following reservations to the Treaty of
Berlin :
(a) That the United States shall not be represented or partici-
pate in any body, agency or commission, nor shall any person rep-
resent the United States as a member of any body, agency or com-
mission in which the United States is authorized to participate by
this Treaty, unless and until an act of Congress of the United States
shall provide for such representation or participation ;
(b) That the rights and advantages which the United States is
entitled to have and enjoy under this Treaty embrace the rights and
advantages of nationals of the United States specified in the Joint
Resolution or in the provision of the Treaty of Versailles to which
this Treaty refers.
470 AMERICAN FOREIGN RELATIONS
The incorporation of the Joint Resolution was effected by the
Treaty of Berlin apart from this reservation. It is worth noting
that this entitles American nationals to advantages against Ger-
many beyond those enjoyed by the Allies under the Treaty of
Versailles.2 Those advantages, which consist mainly in holding
Germany liable to the United States Government and to American
nationals for losses occasioned by Germany's exceptional war
measures and by the acts of her allies, will be discussed in the suc-
ceeding portion of this section.
The Senate reservations do not affect the international appli-
cation of the Treaty. The constitutionality of the first of them is
doubtful in that it seems to infringe upon the President's power
to conduct foreign negotiations through agents. It is an item of
evidence of the Senate's disposition to assume functions of the
executive.
2 See Borchard, American Journal of International Law, April, 1925, p. 356.
CHAPTER FOUR
THE MIXED CLAIMS COMMISSION,
UNITED STATES AND GERMANY
CREATION OF THE COMMISSION
THE United States for herself and on behalf of her citizens had
financial claims against Germany at the end of the war the
amount of which had to be determined. Some were founded upon
established doctrines of international law ; as to others the United
States, though less injured, less necessitous and therefore less
exacting than the European Allies, nevertheless insisted upon the
terms of a victor's peace. With no devastation to repair, the
United States did not desire a lump sum indemnity ; she dictated
the principles of a settlement and left their application and the
adjudication of all claims to an arbitration tribunal, the Mixed
Claims Commission, United States and Germany. The personnel
of this Commission were of the highest competence, and, working
in an atmosphere of non-contentiousness, have performed a huge
task with unexampled speed and with an impartiality which has
given satisfaction to both the litigating parties and has impressed
the jurists of all countries.
Whatever the truth as to "war guilt" that underlies Article 231
of the Treaty of Versailles, the United States entertained no doubt
that Germany's acts had forced us into the war, and that Germany
must compensate the United States and her citizens for all losses
and damages caused by Germany's acts during the periods of neu-
trality and of belligerency of the United States and not directly
arising out of America's military and naval activities. The gov-
ernment felt therefore that it was not inequitable to impose upon
Germany a liability beyond that which would be established by the
accepted principles of international law. Such a liability the
United States was in a position to insist upon because of Germany's
desire for a commercial relations treaty, for the American credits
and favor necessary to her economic rehabilitation, and for the
return of the property (or its proceeds) of German nationals se-
472 AMERICAN FOREIGN RELATIONS
questrated by the United States under the Joint Resolution of
Congress of May 12, 1917, and the Trading with the Enemy Act.
The Treaty of Berlin, signed August 25, 1921, which formally
ended the war between Germany and the United States, imposed
upon the vanquished German Government, as a condition of peace,
the obligation to satisfy certain defined classes of American claims
arising from the war. In pursuance of this treaty an executive
agreement of August 10, 1922, created the Mixed Claims Com-
mission, United States and Germany, for the express purpose of
determining the amount to be paid by Germany in satisfaction of
these claims. The jurisdiction of the Commission, therefore, is de-
fined by the treaty ; the treaty is its charter. The creation of this
commission was within executive competency ; the President has a
right confirmed by long practice to adjust international pecuniary
claims of American citizens against foreign governments, and it
is the President's duty to facilitate and to carry out the terms of
a treaty, regardless of his ordinary right to adjust claims.
The United States, which had definitely rejected the machinery
provided by the Treaty of Versailles for the satisfaction of Ger-
many's pecuniary liability, had, under the Treaty of Berlin, the
sole right of determining the extent of these obligations, even
by the appointment of an American tribunal under Congress, if
she so desired ; the German Government, therefore, highly appre-
ciated the American proposal of a mixed arbitral tribunal, espe-
cially in contrast to the one-sided machinery adopted by the
Allies, and for that reason gave its full cooperation.1
The agreement of August 10, 1922, created a commission of
three members and defined its task, jurisdiction, organization, and
procedure. Each government appointed one commissioner, and
the two pass upon the cases presented to them ; in case of disagree-
ment an umpire, chosen by the two governments in common agree-
ment, renders the final decision.
The unique feature of the Commission is the fact that the final
power of decision was lodged in an umpire of American nation-
ality. In the early negotiations for a mixed tribunal Germany
i Wirth-Houghton, Berlin, Aug. 10, 1922; Rathenau-Houghton, Berlin, June 2,
1922.
MIXED CLAIMS COMMISSION 473
contended for a commission composed of but two members, one of
whom should be appointed by each government; her experience
with neutral arbiters, von Haniel said, had not been happy. Mr.
Houghton, the American Ambassador at Berlin who negotiated
the agreement, realized that a third member would be necessary
in case of almost certain disagreement, and suggested the naming
of a competent American for this position. Germany, desiring "for
the sake of the record" that the language of the agreement should
require the choice of the arbitrator to be made in common, was
willing to rely upon the fairness of the United States and to have
the umpire appointed by the President of the United States. The
agreement of August 10 stated accordingly that an arbiter should
be chosen by the two governments in agreement, and simultane-
ously Germany requested President Harding to appoint an Ameri-
can umpire.2
Other tribunals have had umpires of the same nationality as
one of the parties to the controversy, but it is a rare circumstance.
The Jay treaty of 1794 provided for mixed Anglo-American
commissions, and the umpire, chosen either by lot or by agreement
of the commissioners, might be either a British or an American
citizen. Of these commissions, the London tribunal had an Ameri-
can umpire, Colonel John Trumbull of Connecticut; the Saint
Croix Boundary Commission had an American, Egbert Benson, as
umpire; the debt commission was presided over by an English
umpire, John Guillemard. The tribunal created by the Anglo-
American convention of 1853 for considering all outstanding
claims between the two nations chose as umpire Joshua Bates, an
American head of the English house of Baring Brothers. But these
were not exact precedents for the present case.
The Honorable Edwin B. Parker of Texas, who has acted as
umpire throughout the life of the Commission,8 has denationalized
2 American War Claims against Germany, Senate Documents, No. 173, 69th
Congress, 2d session.
s President Harding first appointed William R. Day, Associate Justice of the
Supreme Court, as umpire. Because of ill health Day resigned on May 15, 1923,
and died soon afterward. Jud^e Parker, who had been appointed as the first
American Commissioner, resigned from this position, and on May 21, 1923, was ap-
pointed umpire. Chandler P. Anderson was appointed on June 15, 1923, to fill the
vacancy left by his resignation as Commissioner.
474 AMERICAN FOREIGN RELATIONS
himself for this position, and his learned and impartial judgments
have justified the confidence of the German Government in his ap-
pointment. His judicial detachment recalls the action of Lord
Alverstone of the Alaskan Boundary Commission of 1903 in voting
with the American members and thus making a settlement possible.
ORGANIZATION OF THE CLAIMS
THE American claims had never been diplomatically presented,
and for that reason needed to be reduced to their legal aspects. The
American agency set itself to this task by ordering all claims to be
filed at the agency by January 15, 1923, and classified them under
twenty-seven categories, each involving particular legal problems
of first importance; typical test cases were selected from each
category to be presented before the Commission for early adjudi-
cation.
This system of classifying the cases and making test decisions,
together with the adoption of an informal procedure in handling
the claims, enabled the Commission to proceed with great rapidity.
The American and German agents, working together, collected
the facts of each claim, and, after applying the principles laid
down in previous test cases, agreed upon its validity and the
amount of the award; their recommendations were usually ac-
cepted, though sometimes revisions were made after conference
with the umpire. The mutual confidence of the agents made pos-
sible the success of this procedure; in most cases the commis-
sioners were able to agree without referring a claim to the umpire.
The Decisions.
The Commission handed down administrative decisions and
opinions. The administrative decisions are those involving fun-
damental legal principles of first importance; for example, the
nationality of claimants. The opinions are decisions embracing a
large number of individual claims of the same class, such as death
claims arising from the Lusitania disaster.
The basis of decision is of course the terms of the treaty. Where
no treaty provision exists, or where its interpretation is doubt-
MIXED CLAIMS COMMISSION 475
fill, the Commission has applied international law as evidenced
in international conventions recognized by the United States,
international custom, rules of law common to the United States
and Germany, and general principles of law recognized by civi-
lized states, and has accepted judicial teachings of publicists. It
has considered itself bound by no particular code of law, but, as
far as the treaty provisions allow, has been guided by justice and
equity.
THE NATURE AND SOURCES OF GERMANY'S LIABILITY
THE Treaty of Berlin founded the liability of Germany upon the
theory that she alone was responsible for the entry of the United
States into the war; since German resources were inadequate to
fulfil all demands based upon that responsibility, her financial
obligations were limited to compensation for all civilian losses of
the Allies incurred as a consequence of the war.
The claims for which Germany accepted liability were defined,
not in the Treaty of Berlin alone, but in various documents in-
corporated in that treaty containing identical classifications:
Art. I of the Treaty of Berlin, Art. 297 (Annex, 3 and 4), Art.
232 and Annex of the Treaty of Versailles, Sections 2 and 5 of
the Knox-Porter Resolution, and also in Article I of the agree-
ment of August 10, 1922.
The total liability embraced five main classes of claims :
(1) Claims of the United States Government for the cost of the
American Army of Occupation, and for the destruction of non-mili-
tary government property. (Art. 232, Annex I, 9, of the Treaty of
Versailles.)
(2) Losses arising from the application of exceptional war meas-
ures prohibiting the withdrawal of American property from Ger-
many during the period of hostilities. (Art. 297, e.)
(3) Debts owing American nationals by German nationals. (Art.
297, Annex, 4.)
(4<) Loss or damage suffered by American nationals from acts of
Germany during the neutrality period of the United States. (Art.
232, Annex ; Art. 297, Annex, 4 ; Art. I, Sections 1 and 2 of the
Agreement of August 10, 1922.)
476 AMERICAN FOREIGN RELATIONS
(5) Loss or damage suffered by American nationals during the
period of belligerency from
a. maltreatment of prisoners by Germany,
b. all injuries to civilian persons or their property inflicted by
Germany or her Allies,
c. all damage to property, naval and military excepted, inflicted
by any belligerent as a consequence of hostilities. (Art. 232,
and Annex. )
PRIVATE CLAIMS
ADMINISTRATIVE Decision I of the Commission defined the claims
contained in the above categories (4) and (5) by stating them as
follows :
A. All losses, damages, or injuries to their property, wherever
situated, suffered directly or indirectly during the war period, caused
by acts of Germany or her agents in the prosecution of the war, pro-
vided, however, that during the period of belligerency damages with
respect to injuries to and death of persons, other than prisoners of
war, shall be limited to injuries to and death of civilians ; and also
B. All damage suffered by American nationals during the period
of belligerency caused by :
1. Germany through any kind of maltreatment of prisoners of
war;
2. Germany or her Allies and falling within the following cate-
gories :
a. damage wherever arising to civilian victims of acts of cru-
elty, violence, or maltreatment (including injuries to life or
health as a consequence of imprisonment, deportation, in-
ternment, or evacuation, of exposure at sea, or of being
forced to labor), and to the surviving dependents of such
victims ;
b. damage, in territory of Germany or her Allies or in occupied
or invaded territory, to civilian victims of all acts injurious
to health or capacity to work, or to honor, and to the sur-
viving dependents of such victims ;
c. damage to civilians by being forced to labor without just
remuneration ;
MIXED CLAIMS COMMISSION 477
d. damage in the form of levies, fines, and other similar exac-
tions imposed upon the civilian population ;
e. damage in respect of all property (with the exception of
naval and military works or materials) wherever situated,
which has been carried off, seized, injured, or destroyed, on
land, or sea, or from the air ;
3. Any belligerent and falling within the following categories :
a. damage directly in consequence of hostilities or of any
operation of war in respect of all property (with the ex-
ception of naval and military works or materials) wherever
situated ;
b. damage wherever arising to injured persons and to surviving
dependents by personal injury to or death of civilians caused
by acts of war, including bombardments or other attacks
on land, on sea, or from the air, and all the direct conse-
quences thereof, and of all operations of war.
It is to be noted that pensions to disabled soldiers and "separa-
tion allowances" to their dependents were not included among the
claims of American nationals, though contained in those sections
of the Treaty of Versailles which were incorporated by reference
in the Treaty of Berlin. The conviction of the justice of such
claims which seized upon Wilson after long resistance4 had not
extended to the American people, nor could the logical mind of
Secretary Hughes accept the conclusion that they constituted a
civilian loss; accordingly in an exchange of notes simultaneous
with the ratification of the agreement of August 10, 1922, Presi-
dent Harding promised Germany not to press these claims.5
The enunciation by the Commission of another principle ap-
plicable to the claims further reduced their volume. In the second
administrative decision the entire Commission adopted the familiar
rule of law known as "proximate cause" which Umpire Parker
applied as follows :
The proximate cause of the loss must have been in legal contem-
plation the act of Germany. The proximate result or consequence of
that act must have been the loss, damage, or injury, suffered. . . .
4 See Section IV, Chapter 1, "Reparations," p. 336.
c Opinions of the Commission, 15, note 11; for exchange of notes see Treaty
Series No. 665, p. 5.
478 AMERICAN FOREIGN RELATIONS
All indirect losses are covered, provided only that in legal contempla-
tion Germany's act was the efficient and proximate cause and source
from which they flowed.6
The Treaty intended no abrogation of this rule. An American
national, therefore, must prove any loss to have been the proxi-
mate result of an act of Germany. No rule can be formulated de-
fining "proximate." Its determination lies within the personal dis-
cretion of the judge.7
Under this principle the Commission dismissed the claims of
American nationals for premiums paid on war risk insurance poli-
cies ($300,000,000). No property was damaged or destroyed or
injured; the premiums were paid as protection against acts which
never occurred. Like the increased cost of food they were merely
incidents of general warfare. The causal connection between the
loss and Germany's act was intricate and legally broken.
The life insurance claims were decided on the same grounds.
Ten life insurance companies claimed loss in respect of accelerated
payments on life insurance policies resulting from deaths on the
Lusitania. Germany's acts were the immediate cause for the matur-
ing of these contract policies, but the loss occasioned the com-
panies resulted from a contract which existed independently of
any act of Germany. The loss, therefore, was merely incidental to
Germany's acts — that is, was legally remote. Insurance premiums,
in general, have been disallowed by arbitral tribunals.
The Eisenbach Brothers case involved a claim for property lost
on a ship destroyed by striking a mine one year after hostilities had
closed. The German commissioner contended that the loss was not
in consequence of hostilities as the armistice agreement had pro-
vided for the "cessation of all hostilities at sea." Umpire Parker's
decision stated that the planting of the mine was an act of hos-
tility which accomplished the exact thing for which it was origi-
nally intended. The loss, although remote in time, was in legal
consequence a proximate result of hostilities, and Germany was
liable.
The Mohegan claim was based on damage to a ship's engines
e Opinions of the Commission, 12-18.
7 See Borchard, Diplomatic Protection of Citizens Abroad, p. 418.
MIXED CLAIMS COMMISSION 479
resulting from the high speed attained in escaping a submarine.
Germany denied that this loss was a proximate result of her own
act. The umpire held that any such loss was as much a direct result
of Germany's act as if the vessel itself had been sunk by a sub-
marine; but he went on to hold that the claimant had failed to
prove any damage and rendered judgment for Germany. A recital
of many other decisions, equally interesting, would illustrate the
impartiality of the umpire.
The Commission had to make a general decision upon the ques-
tion of nationality as presented by the terms of the Treaty of
Berlin. The Treaty obligated Germany to compensate the claims
of "all persons, wheresoever domiciled, who owe permanent alle-
giance to the United States. . . . "8 States, in general, press only
the claims of their own nationals. The practical difficulty was to
determine when and how long a claim must be of national owner-
ship. The Commission adopted the common rule that a claim must
be national in origin; that is, at the exact moment the loss oc-
curred the sufferer must be an American national.9
Interesting cases arose in connection with this decision. The
sinking of the Lusitania resulted in the death of aliens whose de-
pendents were American citizens. Umpire Parker decided that
these facts created constituted claims of American origin. The
Vattel theory, hitherto followed by states, deems the injury to a
national to be an injury to his state. The award is made to com-
pensate the state's injury, not the individual's loss. Consequently
the death of an alien would not give rise to an American claim, for
it was an alien state which was injured, not the United States. The
umpire preferred to take the view that awards are made to com-
pensate individuals for the losses suffered by them, and that the
loss sustained by an American citizen through the death of an alien
is as real as if the loss had resulted from the death of another
American citizen. It is difficult to see why legal fiction should ob-
scure that fact and allow injustices to go unremedied.
Claims of declarant seamen, declarants of long residence in the
United States, and of declarants naturalized subsequent to their
s Knox-Porter resolution, section 5.
0 American Journal of International Law, Jan., 1925, pp. 137-140.
480 AMERICAN FOREIGN RELATIONS
injury were rejected on the ground that the claimants did not owe
permanent allegiance to the United States at the time of the in-
jury. The decisions, with the exception of that of declarant sea-
men, were in accordance with the usual practice of the United
States.
In the case of Mary Borchard Williams, an American woman
married to a British citizen claimed loss from the death of her
husband on the Lusitania. The American citizenship law of 1907,
effective in 1915, provided that an American woman takes the
nationality of her alien husband, but may resume American na-
tionality upon the death of her husband, by registering abroad
with an American consul or by returning to this country or by
continuing to reside in the United States. As the wife in this case
had remained in the United States since the marriage, the question
was when had she resumed American citizenship. It was pointed
out that the statute says she "may resume" American nationality.
This implies a conscious choice on the part of the wife, which could
be made only after the husband's death, and the interval, how-
ever brief, would suffice to destroy the American origin of the
claim; but the umpire decided that American nationality was
resumed eo instanti, at the very instant of the death of her hus-
band, and that therefore the claim was American in origin.
The case finds a parallel in Hales v. Petit,10 argued in the fourth
year of Elizabeth's reign, whose hair-splitting logic was parodied
in the gravedigger scene in Harnlet. Sir James Hales had com-
mitted suicide by drowning, a felony, and the question was whether
or not the felony had been committed in his lifetime ; if so, there
would be escheat of the estate to the Crown. The act of self-de-
struction was done in his lifetime, but it was argued that the act
was then not a felony, for until death no life would have been
taken; the answer was that the death which consummated the
felony and the forfeiture of title to the Crown were simultaneous
in logic as in time. The wife's title could in logic be acquired
through inheritance only after the termination of her husband's
ownership caused by his death; when the break in title occurred
the estate already belonged to the Crown.
10 Plowden's Reports, London edition of 1816, vol. 1, p. 253.
MIXED CLAIMS COMMISSION 481
The umpire followed an opposite logic in the Williams case
and placed the wife's resumption of citizenship in the same moment
as her husband's death. Lord Dyer, whose oral opinion in Hales
v. Petit is reported by Plowden, seems to have the better of the
argument ; it is hard to see how a woman can be a widow during
her husband's lifetime I11
Arbitral tribunals usually require a claim to be of continuous
national ownership from its origin to the date of presentation, or
even perhaps to the final date of adjudication. Umpire Parker de-
parted from this rule by requiring national ownership at the date
of the coming into effect of the Treaty of Berlin, November 11,
1921. The treaty, he said, created for American claimants prop-
erty rights hitherto non-existent. The Commission, being bound
by the terms of the treaty, was not competent to divest American
claimants of rights derived from that treaty; a change of na-
tionality subsequent to the ratification was therefore immaterial,
and could not affect the obligation of Germany to pay claims, or
the right of the United States at her election to demand their pay-
ment.
The German commissioner dissented from this decision on the
ground that the treaty should be interpreted in the light of inter-
national law. The traditional theory of claims presentation re-
quired national ownership of a claim from its origin until the final
moment of adjudication. Presentation of a claim by the United
States Government, he urged, did not merge the private rights in
a claim into national rights, and the Commission was competent to
inquire into the private ownership of a claim up to the last moment
11 The position of the umpire was that it was even harder to see why a woman
born an American national, who had always resided in the United States and at
the time of her husband's death was in the United States with the fixed intention
of remaining there, could not on the moment of the termination of the marital re-
lation by her husband's death become an American national. The claimant was by
statute eo instanti deprived of her American citizenship when she married a
British subject. As pointed out by the umpire this statutory rule had its source
in the ancient principles of identity of husband and wife. The statute in effect pro-
vided that on the termination of the marital relation, in which the reason of the
rule had its source, the operation of the rule should cease. All that the statute
required of the claimant was that she do nothing but passively permit the statute
to clothe her with the American citizenship of which this same statute had deprived
her during the period of her marriage to a foreign citizen.
482 AMERICAN FOREIGN RELATIONS
of its adjudication. Moreover, the general reference to claims in
the Treaty of Berlin in no sense constituted presentation, for
claims were presented individually, not by collective reference ; the
date, November 11, 1921, was therefore without significance as re-
gards the nationality of the owner.
THE RELATION OF GERMANY'S LIABILITY TO STATE
LIABILITY UNDER INTERNATIONAL LAW
THOUGH the Commission, acting under and interpreting the
terms of a treaty, had no concern with the legality or illegality
of Germany's liabilities as measured by rules of international law,
it is of interest to inquire whether these obligations had any va-
lidity in international law, or depended solely on Germany's treaty
agreement to pay them.
The claims of the United States Government are of two types.
The charge of $255,000,000 arising from the cost of the American
army of occupation is purely a political claim, for no state is
under a legal duty to support hostile operations against itself, or
to facilitate its own destruction. This claim, it is understood, will
not be presented to the Commission because its payment is pro-
vided for in the Finance Ministers' Agreement at Paris, January
14, 1925. The remaining government claims, on which awards have
been made to the amount of $42,000,000, arise from the destruction
by Germany of non-military property of the American Govern-
ment which was controlled by organizations created for the express
purpose of furthering the war. For this reason, the claim depends
solely upon the treaty.
The claims for which the German Government assumed respon-
sibility included debts of German nationals to American nationals.
No American claims convention has contained a provision to this
effect.32 Courts have held that governments are liable for the debts
of their nationals only to the extent that payment is interfered
with by law. This provision must be regarded as of a political
nature.
Claims arising from the application of "exceptional war meas-
12 American Journal of International Law, Jan., 1925, p. 143; Moore, Principles
of American Diplomacy, p. 309.
MIXED CLAIMS COMMISSION 483
ures" constitute a novelty in international law; no arbitral tri-
bunal has undertaken to define the term. According to Art. 297,
Annex 3T of the Treaty of Versailles it means measures of any
kind affecting the title, transfer, supervision, or sequestration, of
alien enemy property. These measures affected American prop-
erty in Germany chiefly through the depreciation of currency.
When the exceptional war measures were first applied, the mark
was worth seventeen cents ; when the prohibitions had been removed,
it was worth two cents. The removal from Germany of bank
deposits, securities, bonds, and property within German territory
belonging to American nationals was forbidden, and when these
prohibitions were abolished in 1920 the property had lost seven-
eighths of its value through the depreciation of the mark.
Exceptional war measures, in so far as they affected American
property through the depreciation of the mark, do not create valid
claims under international law. A state has the right to stop all
communication between itself and the enemy state either by
statute or ipso facto the declaration of war itself, and may super-
vise alien enemy property to prevent its giving benefit to the
enemy. Furthermore, a state cannot be held liable for the de-
preciation of its currency, a phenomenon frequently beyond its
control. Were such consequential losses grounds for claims in inter-
national law, the United States would be liable to German nationals
for the losses caused by the seizure of their property in the United
States and its sale at an inadequate price. It follows, therefore, that
the exceptional war claims are solely a treaty obligation.
Administrative Decision I holds Germany responsible under the
Treaty for certain acts committed by her allies, and in other cases
for acts committed by either belligerent. The principle of proxi-
mate cause, a rule fully recognized by international law, imposes
responsibility only for those losses which are the proximate re-
sults of a state's own acts. Since the act of another state, Austria
for example, cannot be the legal consequence of an act of Ger-
many, it follows that these claims would be invalid except for
the Treaty.18
The neutrality claims embrace all loss or damage suffered by
is American Journal of International Law, Jan., 1925, pp. 135-136.
484 AMERICAN FOREIGN RELATIONS
American nationals to their persons or property during the period
of American neutrality through the acts of Germany in the prose-
cution of the war. This provision includes various claims some of
which would be valid under international law and others of which
would not be so valid. Among the former are the confiscation of
private property, unjustly harsh personal treatment, forced labor,
military levies and fines. Since neutral aliens resident in a belliger-
ent state possess, however, no more rights of compensation against
the enemy than do civilian citizens of the same state, all personal or
property injury or loss suffered by such neutrals as an accident
of war creates no claim for compensation. Occupants of hostile
territory may impose such restrictions on the civilian population
as are required to make the occupation effective, to keep order, or
to prevent hostile conduct. This, of course, applies to neutral resi-
dents as well as to civilians of the enemy belligerent. The losses
suffered by neutrals who render unneutral service such as the vio-
lation of a blockade, the carriage of contraband, or spy work, are
entitled to no compensation under international law.
As the legality of a claim proceeds not from a distinction between
alien neutral resident and enemy civilian, but from a distinction
between combatant and non-combatant, American civilians after
the American declaration of war possess nearly the same rights
of compensation as they did before the declaration. Their prop-
erty may be sequestrated, but it may not be confiscated, and they
are to be compensated for any damage suffered. Their personal
liberty may be restrained to prevent injury to the enemy state of
their residence, but unduly harsh treatment in any case gives rise
to claims for compensation. The difficulty, of course, is to deter-
mine whether a particular act is no more rigorous than necessity
requires or whether it transcends this point and creates a right to
compensation. No set rule can be formulated ; each individual case
must be determined on its merits.
THE AMOUNTS CLAIMED AND ALLOWED
THE aggregate amount of all claims filed with the Commission up
till April 10, 1923, was $1,479,064,313.92. The actual and esti-
MIXED CLAIMS COMMISSION
485
mated awards made on these claims up till January 23, 1928,
amounted to $174,876,496.38 which interest to January 1, 1928,
increased to $252,966,523.97.
AWARDS OF COMMISSION
TO JANUARY 23, 1928, WITH INTEREST TO JANUARY 1, 1928
In dollars
I. PRIVATE AWARDS
Death cases Property cases Total
3,387,030.00 107,454,671.97 110,841,701.97
705,245.60 48,381,214.96 49,086,460.56
4,092,275.60 155,835,886.93 159,928,162.53
II. GOVERNMENT CLAIMS
Property damage Total
42,034,794.41 42,034,794.41
19,203,567.03 19,203,567.03
61,238,361.44 61,238,361.44
III. TOTAL AWARDS RENDERED
Amount of award
Interest on award
Total
Amount of award
Interest on award
Total
U. S. Government
Private claims
Total
Probable total
Original
award
Interest on original
award
Award plus
interest
42,034,794.41
110,841,701.97
152,876,496.38
19,203,567.03
49,086,460.56
68,290,027.59
Interest thereon
61,238,361.44
159,928,162.53
221,166,523.97
22,000,000.00
9,800,000.00
31,800,000.00
174,876,496.38
78,090,027.59
252,966,523.97
The act of March 10, 1928, requests the President to agree
with Germany in extending the time of presenting claims from
April 9, 1923, the final date agreed upon in 1922 by the two gov-
ernments, to July 1, 1928. This provision would allow some $5,-
000,000 to $10,000,000 of claims presented subsequent to April
9, 1923, to be considered by the Commission. It is thought that not
more than half of these claims will be meritorious.
THE MANNER OF PAYMENT
IN the usual case awards received from foreign governments are
deposited with the Secretary of the Treasury, held by the United
486 AMERICAN FOREIGN RELATIONS
States Government in the capacity of a trustee, and paid out to
the individual claimants. Germany, however, was bankrupt and
could not make immediate payment, so other means had to be found
for paying the awards.
A settlement was effected through the Dawes Plan. The Dawes
annuities include the entire sum of payments imposed upon Ger-
many by the peace treaties. This fund was allocated among the
various claimant states by the Finance Ministers' Agreement at
Paris, January 14, 1925.
Article III of that agreement provides for the two types of
American claims :
(a) The cost of the American Army of Occupation constitutes
a first charge on the Dawes annuities. Beginning on September 1,
1926, and continuing until the whole amount is extinguished, the
United States receives fifty-five million marks per year without
interest. If Germany continues to meet these obligations, as she
has thus far, the claim will be paid in 26 years.
(b) Two and one-fourth per cent of the annuities, not to ex-
ceed forty-five million marks per year, is set aside for the payment
of the awards of the German- American Mixed Claims Commission.
Thus, the United States receives annually $10,700,000, at which
rate 61 years would be required to pay all the awards of the Com-
mission.
This situation was remedied by the Settlement of War Claims
Act approved March 10, 1928, which provides for the payment of
the awards direct from the United States Treasury. Germany re-
mains liable as before to the full extent of the awards as fixed by
the Paris Financial Agreement, but according to Section 2 h of
the Act, American private claimants whose awards are not in
excess of $100,000 are to be paid at once from the Treasury De-
partment. The death and personal injury claims representing
95 per cent in the number of awards made have now been paid in
full ; the others are to be paid in annual instalments and fully paid
within a few years.
The Act creates in the United States Treasury a special fund
known as the "German special deposit fund," from which all pay-
MIXED CLAIMS COMMISSION 487
ments provided for by the Act are made. This fund is derived
from several sources :
(a) One-fifth of the sequestrated German property retained
for the present, approximately $40,000,000.
(b) An unallocated interest fund consisting of interest accrued
prior to March 4, 1923, on bonds purchased with money de-
posited in the Treasury by the Alien Property Custodian,
approximately $25,000,000.
(c) Government appropriations to the present amount of $50,-
000,000.
(d) Receipts from Germany under the Dawes annuities amount-
ing to $23,000,000 on September 1, 1928.
Thus the funds now available for payment on claims amount to
$138,000,000.
The disbursement of this sum follows certain rules set forth in
the Act. An individual claimant who avails himself of its provisions
loses all further interests in the payments on his claim of Germany
to the United States Government. All awards remaining unpaid
after 1928 bear 5 per cent simple interest. No payments are made
on government claims until all private awards are satisfied. Rules
of priority as to payment are made in the general order of (1)
death and personal injury claims, (2) property awards under
$100,000, (3) proportional payment on property awards over
$100,000, (4) all amounts still remaining unpaid, including
claims of enemy nationals. As thus provided all private awards will
be paid in full at the end of 26 years.
V.
LIMITATION OF ARMAMENT
CHAPTER ONE
INTRODUCTION
PRE-WAR ARMAMENTS
THE problem of armaments is as old as history, but as Pro-
fessor Baker points out, "it is only from 1860 onwards that
the governments began to build up their modern forces, and to
give their fleets and armies their present scale and form." "Be-
tween 1898 and 1908 all the Great Powers among them increased
their military and naval budgets by about £100 million — £10
million a year. For the next six years the six Great Powers of Eu-
rope alone increased their budgets by more than £100 million a
year. It is from 1860, therefore, that modern militarism must be
said to date ; and its greatest strides were in the last two decades
before the war broke out."1
This condensed summary of the dizzy growth of armaments
in the half -century before the World War has been expanded in
detailed statistical statements by many authors. Figures based on
different standards are available in such reference books as the
Statesman's Year Book, but as budget classifications differ from
country to country and have differed in each country from decade
to decade — many military expenses being hidden under civilian
labels ; for instance, military training under educational appro-
priations— such attempts to assess costs of armaments are always
open to dispute. There is equal difficulty in stating the growth of
military establishments in terms of the number of enlisted men or
in terms of equipment. The above-quoted summary clearly pre-
sents the general facts and is the more impressive by its lack of
disputable details.
This piling up of armaments in an almost geometrical progres-
sion correlative in type and in cost with technical discoveries and
improvements such as the Bessemer steel system was obviously as-
sociated with increasing political tension. Its early phase was
marked by the disturbing career of Napolebn III, the struggle
i Baker, Philip Noel, Disarmament, p. 4.
492 AMERICAN FOREIGN RELATIONS
for national unity in Italy and the foundation of the German
Empire, durch Eiscn und Blut. The later phase was marked by the
crystallization of the two opposing coalitions, the Triple Alliance
and the Triple Entente. Each diplomatic crisis of the new
century — Algeciras, Bosnia and Herzegovina, Agadir — was
promptly reflected in increased military budgets. The crushing
of Turkey in the first Balkan war, an important element on the
German side of the balance of power, was the reason given by the
governments for the last great increase in armaments just be-
fore the World War.
The history of this same period in the United States was strik-
ingly different. When the forces mustered for the Civil War were
demobilized, our interest in military affairs waned. Armies and
navies cannot be maintained for parade purposes; they become
like the post-revolutionary "train bands" of our grandfathers
which used to decorate the "commons" of New England. Unless
there is work for a fighting force to do, unless there is an enemy in
sight, morale declines and popular interest in its support fails. As
there was no apparent menace from any quarter in the decades
after the Civil War, Congress refused to support any large mili-
tary establishment.
The Spanish War in 1898 caused a short-lived flutter of mili-
tarism. As soon as victory had been secured, interest in the army
faded away ; Congress and the country felt too secure from attack
to be stampeded into appropriations for an army on anything like
the European scale. The navy fared better because its advocates
were able to arouse apprehension over a "Japanese menace." We
were acquiring overseas responsibilities in the Philippines and
Panama; our overseas commerce was expanding; enough of our
people became worried over the danger to make possible a modest
increase in naval appropriations.
This contrast in the development of armaments was the subject
of much discussion in the years before the war. Norman Angell
was trying to persuade the old world that the piling up of arma-
ments was futile and dangerous ; other writers in the great coun-
tries were writing to persuade their respective governments that
their lack of armaments was dangerous and in particular to con-
INTRODUCTION 493
vince the United States that only by becoming a great sea Power
could we protect ourselves from disaster.
THE EXPERIENCE OF THE WAR
THAT the actual events of so great a war as that which broke out
in 1914 should disprove or profoundly modify many theories in
regard to the problems of war and peace was inevitable. Admiral
Mahan wrote in the Atlantic Monthly in September, 1893 :
That the organization of military strength involves provocation
to war is a fallacy, which the experience of each succeeding year now
refutes. The immense armaments of Europe are onerous ; but never-
theless, by the mutual respect and caution they enforce, they present
a cheap alternative, certainly in misery, probably in money, to the
frequent devastating wars which preceded the era of general military
preparation.
It was commonly said at the outbreak of the World War that this
theory was disproved and that the reverse was true and ought
always to have been recognized, but the statement was shallow.
Prior to 1914 it was still a debatable question whether great
armaments, which of course did not prevent war but did check
their frequency as among the Great Powers, did or did not permit
a greater total advancement in civilization than was possible in
the preceding period of frequent wars. The great lesson of 1914-
18 is that modern war among Great Powers is conducted on such
an enormous scale and with such a development of agencies of
destruction that for the first time in history it is becoming possible
that civilization may not be able to withstand the shock. Those
also, who, like Norrnan Angell, took the other side of the argument
before the war, would today have to qualify many of the state-
ments which they then wrote in good faith.
The war proved to be so different from what the General Staffs
had expected that their preparations were shown to be inade-
quate. Much of the equipment piled up in the arsenals proved value-
less. France had accumulated in times of peace 1500 rounds of
ammunition for each of her 75 mm. field guns and planned to
produce 13,000 shells a day. This "preparation" was so inade-
494 AMERICAN FOREIGN RELATIONS
quate that in the Battle of the Marne about September 12, less
than two months after the declaration of war, the army of Gen-
eral Foch was reduced to ten shots per gun per day. The inade-
quacy of the pre-war preparations was further demonstrated by
figures recently given by Field Marshal Sir William Robertson
before the Lincoln Chamber of Commerce in England.2
The artillery bombardment at Messines cost the British Gov-
ernment £17,500,000, and the weight of ammunition fired was
85,000 tons; the artillery fire in the third battle of Ypres cost
£22,000,000: no General Staff in 1913 had dreamed that modern
war would be like this. The British Admiralty had spent immense
sums in preparation but it was inadequate to cope with Ger-
man submarines. In spite of the general preparation for war
from I860 to 1914 the equipment of the belligerents was ab-
surdly inadequate in a conflict of such scope and duration. The
war would have come to an indecisive end if, during its course, it
had not been possible to manufacture better and more ammunition
than the General Staffs had imagined possible ; this demonstrated
that security, based solely on military preparation for what pro-
fessional soldiers imagine the next war will be like, is a mirage.
The events of the war demonstrated that the "invisible" ele-
ments of war-power are more important than "visible" arma-
ments. From the large view of strategy one of the most striking
developments of the war was the utilization of factors that had
not previously been considered military. It was not enough to
man the front line, it was necessary to draft chemists for research
in high explosives and poison gas, mathematicians to develop
range-finders, managers of hotels to organize hospitals. At first
the French "over-mobilized" and had to comb the regiments at
the front to find trained men and bring them back for the equally
important war work behind the lines. Women were called upon not
only to roll bandages but also to fill shells ; schools were closed so
that children could till the fields.
In the end victory came not to those nations which had most
docilely followed the advice of the General Staffs, not to those
which had most generously voted funds for the military equipment
2 New York Times, Nov. 9, 1927.
INTRODUCTION 495
their army and navy advisers demanded, but to those who could
tap and organize the greatest industrial resources. The safety of
a nation, at least of one secure against sudden attack by the whole
military power of an enemy, depends, as President Coolidge has
said, less on the piling up of armaments, than on a sturdy, con-
tented and loyal citizenry, a healthy economic system, sound credit,
and just dealings with other nations.
Another development of the war which cannot be ignored was
its effect on neutrals. As the conflict increased in intensity, its
effects spread in all directions. As month followed month, more
remote districts — having no responsibility for the origin and little
direct interest in the outcome of the war — found themselves in-
volved. Stock exchanges were closed in Holland, bankruptcies
occurred in Valparaiso, Shanghai, and St. Louis; lack of coal
caused unemployment in Switzerland; interruption of imports
reduced Italy to war-bread; African natives were drafted into
military service. Scientific societies turned from research to re-
crimination, from progress to propaganda. In a thousand ways,
some crude and obvious, some subtle and devious, the peoples who
wanted to keep the peace found their lives touched and distorted
by the conflict. The strenuous efforts made by various govern-
ments to hold the balance of neutrality even between the two
groups of belligerents were of little avail. War overrode such
scraps of official paper, crashed through the traditional, legal
conception of neutral rights. In spite of the distance of the United
States from the theater of operations, in spite of her unusually
large degree of self-sufficiency, she quickly became involved in the
controversy.
The war was not a week old before all American overseas trade
was sadly disorganized. Lacking a mercantile marine, we were de-
pendent on British bottoms for both export and import, although
at the same time British ships were being taken over by the
British Government for war purposes. The British Admiralty,
having at once established supremacy on the surface of the sea,
began a rigorous attempt to cut the trade of Britain's enemies,
and in this traditional enterprise could not be solicitous of the
interests or opinions of neutrals. Orders in Council quickly
496 AMERICAN FOREIGN RELATIONS
obliterated the time-honored distinction between "innocent" and
"contraband" cargoes. We were not disposed to surrender what
we considered to be our established rights and, as the strongest of
the neutral nations, found ourselves appealed to as the natural
defenders of the rights of neutrality. The exchange of notes be-
tween Washington and London became increasingly acrimonious,
and where this controversy would have ended no one can say;
it was quickly overshadowed by a more serious controversy with
Germany.
With almost incredible stupidity the Central Empires dis-
tracted our attention from the bitter dispute with the Allies by
the injudicious use of their new weapon — the submarine. Viewed
juristically, one violation of right may be as reprehensible as an-
other, but from the human, political point of view, murder stirs
more ire than larceny. The invasions of our right, of which we
accused the Allies, were attacks on property ; German under-sea
warfare was a direct attack on the lives of our citizens. This gave
us an immediate interest in the war which transcended the ad-
vantages of neutrality.
Another effect of the war experience on the problem of arma-
ments was psychological, difficult to state concisely, but none the
less important. The reality of war immensely strengthened all the
arguments against war itself. The sudden surrender of the age-
old attempt to build a civilization on the rule of reason to the
stark gamble of war shocked the collective mind of man. As soon
as the guns began to roar it was evident to all that it mattered
little who was right, that the decision rested upon force and to an
appalling degree upon luck.
As the horror and ruin of the war mounted from month to
month, more and more people who had never thought of such
things before turned their attention to the possibility of freeing
civilization from this suicidal mania. When, after the war, the
fruits of victory turned out to be bitter ashes, when it became more
and more evident that, no matter who won, humanity had been de-
feated, this search for escape from war, this revolt against the
dominance of Mars, became the more intense.
As long as war is regarded as a matter of fate, inevitable, un-
INTRODUCTION 497
escapable, the problem before each nation is how to profit by past
experience, how best to prepare for the ordeal. As soon as the idea
gains currency that war may be prevented, the whole basis of the
problem of armaments is profoundly changed. The last war, more
universal than any earlier one, more costly in blood, more gen-
erally destructive of welfare, persuaded a larger group than ever
before that its repetition must be prevented.
The war made it evident that it is increasingly difficult in mod-
ern conditions to maintain neutrality. Naval war, especially,
affects the life of all nations ; unless the rights of belligerents and
neutrals are legally defined and effectively guaranteed, the na-
tions which wish to keep the peace in any next war will find them-
selves again in controversy with both fighting groups, and in the
heat of conflict belligerents give scant heed to the protests of
neutrals unless they are backed up by armaments.
THE PEACE CONFERENCE
EVEN before the war there was a popular sentiment that mili-
tarism in time of peace — the piling up of armaments, the sub-
ordination of the civilian's to the soldier's point of view — greatly
increased the danger of conflict. The war itself intensified this
feeling. Lord Grey, British Foreign Minister during the struggle,
has since frequently expressed this conviction. Abroad, as well as
at home, many shared this view, and there was great popularity
for the slogan "The war to end war" ; the demand for relief from
the burden and danger of armaments was so insistent that it
could not be ignored by the Peace Conference.
As a first step toward satisfying this demand, the victorious
Allies undertook the forcible disarmament of the defeated coali-
tion. Part V of the Treaty of Versailles — copied in all the other
treaties drawn up by the Peace Conference — goes into great de-
tail in limiting the number of men and the amount of equipment
to be permitted for the German military establishment.
While the figures set for German armaments by the Treaty
were a drastic reduction from the pre-war European standard, it
is worthy of note that her enemies in 1919 allowed her to maintain
498 AMERICAN FOREIGN RELATIONS
a military force which, as Professor Baker points out, is relatively
greater than that of Argentine, Brazil, or Chile.
Not content with the forcible disarmament of the defeated
countries, the victors explicitly committed themselves to the reduc-
tion of their own armaments. Part V of the Treaty of Versailles
opens with these words : "In order to render possible the initiation
of a general limitation of armaments of all nations, Germany
undertakes strictly to observe the Military, Naval and Air clauses
which follow."
When the draft of the Peace Treaty of Versailles was first pre-
sented to the German delegation in May, 1919, they made the fol-
lowing observation upon Part V. : "Germany is prepared to agree to
the basic idea of army, navy and air regulations — provided this is
a beginning of a general reduction of armaments." To which the
Allied Powers in their famous answer replied : "The Allied and Asso-
ciated Powers wish to make it clear that their requirements in regard
to German armaments were not made solely with the object of ren-
dering it impossible to resume her policy of military aggression. They
are also the first step towards the general reduction and limitation
of armaments which they seek to bring about as one of the most fruit-
ful preventives of war, and which it will be one of the first duties of
the League of Nations to promote."3
Recognizing that this was in fact a definite legal obligation,
the Allied and Associated Powers wrote the commitment into the
Covenant of the League of Nations. Article VIII begins: "The
Members of the League recognize that the maintenance of peace
requires the reduction of national armaments to the lowest point
consistent with national safety and the enforcement by common
action of international obligations."
Uncertainty has arisen over the precise meaning of the phrase,
"national safety." Some hold that it means "domestic safety," ac-
cording to the fourth of the Fourteen Points : "Adequate guar-
antees given and taken that national armaments will be reduced
to the lowest point consistent with domestic safety" — that is, in-
ternal police power. Others maintain that this is too limited a defi-
nition and that, at least till the organization of the world has
» Baker, op. tit., p. 25.
INTRODUCTION 499
become more stable, "national safety" implies power to resist ag-
gression from outside. As none of the statesmen of the Allied and
Associated Powers would admit that they had reduced the military
establishment of Germany below the level of "national safety," the
standard set in Part V of the Treaty of Versailles must be ac-
cepted as the official interpretation of this phrase. The ideal
which the League has set for itself is the reduction of armaments
to the police level, to assure respect for constituted authority
within each state and for international authority.
The effort to realize this ideal, both by the organization of the
League and by forces outside of it, is the subject of this section.
The discussions which this effort has evoked have modified the
too simple idea that armaments are the cause of war. Close think-
ing and hard debating on the subject have brought many, if not
most, students to the view that armaments are rather caused by the
war-spirit. It is too materialistic a position to put all the blame on
the guns ; at least equal attention must be devoted to the men be-
hind the guns.
But no such shift in point of view lessens the importance of
the problem of reducing armaments. Even if the piling up of the
tools of war is not the main cause of war, the height of the pile
of arms is the best measure we have of the war-spirit. We may be
confident that decrease in armaments is an indication of stability
and peace ; the level of armaments is a thermometer which all can
read; every reduction means a waning of the war-fever, an ap-
proach to the reestablishment of health and peace.
This section concerns itself only with the apparatus and mate-
rial, military and naval, manufactured for employment solely in
war. There are, of course, resources of other kinds of which a na-
tion avails itself in making war — all its industrial strength which
produces strategic railroads, camions for the transportation of
troops, facilities for the manufacture of agricultural tractors
which can promptly be turned to the production of "tanks," and
so on. There is an incalculable fertility in the invention and output
of chemical and scientific products which may at any time be
turned to the production of asphyxiating or poisonous gases or
new engines of destruction. The dynamics of such developments,
500 AMERICAN FOREIGN RELATIONS
which, as we have indicated, can be predicted by military tech-
nicians at best imperfectly, are for the same reasons not subject
to disarmament control. The industrial evolution of the nations
cannot be limited unless all governments were to revert to a des-
potic centralized state. The chemistry of war, as Professor Shot-
well has pointed out in the Journal de Geneve, is inextricably
intertwined with that of peace. The remedy for sleeping sickness,
for example, of priceless value to mankind, was discovered in the
building where poison gas was manufactured. "The same chemists
are at the same moment serving the arts of healing and of destruc-
tion. Direct limitation of production is idle, for the slightest
change in a formula of industrial usage suffices to create poison
gases or explosives of tremendous power."
Even a pruning hook can be made into a lethal weapon and
plowshares be used for the digging of trenches. The diminution
of war armaments, the sense of international security and of an
organized world order which should cause the diminution and be
likewise augmented by it, are the only protection against a covert
preparation for war through the material of peaceful industry.
CHAPTER TWO
GENEVA
CREATING MACHINERY
r 1 1 HE first steps toward carrying out the obligations to reduce
JL their armaments, which the victorious Allied and Associated
Powers had accepted, were taken by the League of Nations. The
rejection of the Treaty of Versailles by the Senate at first sharply
separated American diplomacy from the work at Geneva; what-
ever contribution the United States could make to the disarma-
ment movement was outside of the League of Nations. Eventually,
by authorizing the American Minister at Berne to attend meet-
ings of League committees as an "observer," and finally by send-
ing a strong American delegation to the Preparatory Commission
for a General Disarmament Conference, Washington came into
contact with Geneva. In the following pages there will be, first, a
review of the five years of effort at Geneva, up till 1926; next, a
discussion of the Washington Conference on the Limitation of
Naval Armaments, a separate American enterprise without con-
nection with the work of the League of Nations; then a com-
mentary on the Preparatory Commission for a General Disarma-
ment Conference, which had not completed its work at the end of
1927 and in which the American Government has participated;
and finally a description of the 1927 Three Power Conference and
its aftermath.
The Council of the League, at its session in Rome on May 17,
1920, in pursuance of Article VIII of the Covenant created a Per-
manent Advisory Committee consisting of officers of the land, air,
and sea forces of the countries represented in the Council. This
Committee, composed solely of men of military career, came to be
referred to as P.A.C.
The first Assembly of the League met at Geneva in November,
1920, and devoted considerable time to discussion of the obliga-
tions of Article VIII of the Covenant.
The P.A.C. was the first of a long series of committees estab-
lished by the League for the study of this problem. It was felt that
502 AMERICAN FOREIGN RELATIONS
progress would be altogether too slow if the subject were ap-
proached solely from the military standpoint, and the Tempo-
rary Mixed Commission (T.M.C.), was set up by the First
Assembly in order to include civilian elements. Much valuable
spade work was done by the P.A.C. and the T.M.C. Somewhat
later the Joint Committee was appointed to obtain the opinions
of experts in economics and finance and to give a voice to or-
ganized labor. When purely political questions arose, they were
dealt with by a Committee of the Council, a body consisting of
political representatives of the states which sat on the Council. It
is sometimes difficult to make sharp distinctions among these va-
rious organs, but each one brought a fresh point of view to the
discussion. No one of them has succeeded in solving the problem,
but they have collected a valuable body of information.
A "Disarmament Section" was created within the Secretariat.
Besides the secretarial work involved in the meetings of all these
committees, this section was entrusted with the carrying out of
the last paragraph of Article VIII of the Covenant. "The Mem-
bers of the League undertake to interchange full and frank in-
formation as to the scale of their armaments, their military, naval
and air programmes and the condition of such of their industries
as are adaptable to warlike purposes." This section has published
the Armament Year-Book and so has contributed greatly to a
statistical study of the armament problem.
Great difficulty must be faced in securing dependable statistics
on the number of men under arms today. The difficulties are even
greater in finding pre-war figures to compare with them. The
estimates of the number of men under arms in Europe in 1913
varied from 4,750,000 to 5,250,000. In 1927 the estimates run
closer, from 3,500,000 to 3,750,000.
Against this undoubted reduction of the number of men under-
going military service must be offset the improvement in their
equipment. The number of soldiers has decreased, but they are
armed with more deadly weapons. On the whole, although dif-
ferences in the purchasing power of various and fluctuating cur-
rencies are hard to estimate, there seems to have been an increase
in military expenditures.
GENEVA 503
The British Government report some reduction in the num-
ber of men on the army and navy rolls, as compared with 1913,
but Field Marshal Sir William Robertson, speaking before the
Chamber of Commerce of Lincoln on November 9, 1927, stated
that the Empire was spending £40,000,000 annually for its fight-
ing forces more than before the war. Machines are more expensive
than men.
The reduction of the number of men under arms has not been
uniform. The defeated countries were forced to give up universal
military service and have been limited to small but expensive vol-
unteer armies. Spain and Belgium report a small increase. Sta-
tistical difficulties are great in the case of the new countries of
eastern Europe ; there is probably an increase in some cases, al-
though the burden of military service was heavy under the old
empires. Italy in 1914 reported an army of 250,000 and in 1927
one of 246,000.
The only Great Power among the victors that shows a notable
reduction is France. The annual contingent in 1913 was 230,000
and for 1928 is 240,000, but the term of service has been cut from
three years to one year. This means, as far as standing armies (ex-
cluding colonial and overseas troops) are concerned, a reduction
to a little over one-third. Against this decrease must be placed the
creation of a new volunteer professional organization of about
100,000. This is intended to supply thoroughly trained men for
technical services, and an increased corps of "non-coms" and in-
structors.
Figures presented to the Chambre des Deputes, during the de-
bate on the new Army Bill, show that, including colonial and
colored troops, the ration roll of the French army in 1913 reached
990,000 and that the estimate for 1928 is 523,769. Owing to im-
proved equipment, however, and to the stiffening influence of the
larger body of professional soldiers, neither the cost nor the fight-
ing power of the French army has been reduced in a 9-5 ratio.
While statistical difficulties are still great in any study of the
relative strength or expense of the world's armies, we know much
more about the subject today than before the war and every year
504 AMERICAN FOREIGN RELATIONS
the statistical service of the Disarmament Section of the League
improves.
DISCUSSION OF CRITERIA
THE first phase of the disarmament discussion at Geneva had to
do with an attempt to find satisfactory criteria for comparing the
armaments of the nations on which a system of ratios could be
based.
A proposal was introduced by Lord Esher, of the British dele-
gation, to limit land armaments on the basis of the number of men
in the standing armies. He presented a proposal the significant
part of which created a unit of 30,000 men as the basis of the
ratio, and he proposed a scale of ratios which gave one unit to
Portugal and six — 180,000 men — to France. This proposal re-
ceived serious adverse criticism. Lord Esher had left out of con-
sideration all reserves, all questions of equipment or of expendi-
ture. He had also left out of consideration colonial armies, which
he maintained, without convincing proof, could not be used in a
European war. The general conclusion was that Lord Esher's
scheme was too simple ; it is obvious that a unit of 30,000 men from
a country rich enough to equip them with large amounts of the
most modern weapons could not be fairly compared with the same
number of men from a country which could not afford appropria-
tions for adequate equipment.
A contrary proposal was made that the standard of comparison
should be based solely on equipment. It was generally agreed that
the most effective parts of the disarmament scheme which had been
imposed on Germany were the sections which definitely limited
the equipment she was permitted to retain ; especially in regard
to large units of equipment this criterion is effective. This is ob-
viously true in regard to naval warfare, for it is impracticable to
build battleships in secret ; but the smaller the unit of equipment,
the less satisfactory this standard proves. It is easier to convert a
yacht into a torpedo-boat than a passenger ship into a cruiser;
it is easier to set limits to big guns than it is to revolvers. The
criterion of equipment also has the disadvantage that an agri-
cultural country with no heavy industry capable of producing
GENEVA 505
munitions is handicapped in comparison with a country indus-
trially prepared for the manufacture of armaments.
Simultaneously there was much discussion of the possibility of
limiting military budgets. A resolution was passed by the First
Assembly suggesting that the nations agree not to increase their
military expenditures, but when this proposal reached the experts
its weakness was made obvious. It is much more expensive to main-
tain a thousand men on the volunteer system than it is where con-
scription is practiced; furthermore, no two countries make up
their budgets in comparable forms. A study of the problem tempts
one to the conclusion that all governments take pains to hide their
military expenditures under classifications which sound peaceable ;
to make limitations on the basis of military budgets effective, it
would be necessary first of all to agree on a standard form for the
budgets of all nations.
Aviation offers a peculiarly difficult problem. When Colonel
Lindbergh was given the medal of the National Geographic So-
ciety, Mr. McCracken, Assistant Secretary for Aeronautics of
the Department of Commerce, in a speech describing the develop-
ment of civil aviation and appealing for public support, spoke of
its great importance to national defense. But civil aviation does
not figure in our military budget. Many governments subsidize
civil aviation for the express purpose of developing reserves of
trained flyers for the military air forces. Many of our state uni-
versities and "land grant" colleges have required courses in mili-
tary science. All over the world, chemists, physicists, and mathe-
maticians are working on military problems, the importance of
which was demonstrated during the war, under cover of money
appropriated, or endowments made, for "educational purposes."
Although the discussions made it clear that there was no single
criterion on which a satisfactory system of ratios could be built,
they demonstrated that there was considerable value in each one
of these suggestions, and that in all probability any attempt to
limit the armaments of the various nations on a system of ratios
will require the working out of a complex base, in which the va-
rious items of man-power, industrial equipment, budgets, and so
forth will be considered and weighed according to the circum-
506 AMERICAN FOREIGN RELATIONS
stances of each country, and adjusted according to the respective
indices for the cost of living. The discussions which have taken
place at Geneva have thrown light on this problem and will be of
value when the conjunction of stars in the political firmament
makes progress possible.
THE TREATY OF MUTUAL GUARANTEE
OUT of all these discussions in divers committees at Geneva, there
has grown a general conviction that armaments are the symp-
tom of a state of mind, that fear of attack is the real disease, that
moral disarmament — a sense of security — must precede mate-
rial disarmament. In Janus: The Conquest of War, Professor
William McDougall has clearly and concisely presented to Ameri-
can readers the philosophic theory of armaments which tends to
prevail at Geneva.
Attention was focused on this problem of security, as the basis
of disarmament, by the organization of the "Petite Entente." This
new group in southeastern Europe was denounced in many quar-
ters as a return to the pre-war policy of alliances and the charge
was freely made that such treaties were in conflict with the Cove-
nant of the League. This produced an illuminating discussion and
brought out a weakness in the League of Nations which was less
a matter of drafting than of geographical fact. The present
frontiers of Czechoslovakia, Yugoslavia, and Rumania had been
created by the peace treaties and included territories which had
previously been Hungarian, and of all the defeated countries the
Hungarians were the least reconciled to their territorial losses. The
popular political rallying cry of the day in Hungary is : "No, No,
Never," indicating that they will never accept the present status.
The political situation was uncertain and there was much talk of
revenge and the reconquest of these lost territories. Article X of
the Covenant pledged all the member states to the protection of
the present frontiers as against external aggression, yet gave
little comfort to these three countries which had to consider the
possibility of defense against an attack from Hungary. In case
the war party won the upper hand at Budapest and began hostili-
GENEVA 507
ties against Rumania, the obligations of Article X required that
such countries as Japan, Norway, and Spain should come to Ru-
mania's assistance. It was infinitely more important for Rumania,
in working out her plans for national defense, to know what aid she
could expect from her near neighbors, who were close enough to
render effective aid immediately. It was this geographical fact
which led to the development of regional agreements. Article XXI
of the Covenant, "Nothing in this Covenant shall be deemed to
affect the validity of international engagements, such as treaties
of arbitration or regional understandings, like the Monroe Doc-
trine, for securing the maintenance of peace," had been incor-
porated in the hope of meeting American objections that the
League might interfere with the Monroe Doctrine. The Petite
Entente considered that their regional agreements were justified
by this Article.
The T.M.C. gave especial attention to this question of security
in its relation to regional agreements and attempted to strengthen
the pledge of mutual aid in Article X by expanding the princi-
ples of the Petite Entente, so that any nation which felt itself
threatened by attack, could, while planning out its own program
of national defense, take into account the help which it could rely
upon from its neighbors.
The draft treaty drawn up by the T.M.C. was submitted to the
governments of the member states for comment and was rejected
by the British Government on grounds such as those referred to
above. It believed that the more exposed countries should not
allow their fears to drive them to alliances which might, even if
they were advertised as purely defensive, eventually develop into
a network of military commitments too similar to the condition
which immediately preceded the last war and to a large extent
responsible for it.
THE PROTOCOL FOR THE PACIFIC SETTLEMENT
OF INTERNATIONAL DISPUTES, 1924
THE rejection of the Treaty of Mutual Guarantee by the British
Government made necessary a new effort to solve the same prob-
508 AMERICAN FOREIGN RELATIONS
lem by other means. The result was the drafting of "the Geneva
Protocol" at the Assembly in September, 1924.
A hopeful political situation had developed during the summer
of 1924, both in France and in England. The elections had
brought parties of the Left into power. In France, Herriot, the
new Premier, was a pronounced believer in organized effort to
prevent war. The new labor government in England was headed
by Ramsay MacDonald, who was even more definitely on record as
a friend of peace. But more was involved than the personal con-
victions of these two statesmen : they knew that their parties had
been elevated to power by an electorate which was as wearied with
war and the continuing threat of war as they were themselves;
they had not only been given an opportunity by the chances of
politics to work for an ideal which was dear to them personally,
but they were bound by explicit campaign promises, and by the
definite mandate of their constituents, to work for peace.
A new element of great importance was brought into the dis-
armament discussion at the Assembly of 1924 — arbitration. In
order to make the nations feel more secure, and by so doing to
reduce the incentive for swollen armaments, it was necessary to
set up some satisfying equivalent for war. The word "arbitration"
was used in the Protocol discussions in a much broader sense than
that given to it in the technical writings of international lawyers.
It was an all-inclusive term for the various methods "for the
pacific settlement of international disputes." It implied the use
of the Permanent Court of International Justice for juridical de-
cisions and special courts of arbitration for justiciable con-
troversies. It envisaged both ad hoc and permanent boards of
conciliation, commissions of investigation where there was a mis-
understanding of facts, and diplomatic conferences or action by
the Council of the League in cases that fell outside of the com-
petence of other institutions. To render war unnecessary it was
requisite to create other methods for settling disputes among the
nations. "Arbitration" completed the trinity — "Arbitration, Se-
curity, and Disarmament."
Another step forward was made at this meeting of the As-
sembly by the general acceptance of a definition of "aggression."
GENEVA 509
In this matter important aid was given by an unofficial "American
Committee." The basic idea that a nation which refused to submit
its controversy to judicial process was guilty of aggression, was
not new, but it could not have been accepted until the machinery
for judicial process had been set up, and at the juncture when the
Assembly was laying plans for a comprehensive system for the
pacific settlement of international disputes, the suggestion made
by Dr. Shotwell and his American friends came before the inter-
national public and was enthusiastically accepted.
The Assembly held that of equal importance to the creation of
legal machinery and the definition of "aggression" was the or-
ganization of police action against the nation which brought upon
itself the ban of outlawry by committing an aggression. To make
certain the sense of security which it was hoped would bring about
general disarmament, some pledge of common aid to any nation
which should be the victim of aggression was necessary. This was
the idea so often forcibly expressed by Theodore Roosevelt:
"From the international standpoint the essential thing to do is
effectively to put the combined power of civilization back of the
collective purpose of civilization to secure justice. This can be
achieved only by a World League for the peace of righteousness,
which would guarantee to enforce by the combined strength of
all the nations the decrees of a competent and impartial court
against any recalcitrant and offending nation."1 This idea, which
was the central dogma of the old League to Enforce Peace, is what
the European nations mean by the word "sanctions" — the effec-
tive organization of the pledge of common aid against the outlaw.
The draft treaty which was drawn up by the Assembly in 1924
provided for the immediate convocation of a general disarmament
conference as soon as the Protocol was ratified.
THE RECEPTION OF THE PROTOCOL
THE Protocol discussion can be summed up as an attempt to de-
fine the price of peace. Peace, which had theretofore been in the
clouds, was brought down to earth ; it was put on the market. The
price was high ; this was the point of view from which the Protocol
i Works, Memorial Edition, Vol. XX, Foreword, pp. xxiii-xxiv.
510 AMERICAN FOREIGN RELATIONS
was attacked. Almost no voice questioned the assertion that peace
could be had on these terms. The opposition, which developed at
once, was on the ground that peace was not worth this price.
No sooner had the draft of the Protocol been published than
ardent discussion of it began in all the Foreign Offices of the world,
in the press, and on the platform. It became evident that three
kinds of opposition were developing.
(a) The most successful duelists were not the ones most in-
terested in suppressing duelling; the weak countries which have
no hope of making their cause prevail by force of arms are natu-
rally more inclined to accept the processes of law ; the more power-
ful nations, confident in their own might, have less to fear from
international anarchy and are therefore less inclined to pay a high
price for peace.
(b) It is also evident that the price at which peace was quoted
seemed higher to those countries which are less exposed to the
dangers of war than to those in the storm centers. There is a vast
difference in the degree of security in the northeastern corner of
Europe from that in the Balkans ; the countries which have suf-
fered most and fear most are less inclined to find the price of peace
excessive than those which are happily more remote from danger.
(c) Opposition also developed from nations which are dis-
satisfied with the new frontiers created by the war. A new recourse
to force seemed to them — or at least to an articulate part of their
public — preferable to acceptance of the status quo. While to say
that the Protocol would have crystallized the present map of the
world is of course incorrect, it would have prevented alteration by
resort to arms.
A review of the press in the months immediately after the As-
sembly of 1924 and a list of the newspapers which opposed the
Protocol would give a census of the forces within each country,
Fascist in Italy, Nationalist in France, Junker in Germany, Tory
in England, which are opposed to the development of a reign of
law among the nations and the organization of peace.
The kind of opposition suggested above under (a) was typi-
fied by events in England. The Labor government fell from power
on a different issue and were succeeded by a Conservative ministry.
GENEVA 511
That this made the ratification of the Protocol by Great Britain
less probable was obvious to anyone familiar with political life;
it would be almost as difficult for Baldwin to follow in the foot-
steps of a labor leader like MacDonald as it would have been
for Harding to carry out the foreign policy of Wilson. At the
December meeting of the Council, which was held in Rome, Cham-
berlain, the new British Foreign Minister, asked that considera-
tion of the Protocol be postponed until the British Government
which had just taken office could have the opportunity for ex-
haustive study and consultation with the Dominions. While it was
stated that this request for postponement did not in any way
prejudice the decision which the British Government would reach,
it was evident that the new ministry did not regard the proposal
with enthusiasm.
The attitude toward the Protocol suggested above under (b)
was illustrated by the case of the Latin American states. Their in-
terest in the Protocol was only moral : remote from the storm cen-
ters of Europe, they were under no driving compulsion to enter
into such agreements; they were favorable to the Protocol but
lukewarm.
The attitude suggested above under (c) was illustrated by
Italy and Hungary. Fascismo had uttered a super-heated ap-
peal to nationalism. Many of the demands which the Italy of
Mussolini makes in the realm of foreign policy could not be realized
without a change in the status quo which would almost certainly
give rise to war. It could not be expected that there would be
enthusiasm among the Fascists for any proposal which would
make the realization of their aspirations more difficult.
Of all the defeated nations, the Hungarians feel that they have
suffered the greatest injustice. Never having given even lip-service
to the doctrine of self-determination, they cannot be reconciled
to the loss of provinces in which their race is in the minority. They
dream of rebuilding their military power and securing by the
sword what they consider to be justice.
France was the only one of the strong nations which gave un-
qualified support to the Protocol. This was partly due to the fact
that the government of the Left which had been in power when the
512 AMERICAN FOREIGN RELATIONS
Protocol was drawn up was still in power ; it was also due to the
fact that France is in the storm center, has frequently experienced
invasion and has so recently learned that the fruits of victory are
Apples of Sodom that she is willing to pay a high price for peace.
As the discussions stirred by the Protocol showed, almost all the
other countries of continental Europe sided with France on this
problem ; the attitude of the new countries of eastern Europe was
ably stated by M. Benes at the Council meeting in March, 1925 :
From Finland in the north through the Baltic republics, Poland,
Germany, Czecho-Slovakia and Austria, down the valley of the Dan-
ube to Constantinople and southern Greece, you have regions where
thousands of conflicts may break out, beginning today by the murder
of a frontier guard or the desecration of the flag and easily ending
tomorrow in a terrible war. Today all these countries are tired of
this state of affairs. They long to be at last delivered from this in-
tolerable position. They know that they have many problems that
are almost insolvable psychologically through direct negotiations
and wish to find methods other than violence and direct action to
solve these problems. In general they are small nations of whom M.
Briand yesterday spoke so eloquently ; they want nothing but peace
and security and that is why the Czecho-Slovakian Government, as
one of these nations, insisted so urgently upon the idea of arbitra-
tion and the policy of the Protocol.
At the same meeting of the Council, March 12, 1925, Mr.
Chamberlain read a statement on behalf of the British Govern-
ment definitely refusing to accept the Protocol. In this important
memorandum the British Government raised two objections ; the
first went to the deep root of the matter : the British Government
was unwilling to agree to compulsory arbitration; it was un-
willing to undertake to accept the processes of "law" in all dis-
putes. This is the sacrifice of the privileges of power which the
Protocol called for from all strong nations ; the British Govern-
ment under the direction of the Conservatives was unwilling to
pay this price for peace.
The general problem of arbitration will be considered in an-
other volume of this Survey. Here it is enough to point out that,
while the British Government has been willing to go much further
GENEVA 513
than our own in accepting general arbitration obligations, it
was not willing to go to the limit required by the Protocol. The
British memorandum referred to a statement previously made on
behalf of the British Government in regard to the compulsory
jurisdiction of the Permanent Court of International Justice at
The Hague ; the British Government had not been willing to sign
the optional clause recognizing the compulsory jurisdiction of the
court and, as is interesting to note in view of points to be discussed
later, it explained this refusal on the ground that the laws of the
sea were so unsatisfactory that the British Government could not
foresee the action which such a court might take in questions which
might involve its interest as a great maritime and naval nation.
The British memorandum also objected to the amount of space
which had been given in the Protocol to the organization of sanc-
tions to be brought into operation against an aggressor nation.
This is a point of view familiar in our own country, as many
Americans desire to find some way to outlaw war without accept-
ing any responsibilities for police action against the outlaw. But
the British memorandum did not go as far in this direction as
some of our advocates of verbal outlawry ; it did not so much
object to the idea of sanctions as point out that it was unwise to
elaborate the machinery for the application of sanctions unless
there were reason to believe that they could be applied in practice.
The memorandum pointed out forcibly that in the absence of the
United States from the League there was grave doubt as to
whether the economic sanctions provided for in the Protocol could
be put into effective practice: there was no assurance that the
American Government would recognize a blockade against an out-
law, and if it should insist on its traditional right as a neutral to
trade with both sides in the controversy, any attempt to enforce
the sanctions of the Protocol would put on the British Empire the
responsibility for cutting maritime communications between the
outlaw nation and the economic assistance which it could secure
in the United States. This involved a risk of conflict with the
United States which the British Government did not care to as-
sume. Unless the United States would promise not to assist the
highwayman, the British Government did not want a job on the
police force.
514 AMERICAN FOREIGN RELATIONS
After reading this memorandum Mr. Chamberlain added the
following statement which has been the subject of considerable
controversy :
His Majesty's Government have found it impossible, in the time at
their disposal, to confer personally with the representatives of the
Dominions and of India, who are also members of the League, but
we have been in telegraphic communication with them, from which
it appears that the governments of the Dominion of Canada, of the
Commonwealth of Australia, of New Zealand, of the Union of South
Africa, and of India, are also unable to accept the Protocol. Their
views will be made known in such a manner as they may think fit
either by a communication to the Secretariat, or to the Assembly,
or otherwise.
I am not yet in possession of the views of the Irish Free State.
This statement illustrates one of the problems involved in the
transformation of the old British Empire into the British Com-
monwealth of Nations. The new British Government had, in fact,
invited the Dominions to send delegates to an imperial conference
in London to discuss the Protocol and they had with one accord
made excuses for reasons which had nothing to do with the Pro-
tocol. The Dominions had an opportunity to make known their
views in the matter at the Assembly in the following September.
The only one of the Dominions to take part in the discussions of the
Protocol at that time was Canada ; her delegate stated that while the
government of Ottawa found certain objections in the Protocol as
drafted, it was prepared to go considerably further toward
compulsory arbitration than the mother country. The feeling
that the British Foreign Minister had not adequately expressed
the attitude of the Dominions on the Protocol was not an incon-
siderable element in their decision to secure direct representation
on the Council ; the Irish Free State, in fact, was ready to accept
the Protocol and was with difficulty persuaded not to do so.
In the latter part of the British memorandum the statement was
made that while the British Government could not accept the Pro-
tocol as a whole it was not content with such a negative state-
ment, and, referring indirectly to the proposals for a Rhine Se-
curity Pact, which had been made by Germany in February, said
GENEVA 515
that it would be willing to consider such obligations in a smaller
and more sharply defined area. The German proposal in the form
in which it had originally been made was plainly unacceptable to
the French. It appeared to be a German offer to make peace with
France, and for Germany to compensate herself for her western
losses by frontier changes in the east at the expense of France's
allies, Poland and Czechoslovakia. Even with the formal statement
of the British Government that it was prepared to support
this proposal, there was no general hope of success. But forces,
which were pushing toward peace, were stronger than appeared
on the surface.
The Sixth Assembly of the League in September, 1925, took a
step of considerable importance in recommending the creation of
a preparatory commission to deal with the technical questions
which would be involved in any general disarmament conference.
A provision was inserted in the Protocol that in the event of
unanimous ratification a general disarmament conference should
follow almost immediately ; this had been rendered impossible by
the action of the British Government ; but, as the French delega-
tion pointed out, if a general disarmament conference should meet,
its work would be greatly prolonged by the necessity of studying
purely technical problems. That the political situation of Europe
was not ripe for the immediate calling of the conference was evi-
dent, but it was hoped that sooner or later this would be possible,
and, in the meantime, it would be possible to proceed with these
technical studies so that, when at last a political conference con-
vened, time would not have to be wasted on these details. The
discussions of the Sixth Assembly showed clearly that the pro-
posed preparatory commission was not to be a meeting of political
plenipotentiaries who would have the duty to sign a treaty and
commit their governments to any policies ; on the contrary, it was
to be a conference of experts who, their minds free from political
considerations, could study the technical aspects of disarmament
and clear the ground on which any general treaty should be based.
In November one of the most remarkable and important con-
ferences since the war was held in the little Swiss town of Locarno.
Even those who were most hopeful of some success were amazed at
516 AMERICAN FOREIGN RELATIONS
the speed with which the conference accomplished its purposes.
The important achievement, from the point of view of disarma-
ment, was a real increase in the sense of security in Europe ; the
fall of the armament thermometer in France — the reduction of
military service from three years to one — shows to what extent the
fever was reduced. Germany and France agreed definitely not to
engage in war on their common frontier and to refer to pacific
settlement any controversy of any nature which might arise be-
tween them. England, Italy, and Belgium joined in the guarantee
of this treaty, pledging their whole resources against either of the
two nations which might break the covenant. Of almost equal im-
portance were the treaties in regard to eastern Europe, although
they did not go quite so far and were guaranteed only by France.
In effect Germany agreed not to attempt to alter her eastern
frontiers by force of arms. The relaxation of European tension
which followed the ratification of these treaties was remarkable.
It is interesting to note that while the original proposal of the
German Government in February had borne little resemblance to
the Protocol of Geneva, the negotiations throughout the follow-
ing summer had constantly come closer to it. The Locarno ac-
cords borrowed heavily from that document not only in spirit
but also in phraseology ; what the Fifth Assembly had attempted
to do for all the world, the Powers which gathered at Locarno did
for a definite and limited area. Indeed, the arguments which the
British Government had raised against the Protocol were almost
equally cogent against the Locarno accords. While it is true that
the British Government did not agree to compulsory arbitra-
tion at Locarno, the conference there, under the presidency of Mr.
Chamberlain, prescribed that medicine to France and Germany.
Whether the British Government can refuse the same medicine is
doubtful. The question of sanctions is the same ; the danger of a
conflict with the United States over the question of neutral trading
rights is identical in the two cases ; and while the British Govern-
ment felt that it could not accept the Protocol because it had not
secured the agreement of the Dominions, it signed and ratified the
Locarno accords without even consulting the Dominions.
CHAPTER THREE
WASHINGTON
THE AMERICAN NAVAL SITUATION
AFTER the Civil War, our navy dropped into neglect and
obscurity. The decades which followed are the subject of a
section in A Short History of the United States Navy, by Clark,
Stevens, Alden, and Krafft of the faculty of the U.S. Naval
Academy, entitled "The Period of Naval Decay": "... for
twenty years the United States had not a single armored ship.
During the administration of President Hayes our navy was in-
ferior to that of any European nation ; even Chile's two iron-clads,
if properly handled, would have been more than a match for all
our ships combined. The year 1881, when Garfield succeeded to
the presidency, marks the lowest point to which the navy has ever
sunk." The fleet which President Garfield reviewed comprised "the
best dozen vessels in the navy at that time ; they were all built of
wood, and included not only the side-wheel steamer Powhatan, a
relic of the forties, but also the ancient frigate Constitution!"
The Act of August 5, 1882, called for "two steam cruising
vessels of war . . . steel . . . said vessels to be provided with full
sail power." But Congress neglected to vote any appropriations.
The Act of March 3, 1883, provided for the first of "the White
Squadron," the Chicago, the Boston, the Atlanta, and the Dol-
phin. The Charleston in 1885 was our first warship to abandon
sail power and to use only military masts. In 1890 Congress au-
thorized the first battleships — the Indiana, the Massachusetts,
and the Oregon. Professor Alfred Dennis's Adventures in Ameri-
can Diplomacy, covering the years from 1896 to 1906, describes
the problems of foreign policy which caused succeeding adminis-
trations to give increasing attention to the navy. The Spanish War
in 1898 focused public interest on the navy and made possible the
relatively large appropriations for its upbuilding. Yet problems
on land were the principal preoccupation of the American people
in those days, and it was not urjtil we began to feel the vexations of
the World War that public opinion turned any large part of its
518 AMERICAN FOREIGN RELATIONS
attention to the problems of the sea. These vexations were very
real and of two kinds — material and moral.
First of all, the realization was forced on us with startling
vividness that much of our overseas commerce was being carried
in foreign bottoms. Almost all the British merchant marine was
mobilized for war purposes, and neutral ships were laid up in
harbor or could be chartered only at exorbitant rates. At that time
we were exporting about one-tenth of our production of goods ; 5
per cent went to European markets and the other 5 per cent to
Latin America and the Orient. This one-tenth touched vital
American interests, primarily agricultural in nature. Before the
war in Europe was a week old, this export trade was completely
disorganized. The first shock to our economic structure was not
due to the blockade enterprises of the belligerents, and only in-
directly to our lack of warships, but mainly to the fact that
those common carriers on which we had relied had gone on
strike, and that we had no mercantile marine of our own to carry
our trade.
This was the first phase. When efforts were made to straighten
out this disorder, to persuade neutral ships to carry our goods, or
by purchase to secure our own ships, we came directly into conflict
with the belligerents who, as far as it was in their power and by
every means at their disposal, sought to force us to trade with them
and boycott their enemies.
Keen analysis is necessary to understand the events of those
days. As far as the British were concerned, most of the American
resentment focused on the Admiralty ; but for many of the vexa-
tions we suffered, the Admiralty were not to blame. It was not
their fault that our merchant marine was inadequate ; we had no
right to protest when they mobilized their merchantmen for war
purposes; and it is still the custom to give the Admiralty more
credit for the blockade than they deserved — we and their enemies
suffered more from the civilian Enemy Trading Act and Black
List.
Never since the days of the Napoleonic era had we been ordered
about so unceremoniously ; never had our diplomatic correspond-
ence been so cavalierly treated. It appeared that "unarmed neu-
WASHINGTON 519
trality" had no rights that any belligerents held worth respect.
This was more than a material loss, it touched the nerve complex
that has to do with self-respect. It made a deeper impression at
the time and left a more durable memory.
In the absence of any explicit agreements and of sanctions
against lawlessness, international law is at the mercy of national
policy. The British, during their long period of neutrality from
the fall of Napoleon to the World War, had established a definite
theory of their rights as neutrals, and most of our protests were
based on their violation of their own precedents, as in the "bunker
coal" dispute.
With this background of extreme irritation at the high-
handed disregard by the belligerents of what we considered our
rights the preparedness movement got under way. At first
it was frowned on by the administration, but at last Wilson
became reluctantly convinced that arguments unsupported by
force were futile ; in his St. Louis speech of February 3, 1916, the
President came out for "incomparably the most adequate1 navy
in the world," and in August of that year, Congress voted the
largest naval appropriations in its history.
Apparently the General Board had not had in mind, when
they were planning the 1916 program, the eventuality of a war
against Germany. For, as soon as we went into the war in associa-
tion with the Allies, work on the 1916 program was stopped and
our shipbuilding facilities were strained to the utmost on work
which had some relation to the war going on.
What was needed in that crisis were food ships to risk the sub-
marine blockade and small swift craft to fight submarines. The
larger units of our navy joined the British fleet in the North Sea,
but were not called upon to go into action ; our smaller craft co-
operated effectively in mine-laying, hunting U-boats, and in
escorting our convoys.
After the armistice the cordial cooperation that had marked
i The term "adequate" requires an object. Neither in Wilson's use of the word
nor in Mr. Coolidge's recent use of the word "needful" is there a suggestion of the
national purpose to which the navy is to be adequate or for which it is needed. The
use of the euphemism "adequate" disarms the criticism that attaches to the de-
mand for a large navy.
520 AMERICAN FOREIGN RELATIONS
the relations between the British and American navies came to an
abrupt end. The British, who had welcomed our shipbuilding ac-
tivity during the war, could not, after the surrender of the Ger-
man navy, regard the maintenance of a large American mercantile
marine and navy with the same enthusiasm. If the American an-
nouncement of the plan for an "incomparable" navy was boast-
ful, the tactlessness with which certain British sea lords advised
our naval authorities to give it up was no more likely to increase
Anglo-American good will among the experts. Foolish threats
were exchanged ; while the political heads of the Allied and Asso-
ciated Powers were preoccupied with trying to make peace with
Germany, the English and American admirals pounded the table
in a typical experts' quarrel.
This seems the most plausible explanation of the fact that the
American 1916 program, which had been shelved during the war,
was revived as soon as Germany had been defeated. Between 1918
and 1921, the keels authorized by the 1916 program were laid.
The General Board of the navy asked for more ships and in their
report of September 24, 1920, advocated the building of "a navy
equal to the most powerful maintained by any other nation in
the world." There is a certain disingenuousness in this plea, for,
as Mr. Buell notes in The Washington Conference:
The mere equality of the British and American fleets would prob-
ably mean the loss of British sea supremacy because the British
Empire is scattered throughout the whole world. The American navy
has to defend, with a few insignificant island possessions, only two
long easily defensible coast lines, and is able to strike as a unit,
whereas the British fleet ordinarily must be divided into different
squadrons.
It is impossible to make any definite statement of what would have
happened in the naval competition of America, Britain, and
Japan, if the Washington Conference had not taken place.
By 1921 the British had not yet taken up the challenge which
our revival of the 1916 program had thrown down. They had not
started to build any capital ships since the war. Weeding out the
old-fashioned ships, they were spending considerably less on their
WASHINGTON 521
navy than before the war. Although far ahead of us in 1921 in
capital ships, they were not building new ones, and, according to
some estimates, we should have drawn up to them, perhaps sur-
passed them, by 1924 ; we should certainly have overtaken them in
battleships in a few years unless they had begun to build feverishly.
The situation in Japan was different. To them our guns seemed
pointed in their direction. Their naval appropriations went up
from $85,000,000 in 1917 to $245,000,000 in 1921. This was one-
third of their budget. And if the "Eight-Eight Program" had been
carried out till 1927, the annual expenditure of Japan would have
reached an estimate of $400,000,000. At this rate, if we had
wanted to keep anything like a 5-3 ratio with Japan, we should
have had to expand our building program considerably.
THE INTERNATIONAL POLITICAL SITUATION
IN 1921, on the eve of the Washington Conference, the expres-
sion was current in this country and abroad : "The next war will
be in the Pacific." The storm center seemed to many to have
shifted from war-torn and war-weary Europe to the broad ocean
which forms the frontier between the Americas and Asia. Real
causes of dispute were involved and the drift seemed toward their
aggravation.
Two questions, immigration and the "Open Door," were a
source of chronic irritation between the United States and Japan.
These two irritations were extremely aggravating to the island
kingdom. Our policy of excluding certain races hurt the Japanese
in their pride — "an emotional area"; the policy of the "Open
Door" in China impeded their economic aspirations — "a pocket-
book area."
A modus Vivendi in regard to immigration had been reached with
the Japanese under the Roosevelt administration by the Root-
Takahira Agreement, popularly called "The Gentlemen's Agree-
ment." Never having been published, nor reduced to a con-
cise document, it was in fact a thick dossier of correspondence.
It was later summarized in a manner which was acceptable to
522 AMERICAN FOREIGN RELATIONS
the Department of State in a letter from Ambassador Hanihara to
Secretary Hughes. But this "Gentlemen's Agreement" was merely
a stop-gap ; never having received the sanction of the Senate, it
had no legal validity. Toward the end of the Wilson administra-
tion, Roland S. Morris, our ambassador at Tokio, was called home
to discuss the bases of a more stable solution of the problem with
Baron Shidehara, the Japanese ambassador at Washington. The
Japanese, not fully appreciating the constitutional instability of a
"Gentlemen's Agreement," preferred some such informal ar-
rangement to any formal treaty in which they would publicly
accept a status in any way different from that of other races.
"Racial equality," while probably meaning relatively little to the
more realistic ruling class of Japan, had become a slogan of pub-
lic opinion which they could not ignore. Some progress had been
made toward finding a formula which was acceptable to both
governments and which might have served as the base of a treaty
to be submitted to the Senate for ratification, when the Morris-
Shidehara conversations were interrupted by the change of ad-
ministration. Whether or not the matter could have been finally
and amicably settled in this manner would, of course, have de-
pended on the action of the Senate. No effort was made by the new
administration to continue negotiations along this line ; the fail-
ure to do so must have seemed to the Japanese Government to
indicate a new policy, possibly less friendly.
The "Open Door" policy did not affect the emotions of the
Japanese people to the same extent as immigration, but it more
nearly touched the ambitions of the ruling class. The need of
Japan for free access to raw materials and food, not to be found
on her cramped island home, is as imperative as that of Eng-
land. Most of the needed raw materials are procurable on the
mainland of Asia in territory under either Russian or Chinese
sovereignty. Japan's enterprise on the continent, political and
economic, had centered in Korea and in Manchuria, outside the
Great Wall of China, where her victorious campaign against Rus-
sia had been fought.
When John Hay announced the policy of the "Open Door," it
was directed primarily against the colonizing ambitions of Euro-
WASHINGTON 523
pean Powers. It included Japan, of course, but was not directed
specifically against her, yet in the course of time it had become
more and more a matter of controversy with the Japanese. A large
part of the pre-Washington Conference correspondence in the De-
partment of State, which might be filed under the heading "Open
Door," had to do with alleged attempts of Japan to close the door
in Manchuria on our trade.
When the war was over, attention in Europe and America was
called to what appeared to be the great expansion of Japanese am-
bitions in Asia. More of the province of Shantung had been occu-
pied than was necessitated by military operations against Ger-
many. At the Peace Conference the Chinese delegates protested
vigorously against the Twenty-one Demands, which Japan had
presented at Peking in 1915 in the form of an ultimatum, and
which China had in part accepted. Japan had greatly increased her
garrisons in Manchuria and had maintained her expeditionary
force in Siberia long after the date justified by the agreement
with the United States on joint intervention. Before the end of
the Wilson administration notes had been exchanged on this sub-
ject between Washington and Tokio, which, though eventually
successful, were so sharp in tone that the lack of cordiality be-
tween the two governments had been published. It seemed to the
Japanese that the American Government was consistently op-
posing their legitimate aspirations on the mainland of Asia and
was increasing the striking power of our navy at great speed.
The revival of the controversy over sea law during our period of
neutrality, the refusal of the British statesmen at the Peace Con-
ference to discuss the "freedom of the seas" and the attitude of
some of their admirals toward our naval program — these factors,
added to increasing uneasiness over the situation in the Far East,
had given American opinion new reasons for scrutinizing the
Anglo- Japanese Alliance.
This document had been revised at one of its renewals by the
British in such a way as to free them from any obligation to come
to the assistance of Japan in case of a war with the United States ;
this should have been sufficient to relieve us of anxiety on this score
as long as our relations with the British Empire were cordial, but
524* AMERICAN FOREIGN RELATIONS
if the naval controversy with Great Britain should grow in bitter-
ness, the understanding between London and Tokio would become
of more serious import.
That the two things were closely interlocked was obvious. A
"f orward" naval policy on our part, menacing at the same time to
Great Britain and Japan, was the surest method of revitalizing
the Anglo-Japanese Alliance and of putting teeth into it.
A cross-current of great importance set in at this point to our
advantage. The British Dominions in the Pacific, which were con-
tinually exerting more and more influence in the foreign rela-
tions of the Empire, were definitely opposed to the Anglo-Japa-
icse Alliance. This was a striking illustration of the not infrequent
circumstances in which the obvious interests of some of the Do-
minions are much closer to our own than to those of the mother
country. The exclusion of oriental immigration is as burning a
juestion in Canada and Australia as it is in California. Australia
tnd New Zealand cannot imagine any source of attack except
Japan ; their immigration policy is in some ways more rigorous
;han our own, and has created intense feeling at Tokio. At this
itage Mr. Hughes, the Premier of Australia, made a public
tatement in which he said that the people of Australia welcomed
he news of every battleship that was laid down in the shipyards of
he United States. At a time when the British Admiralty regarded
he growth of our navy as a possible danger, British subjects in
he Pacific dominions felt that every accession to American naval
>ower was an added guarantee of their safety in the face of "the
)riental menace."
THE DOMESTIC POLITICAL SITUATION
["HE administration which was just beginning under President
larding, in framing its plans for the Washington Conference,
tad to consider not only questions of international policy but
,lso the domestic political situation.
Harding, during the electoral campaign, while stating that he
rould not continue the foreign policy of Wilson, had promised the
ieople that he would not be second to Wilson in his desire for peace
WASHINGTON 525
and that it would be his purpose to discover practicable ways to
serve that cause.
The circumstances of the election of 1920 made it possible for
the extreme advocates of isolation to persuade the new administra-
tion that the overwhelming victory of the Republican party was
an endorsement of their anti-League doctrine. President Harding
was therefore in an embarrassingly negative position. Forbidden
to do certain things by his friends in the Senate and by the posi-
tion of his party, stated in the Republican platform of 1920, it
was difficult to find any positive alternative action.
At the same time popular sentiment in the United States was
insistent that something should be done to lay the menace of
new wars. The economic structure of the country had been dislo-
cated. It would have been hard in the early days of the Harding
administration to find anyone in America who believed the popu-
lar European legend that we had become rich through the war.
We were faced by the most severe problem of unemployment in
this century ; an economic crisis had disturbed our industry pro-
foundly. Even among those who were not especially interested in
the problem of peace, there was resentment against the financial
waste of building up a tremendous navy after victory. The eco-
nomic argument in favor of stopping competitive armaments was
strong.
Even more vocal was the agitation of those definitely interested
in the cause of peace. Besides the normal criticism from the Demo-
cratic party, there were many persons of the Republican party
who had taken seriously the manifesto of the thirty-one and who
believed that the inclusion of Mr. Hughes and Mr. Hoover in
the new cabinet meant that the administration would follow an
active policy of peace, which would be similar in purpose to that
of the preceding administration even if different in its forms.
Such non-partisan organizations as the Federal Council of the
Churches of Christ in America and the various women's organiza-
tions and the American Federation of Labor were carrying on an
active agitation for disarmament.
The hand of the administration was forced by a remarkable
uprising of public opinion. In December, 1920, Senator Borah
526 AMERICAN FOREIGN RELATIONS
introduced a joint resolution, later section 9 of the Naval Supply
Bill, which was approved on July 12, 1921, urging the President
to invite Great Britain and Japan to a conference for the pur-
pose "of promptly entering into an understanding or agreement
by which the naval expenditures" of the three Powers should be
reduced. The popular response to this proposal was immediate
and emphatic, and newspapers throughout the country fell into
line behind the Borah resolution. Editorial endorsement was
enthusiastic everywhere. All sorts of organizations from cham-
bers of commerce to mass meetings of citizens passed resolu-
tions in favor of the reduction of armaments. A monster petition
was organized in St. Louis, reminiscent of the enthusiasm of the
war days and the methods of the various patriotic "drives": a
great dial was set up in a public square, and a clock hand moved
forward at every thousand signatures; as every ten thousand
names were added a special courier was sent to Washington. The
intensity of public interest was registered by the unprecedented
vote in Congress, The Borah resolution passed the Senate on
May 26, 1921, by 74 to 0; it passed the House on June 29 by
330 to 4.
Under such emphatic urging the administration proceeded to
call a conference, and it was decided to take up questions concern-
ing the Pacific and Far East, in the hope of diminishing the danger
of war by dealing with some of its more specific causes. This policy
of treating the problem of armaments as part of a larger complex
of political relationships was in line with the theory of armaments
that was developing at Geneva, and in marked contrast to that
later adopted by the Coolidge administration in 1927, when the
limitation of naval armaments was considered as a technical prob-
lem.
THE CONFERENCE
THE formal invitations to the Washington Conference were is-
sued on August 11, 1921, and were accepted promptly. As far as
the Great Powers were concerned, preliminary and informal
communications had given our government assurance that the
invitations would be welcomed.
WASHINGTON 527
Five Powers were directly interested in the naval question, the
British Empire, Japan, France, Italy, and ourselves. To this
number had been added, as Powers interested in Far Eastern ques-
tions, Belgium, China, Holland, and Portugal. Russia was not in-
vited because the United States has not recognized her existing
government.
On armistice day there were elaborate ceremonies at the grave
of the unknown soldier in which the delegates participated. The
next morning the conference was opened by President Harding
in the Memorial Hall of the Daughters of the American Revolu-
tion. After a short speech of welcome from the President, Mr.
Hughes, elected chairman of the conference, made a proposal for
scrapping battleships whose concreteness and sweeping character
startled the world. No other conference on the limitation of arma-
ments had ever opened with so ringing a challenge. The most hope-
ful had expected that he might propose to stop new building, but
in fact he proposed clearly defined reduction — the scrapping of
existing ships and the limitation of battleship strength to a definite
ratio. His position was so strong, American naval supremacy was
so inevitable if his proposal should be rejected, that his program
was at once accepted in principle.
The attention of the public was focused on the battleship prob-
lem by this opening speech; few people realized at the time the
immense amount of negotiation which occupied the delegates on
other subjects. The official minutes of the conference, published
some months after the adjournment, tell only part of the story.
There were seven plenary sessions of the conference (November
12, 15, 21, December 10, 1921, February 1, 4, 6, 1922) ; the Com-
mittee on the Limitation of Armaments held twenty-one sessions,
and the Committee on Far Eastern Questions held thirty-one.
This represents what might be called the "official" work of the
conference; there is no record of the number of meetings re-
quired to arrange for and draft the Four Power Pacific Pact,
which was substituted for the Anglo-Japanese Alliance, nor do
the minutes give any details of the negotiations leading up to the
Sino- Japanese accord in regard to Shantung.
Inevitably the "official records" of such conferences are the
528 AMERICAN FOREIGN RELATIONS
barest of bones ; the student who wishes to clothe them with flesh
must turn to other sources. Most difficult is it to reconstruct the
play of personality; of perhaps greatest importance, although
most difficult to measure, was the impression which Mr. Hughes
succeeded in creating, that the United States desired to cultivate
friendly relations with her neighbors.
The situation that arose in the Senate as a result of the ne-
gotiations of this group of treaties was interesting. There was,
of course, opposition to the Hughes policy. Elements in public
opinion which are chronically hostile either to the British Empire
or Japan were loud in their denunciation of what they described
as "the surrender." Men whose lives had been spent in the de-
velopment of the navy inevitably regretted the scrapping of ships
already launched or near completion. Men who had long been
vainly urging Congress to fortify our Pacific islands cried out
against the agreement in regard to naval bases, the voluntary re-
linquishment of their dreams of a Far Eastern Gibraltar. But
public opinion was so overwhelmingly in favor of the program that
there was never serious doubt that the necessary two-thirds vote
in the Senate would be secured.
In fact, it would have been easily possible to secure an almost
unanimous vote, but, according to Senator Lodge, this was not
good strategy. Senator Lodge wished the conference to stand as
a Republican success in the sharpest possible contrast to the
Democratic failure under Wilson; he needed a few Democratic
votes to make up the necessary two-thirds majority, but he wished
to prevent the party from uniting in support of the treaties. It
was the kind of parliamentary manoeuvering at which Lodge was
a past master ; whenever there was a menace that too many votes
might come from the Democratic side, he was able to let fly a
barbed arrow that drove the unwelcome support back to the
opposition, With an experienced astuteness Senator Lodge finally
secured the ratification of the Washington treaties by the narrow
margin he desired ; public approval of the results of the conference
was much more general than the Senate vote would indicate.
WASHINGTON 529
THE RESULTS OF THE CONFERENCE
To attempt at so early a date any definitive evaluation of such a
conference as that which was called in Washington in 1921 is im-
possible ; only the passage of time can give a proper perspective,
but certain aspects of the conference deserve comment, as it is
important to watch their effect on the development of American
foreign policy.
There was a real limitation of competitive building and a sweep-
ing reduction of tonnage in the battleship category. Limitations
were set on the size and number of aircraft carriers, and the
maximum size and caliber of guns were fixed for cruisers. Many
have found it easy to belittle these results, but most of the criti-
cisms should have been directed to the overenthusiastic assertions
made ; the general public believed that a complete agreement had
been reached with the British on our interpretation of "equality"
and that all danger of naval competition had been eliminated.
Nothing in the treaties negotiated at Washington, nor in the
published minutes of the conference, warranted such assertions.
What was accomplished was definite and satisfactory ; if the con-
ference had not met, the expensive competition in capital ships
would have continued.
The fact must not be forgotten that for the first time in history
it proved possible to arrive at an agreement on ratios for the
limitation and reduction of armaments among competing nations.
The conference method is receiving great attention at Geneva, but
no other single conference has produced as many tangible results
in the campaign against excessive armaments as those which, owing
to a fortunate combination of political circumstances, were at-
tained at Washington.
Much more was accomplished at this conference than the direct
limitation of armaments. The discussions in regard to the ques-
tions of the Pacific were not followed as closely by the general
public as those about "scrapping warships," but to diplomatic
opinion they seemed more important, and the amicable end-
ing of the Anglo-Japanese Alliance and the substitution for it
of the Four Power Pacific Pact excited the most interest in the
530 AMERICAN FOREIGN RELATIONS
chancelleries. The old alliance had been a promise to cooperate in
war; the Four Power Pact was a pledge to cooperate for the
preservation of peace. While this treaty did not go so far in its
commitment and was not nearly so explicit as some of the security
pacts, such as those of Locarno, which have been negotiated in
Europe, it was of the same nature, and by increasing the sense of
security in the Pacific, profoundly altered the strategical problems
in that area and cleared the way for a reduction of naval forces.
The government of Japan was deeply interested in Article XIX
of the treaty, "limiting naval armaments" — in the opinion of some
authorities, more interested than in any other part of the nego-
tiations. This article, providing for the maintenance of the
status "with regard to fortifications and naval bases" in the Pa-
cific, was of greater strategical importance than was generally
realized in America. Such fortifications and naval bases as we had
in the Pacific were, in their condition in 1921, of little use to us
and no menace to Japan. There was a steady agitation in favor
of developing these naval bases; Congress was asked at every
session to appropriate money to turn Guam or some other island
of the Pacific into "a Gibraltar of the Far East." Congress had
refused to vote the appropriations, but the possibility remained a
potential menace in Japanese eyes. A somewhat comparable situa-
tion would arise in the United States if public agitation in Eng-
land were carried on in favor of turning the Bermudas into "the
Gibraltar of the New World." The agreement of our government
definitely to renounce the development of these far eastern naval
bases seemed a demonstration to Japanese eyes that we were har-
boring no plans of aggression against them. It won their good
will and made possible the Four Power Security Pact and the
"scrapping" of battleships.
Of almost equal importance in relieving the tension over far
eastern questions was the successful negotiation at Washington of
the Sino-Japanese agreement in regard to Shantung. The com-
plicated details of this matter will be part of the setting for a
treatment of far eastern problems in another volume of the Survey.
The Shantung question affected the United States and the prob-
lem of naval limitations through its relation to the principle of
WASHINGTON 531
the "Open Door." The Chinese maintained, both at the Peace
Conference and at the Washington Conference, that the presence
rf the Japanese military forces in Shantung was a violation of
their territorial integrity and of the "Open Door" doctrine, and
called upon us either to admit that we abandoned this doctrine or
to enforce it against the Japanese. Fortunately Mr. Hughes was
stble to bring the two parties together in a separate negotiation
luring the conference ; their agreement saved us from the dilemma
tfhich the more bellicose Chinese were trying to force upon us.
The complicated negotiations which led to the two nine Power
treaties and half a score of resolutions in regard to Chinese affairs,
while momentarily relieving the tension in the Far East and of-
fering some hope of more permanent adjustments, did not work
mt as well as was expected. The promise of aid to China in regard
bo the Chinese tariff and the examination of the extraterritorial
regime was not kept on scheduled time, partly due to postpone-
ment on the part of the signatory Powers, partly to the increasing
shaos in China.
Another point that deserves attention was the beginning of
*, misunderstanding with France, largely due to French miscon-
ception of the situation, which has had a not inconsiderable effect
m the later development of the movement for the limitation of
irmaments. It appears from comment in their press, from speeches
nade in their Chamber, from the actions of their delegates at
Washington, that their government had felt that an armed
struggle for control of the Pacific was imminent, that the talk of
laval disarmament had little reality and that the real purpose
>f the United States in calling this conference was to marshal the
white world for an inevitable conflict with the yellow races. The
French therefore expected to obtain large compensations in
return for their support against Japan. The only compensa-
tion they thought adequate for disturbing their friendly rela-
tions with Japan was acceptance by the new administration of
the security pact signed by Wilson in Paris by which Great
Britain and the United States pledged their support to France in
mse of an unprovoked aggression by Germany. They were dis-
illusioned and perhaps wounded in their pride to find that the
532 AMERICAN FOREIGN RELATIONS
American Government was not seeking their support against
Japan. The French delegation failed to present their position to
the American people as effectively as they might have done ; the
public statement made by M. Briand in a public session of the
conference was addressed primarily to his political opponents at
home and had the appearance of definitely rejecting any discus-
sion of the reduction of armaments on land. This impression was
not overcome by the later publication of the minutes of the pri-
vate sessions, which show that the French would have been willing
to discuss the reduction of their land forces if the British and
American governments had been willing to share with them the re-
sponsibility of preserving the peace in Europe.
There was, however, little disposition on the part of the Ameri-
can delegation to try to understand the French position or to
take their problems seriously ; from the American point of view
the important aspect of the conference was our relations with
Britain and Japan. Mr. Hughes felt no urgent need for French
cooperation except in the Four Power Pacific Pact ; this was first
proposed by the British and the Japanese as a three Power ar-
rangement, but Mr. Hughes did not wish to be placed in such a
triangle and insisted on broadening the agreement to include
France. This appears to have been the only point on which Mr.
Hughes expected to need French assistance.
If the French failed to understand the spirit of conciliation in
which we wished to approach the problems of the naval balance
with Great Britain and Japan and the questions of the Far East,
the American delegation and expert naval advisers equally failed
to appreciate the French attitude toward the relation between land
and sea armaments and their interests in the Mediterranean. The
French position made it impossible to extend the ratios which
were accepted for "capital ships" to "cruisers" and other "auxil-
iary craft.'5 This was not only a disappointment to our delegation,
but also a surprise. That this disappointment should have been
reflected in the press in bitter attacks on French "militarism" is
perhaps not unnatural, but that it should have appeared in the
tone of the official communiques from the secretariat of the con-
ference was painful to French susceptibilities.
WASHINGTON 533
Unfortunately, the French, largely owing to their failure to un-
derstand the psychology of the situation, and partly owing to the
concentration of the American Government on problems of little
interest to them, felt themselves slighted and their legitimate in-
terests ignored, and this misunderstanding has made the French
reluctant to accept any suggestion from the American Govern-
ment of a renewal of negotiations on the basis of the Washington
Conference; the circumstance is to be remembered in connection
with the French reception of the later proposal for a naval con-
ference at Geneva in 1927.
To sum up : though the Washington Conference did not do all
that was asserted at the time, though it did not put a definite end to
competition in naval armaments, though it did not "settle" the
affairs of China, it did arrive at a limitation and a considerable
reduction in certain categories of warships; it had a more defi-
nite success in this field than any other attempt; it resulted in
sweeping readjustments of the political alignments in the Pa-
cific area; it freed the United States from an auto-intoxication
of apprehension of the Anglo-Japanese Alliance from which she
had long suffered on the Pacific coast ; it relieved the Japanese of
apprehension about American naval bases in their neighborhood,
and so greatly reduced the tension in that part of the world that
it no longer was the fashion to say : "the next war will be in the
Pacific." Only when judged from the standard of the too exu-
berant assertions which were made at the time can it be said to
have in any way failed; judged fairly, from the basis of other
similar attempts, it was a notable success.
OTHER ATTEMPTS AT DISARMAMENT
THE success of the Washington Conference on the Limitation
of Naval Armaments was so impressive that other efforts were
made more or less on its model.
During 1922 the Soviet Government issued an invitation to
its neighbors, Poland, Finland, Esthonia, Latvia, and Lithua-
nia, to a conference at Moscow in December. Although this con-
ference was a complete failure, owing to the intense political
suspicion with which these border states regarded their great
534 AMERICAN FOREIGN RELATIONS
neighbor, it developed some points of world interest. The elaborate
plan presented to the conference by the Russian Government dealt
only with land armaments and only on the base of their peace-time
establishment; there was no discussion of the political problems
involved in security. The Russian proposal was simple and con-
crete : the existing standing armies, which varied from 800,000 in
Russia to 16,000 in Esthonia, were to be reduced to one-quarter
of these figures ; it was further proposed that the signatory Powers
should all agree upon a fixed "rate of expenditures for each man
under arms." The Moscow conference broke down nominally be-
cause of the difference of opinion in regard to the wisdom of ex-
cluding naval armaments, the refusal of the Russians to discuss
the problem of armament production, and the arbitrary character
of the suggested budget limitations ; the real reason was mutual
distrust.
On the invitation of the American Government, a conference
of the five Central American states met at Washington on De-
cember 4, 1922, and continued in session until February 7,
1923. Among the items on its agenda was the problem of ar-
maments. This conference was highly successful, and while the
problems faced were relatively simple, it is interesting to note
that the procedure in regard to the discussion of armaments
was of the kind which has been advocated in the development
of the disarmament movement at Geneva and which proved
successful at Washington. The matter of disarmament was con-
sidered in close connection with its political background. More
than ten separate agreements, ranging from a "General Treaty
of Peace and Amity" to a convention "for the unification of pro-
tective laws for workers and laborers" were drafted and signed.
The disarmament convention was "general" in the sense that it
treated in one document all the aspects of armament, land, sea,
and air, and the traffic in arms. This was a treaty of limitation,
not of reduction of armaments. A definite number was set for the
land forces, ranging from 5,200 men for Guatemala to 2,000 for
Costa Rica. The five republics agreed not to have any ships of
war except coast guard vessels, to limit their air forces to ten mili-
tary planes, and to renounce any use of poison gas or other as-
WASHINGTON 635
phyxiating substance. This was a limitation of armament forces
at a low level. It did not call for any notable reduction of the
existing armed forces of the republics, as the limits set were,
in some cases at least, somewhat higher than the customary Cen-
tral American armies. There is no armament problem facing the
American republics ; there are isolated cases of armament rivalry
between different groups, but the danger of serious competition
could better be met by a series of regional agreements than by any
general treaty.
In 1924, the League of Nations summoned a conference at
Rome in an effort to secure "the extension to the rest of the world
of the principles of the Washington Naval Conference." This
effort failed completely for two distinct reasons: first, it was a
meeting of experts rather than a diplomatic conference, and the
delegates had no authority to consider the political questions which
are inevitably involved in the discussion of armaments ; secondly,
success was made impossible by the demand of the Russian, Ad-
miral Behrens, who, although the Russian navy at that time pos-
sessed hardly a single seaworthy warship, claimed for Russia the
rank of a Great Power on sea as well as on land, and suggested
that Russia should have a ratio of sea power equal to that of Great
Britain or of the United States.
Before President Coolidge announced to Congress in 1927 that
he had proposed a conference at Geneva, no statement had been
made by the executive department of the American Government
to indicate any formal efforts to persuade the signatories of the
Washington treaty to meet again to consider extending its prin-
ciples to other categories of warships, although many examples
could be given to show that the government had felt that progress
might be made along these lines. Some of the naval appropria-
tions bills in Congress, for instance, carried explicit bids for a
new conference and further reduction. The Department of State
has kept its own counsel in this matter.
From time to time since the Washington Conference, there have
been outbursts of discussion in the European press, plainly based
on the assumption that the American Government had made the
suggestion through diplomatic channels that it would be glad to
536 AMERICAN FOREIGN RELATIONS
summon a second Washington conference to extend to the cate-
gories of ships not covered by the first conference the principles
which had been there accepted. A review of the European press at
this time when "a second Washington conference" was under
discussion shows that any such invitation would have met with con-
siderable reserve, if not frank hostility ; and this for several rea-
sons:
(a) All of the European countries, with the exception of Great
Britain, are more interested in land armaments than in navies.
(b) Attention was centering more and more on the disarma-
ment movement at Geneva and the conviction was general that the
problem should be considered as a whole and not piecemeal.
(c) Of greater importance was the almost universal conviction
that a second Washington conference would fail. At the first con-
ference the attempt had been made to secure agreement on ratios
for all categories of ships. It had succeeded in regard to capital
ships and aircraft carriers, but it had failed in regard to auxiliary
craft of every description: cruisers, destroyers, submarines, and
naval aircraft. There were profound political reasons for these
failures. The British faced a problem in the Mediterranean which
interested the United States slightly; that problem hardly
touched capital ships, but seemed to Europe — not only to Eng-
land— vital in the case of smaller ships. Neither France nor Italy
was prepared voluntarily to abandon the control of this sea to the
British ; and the Admiralty in London were not prepared to aban-
don their preponderance in the Mediterranean, simply to reach
agreement with us. This was only the most obvious and most dra-
matic of a number of such local strategical problems, which, after
heated discussion at Washington, made it evident to all that agree-
ment on ratios for auxiliary ships was, if not impossible, exceed-
ingly difficult. As there had been no appreciable progress toward
settling these problems, it was the general conviction in Europe
that a formal discussion of them at Washington would not show
any change in the situation that had already forced the delegates
to abandon them. Some sort of a Mediterranean accord, of a
political nature like the Locarno pacts, is thought to be necessary
before any material reduction in cruiser strength is possible.
CHAPTER FOUR
THE PREPARATORY COMMISSION, 1926
BACKGROUND
THE Preparatory Commission for a General Disarmament
Conference, which began its sessions at Geneva in the spring
of 1926, marked the beginning of official cooperation between
the American Government and the League of Nations on this prob-
lem of disarmament. The work at Geneva up till 1926 has already
been reviewed. The separate American effort, culminating in the
successful Washington Conference, has also been described. From
this point on the two efforts touch at so many points that they can
be considered together.
Reference should be made back to the discussion of the origin
of this Preparatory Commission. It was not intended to be a diplo-
matic conference of plenipotentiaries. The political situation was
obviously not ripe for a successful conference. It was the intention
of the Assembly, in creating this commission, to call together a
group of experts to clear the ground of certain technical diffi-
culties and so to prepare the way for a political conference as soon
as the international situation warranted some hope of success.
AMERICAN PARTICIPATION
THE Council of the League, in accordance with the resolutions of
the 1925 Assembly, worked out a method of procedure for the
Preparatory Commission, and in the hope of directing its work
along fruitful lines, a special committee of the Council drew up an
elaborate questionnaire. A heroic effort was made to separate the
political from the technical aspects of the disarmament problem
and to confine the consideration of the preparatory conference to
the latter ; with the explicit statement that this questionnaire was
not an iron-bound form, it was submitted by the Council to the
Preparatory Commission as a suggestion of the type of technical
problems to be studied.
Two bodies of experts were already in existence whose advice
538 AMERICAN FOREIGN RELATIONS
the Council felt could be utilized by the Preparatory Commis-
sion: the Permanent Advisory Committee on military, naval,
and air matters — the P.A.C. — and the Joint Committee on Dis-
armament ; the first was composed exclusively of military men, the
second contained civilian elements. In order that the non-member
states which were invited to the Preparatory Commission and
which were not represented on these standing committees might
be on an equal footing with the member states, the Council pro-
posed that these two committees be enlarged to include citizens of
the non-member states. For some reason which was not made
clear the American Government objected to this procedure, and
the P.A.C., to meet its wishes, was arbitrarily rechristened "Com-
mittee A."
The Council invited Russia and the United States to send dele-
gates to this Preparatory Commission ; it is evident that the land
armaments of Europe cannot be discussed without consideration
of Russia, and any limitation of naval armaments requires the co-
operation of the United States. For reasons of internal politics
Moscow wished to refuse the invitation, and seized upon the pre-
text of a quarrel with Switzerland ; Washington accepted.
The American Government sent an unusually strong group of
representatives ; the diplomatic head of the delegation was Hugh
Gibson, the American Minister to Switzerland ; the military and
naval delegates, General Dennis Nolan and Admiral Hilary Jones,
outranked the military and naval advisers sent by other countries.
THE WORK OF THE COMMISSION
THE Preparatory Commission held its first session at Geneva on
May 18, 1926. Mr. Loudon of the Netherlands was chosen presi-
dent and the commission at once organized itself for work in com-
mittees and sub-committees. The reports of their discussion of
varied technical aspects of the armament problem are voluminous,
and will be of value for study of the problem in its details, but the
records consist of explicit, often vehement, statements of divergent
and conflicting points of view and show little agreement.
For this disappointing result, the delegates to the commission
THE PREPARATORY COMMISSION, 1926 539
are not solely to blame ; it is now evident that the discussions were
not wisely engaged. The questionnaire method, while of value in
some forms of study, did not prove helpful in this case. The dele-
gates were too deferential to it and might have accomplished more
satisfactory results if they had been left to work out their own
program. Some of the questions which the Council had submitted
to them were unhappily phrased ; in many cases it was impossible
to answer one question without foreseeing the eventual answer to
others.
Moreover, a much more serious difficulty handicapped the Pre-
paratory Commission. The Assembly and Council had tried to
separate political from technical considerations, but these labored
debates showed that this distinction was fictitious and impossible
to sustain. Separated from their political background, the tech-
nical disputes over armaments resembled the scholastic controver-
sies between Abelard and Bernard of Clairvaux.
(a) The commission was asked to determine whether it is pos-
sible to make a sharp distinction between "offensive" and "de-
fensive" armaments. It was too much to ask of the human nature
of army or navy men to consider this problem from a purely tech-
nical point of view and to ignore the political effect of their
answers. In the present state of public opinion the world over,
it would be quite impossible for any General Staff or Admiralty
to secure appropriation for "offensive" armaments; those whose
profession calls upon them to supervise and develop armaments
are well aware that their only argument is national defense, yet
there is strong backing for the strategical dogma : offense is the
best defense. Unable to ignore the political effect on next year's
military appropriations, the commission spent days and days in
futile discussion of this distinction, heroically resisting every
effort that was made to separate goats from sheep, offensive from
defensive arms.
(b) Similarly, it proved impossible for the army men to ignore
the political question involved in the difference between conscript
and volunteer armies. The British and American delegations took
the side that favored nations whose political tendency was in favor
of small volunteer armies ; automatically the delegates from conti-
540 AMERICAN FOREIGN RELATIONS
nental nations which believe that their political stability depends
on universal military service took the other side.
(c) It was also found impossible to rise above the political con-
siderations involved in the difference between land and sea power.
Once more the British and American delegations found themselves
almost always in agreement on questions affecting the relative
importance of land and sea armament, against the continental
delegates who as inevitably took the side of land armaments.
(d) A similar alignment was noticeable in regard to the ques-
tion of "potentials." One of the outstanding lessons of the last
war was the vast importance of a strong organization behind the
armies ; during the first year of the war the direct British military
contribution was relatively small, but the aid which they gave to
their allies in the "invisible" armaments, in "potentials," was of
tremendous importance. This was even more clearly illustrated in
the case of the United States ; for the first year after the United
States entered the war against Germany, the number of her troops
on the battle field was very small, but her aid in "potentials" tre-
mendous and decisive. Inevitably the nations which are weak in
industrial organization feel that potential power should be taken
into consideration in any matter of armament ratios. If a highly
developed industrial country like Belgium were compared with
a country of similar size and population in the Balkans on the
basis of a plan for military equality between them, it would be
necessary to take into account the superior economic resources of
Belgium. As in the case of the discussions of conscript and volun-
teer armies and the similar discussion of sea power and land
armaments, the delegates to the Preparatory Commission de-
fended the positions which politically suited their respective coun-
tries.
The suggestion was made that the vigor with which the British
and American delegations combated the idea of considering po-
tentials was not unconnected with the debt controversy. England
and the United States are asking payment for the contributions
which they made in potentials. Establishment of a close identity
between visible and invisible armaments might permit the French
in the discussions of war debts to bring forward the theory of
THE PREPARATORY COMMISSION, 1926 541
common contribution in the war, men from one country, supplies
and credits from another. It is doubtful whether in England or
America the war colleges would support the position defended
by the English and American delegates at Geneva.
(e) An even more striking illustration of the degree to which
political considerations influenced the discussion of technical prob-
lems at the Preparatory Commission was furnished the next sum-
mer at the Three Power Conference. The American and British
delegations, largely composed of the same men, frequently took
positions in discussions among themselves which were the exact
opposite from those they took in the Preparatory Commission
when they formed a bloc in opposition to the continental countries.
The Preparatory Commission was troubled by another diffi-
culty which faces every other commission or conference that
meets at Geneva. As long as the nations insist on their sovereignty,
it is necessary to carry on international affairs by unanimous
consent; any one nation which is not convinced or which is ill-
disposed can block action : domestic political life, on the contrary,
is based on majority rule. The technique of securing unani-
mous agreement is completely different from that of marshalling
a majority, and parliamentary experience is the worst possible
training for international conference; if a majority suffices, it
may be good tactics to antagonize your opponents whom you hope
to overwhelm, but when the object is to secure unanimous agree-
ment every difference of opinion must be met with patience and
conciliation. It happened too often in this Preparatory Commis-
sion that all possibility of unanimous agreement was wrecked by
a prompt appeal to a vote. Inevitably in such a commission the
naval Powers were outnumbered by the land Powers and the Brit-
ish and American admirals were so incensed at being outvoted by
majorities which included land-locked countries like Czechoslo-
vakia and countries of no naval development like Poland that
they were not prepared to agree with their opponents on any-
thing. Occasionally by clever tactics the British- American bloc was
able to muster a majority against France, but such majorities are
of little value when each nation holds a veto power, and they serve
542 AMERICAN FOREIGN RELATIONS
only to engender hard feeling which makes ultimate agreement
more difficult.
This difficulty was marked in the Preparatory Commission,
but it has been evident on many other occasions and in many
other circumstances. The majority of public men today have
grown to prominence through parliamentary experience or are
controlled by parliamentary tradition and are, therefore, handi-
capped in a situation which requires a new technique; the na-
tions which go often to Geneva and more frequently engage in
international negotiations have risen above this handicap to a
considerable degree ; but American delegations to conferences of
the League are in this respect usually at a disadvantage.
With some interruptions, one or another of the committees of
this Preparatory Commission sat through the summer and fall
of 1926 and into 1927. The amount of paper used for their
discussions set a new record for conferences at Geneva, but this
voluminous report did not materially clarify the problems which
had perplexed the political heads of states and on which they had
sought the technical advice of the committee. Yet while the com-
mission was able in general to agree on only a few points, much
useful information on the problem of armaments was collected
and may prove of value in the future ; the Assembly of September,
1927, refused to be discouraged and has ordered the Preparatory
Commission to continue its work.
CHAPTER FIVE
THE THREE POWER CONFERENCE
THE INVITATION
TWO things in the American invitation of February 10, 1927,
to Great Britain, France, Italy, and Japan to a naval con-
ference attracted attention, two things that made it possible to
forecast the responses of the different governments. First: the
American Government proposed to separate land and sea arma-
ments and to deal only with the latter. Second : the proposed dis-
cussions were limited to the technical aspects of the problem, ex-
cluding any consideration of the politics of "security," in which
the continental Powers were principally interested.
That the French Government would for these reasons refuse the
invitation was inevitable ; in fact, it seemed to many French peo-
ple that the invitation was drawn up with the intention of making
it impossible for them to accept. Their position on these points was
a matter of record ; throughout the meetings of the Preparatory
Commission their delegates had argued that land and sea arma-
ments were intertwined to such a degree that the problem must
be dealt with as a whole and not piecemeal ; they were committed
to the hilt to the theory that security must be the basis of disarma-
ment. Unless they were to stultify themselves they had to refuse
the invitation.
There was continued resentment in Paris at the treatment, in
French view inconsiderate, which the French delegates had re-
ceived at the Washington Conference, but of more importance
was the conviction that the conference could not succeed under
the terms of reference which the President had laid down, and they
did not wish to risk being blamed for a failure that their experience
at Washington led them to fear.
The Italian Government did not like the invitation any better
than the French. The present regime in Italy displays little en-
thusiasm for projects of reducing armaments, especially at sea.
The acceptance of Japan was as inevitable as the refusal of
France and Italy. Her main need for a large navy at present is as
544 AMERICAN FOREIGN RELATIONS
a counterweight to the American. Whatever "imperialistic" de-
signs any of her statesmen may harbor on the continent of Asia,
the call is for a large army as much as for sea power. The Japanese
Government are little interested in the land armaments of Europe,
and have repeatedly stated that they would be glad to reduce their
naval expenses if Great Britain and America were ready to do so.
They have announced that they would welcome such a conference,
anywhere and at any time.
The British response to our invitation was based on more com-
plicated motives. Their interest in the conference lessened as soon
as France and Italy refused the invitation. There might have
been considerable gain for them in the opportunity to discuss
the naval balance in the Mediterranean with France and Italy,
while the United States and Japan, with no interests in that area,
sat by and counselled moderation.
British diplomacy all over the world and in every circumstance
has been strengthened wherever it has appeared that there was
accord and cooperation between London and Washington. The
myth of an effective Anglo-American understanding, which is
commonly believed in Europe, was strengthened by the unity be-
tween the British and American delegations during the long dis-
cussions of the Preparatory Commission. A refusal of the Presi-
dent's invitation would have advertised the fact that the accord
between Washington and London was not so effective as the British
liked to have others believe.
The British Government instructed the Admiralty to draw up
a project in regard to the categories of warships, not covered by
the Washington agreement, the limitation of which would result
in a reduction of expenses. There seems to be some doubt as to
the extent to which the civilian side of the government gave at-
tention to the details of the project prepared by the Admiralty.
Apparently much the same procedure was followed at Washing-
ton, for there is no indication that the cabinet gave thorough
study to the American proposals. It seems that each government
took it for granted that its naval advisers could work out pro-
posals which would reduce the expenditures on naval armaments
and which would be acceptable to the other government. This as-
THREE POWER CONFERENCE 545
sumption was proved unwarranted by events. The admirals of
both countries had been trained from their youth to plan to win.
Each side worked out a proposal which, if accepted, would have
reduced naval expenditures, but would at the same time have en-
hanced its own chance of winning in case of war. Both the British
and American delegations at Geneva were surprised that their
respective programs were unacceptable.
The American delegates were optimistic, hoping that some
agreement for real limitation would be reached ; but they expected
that it would be necessary to put in a saving clause to the effect
that, if any non-signatory Power began building ships in any
category to an extent that threatened the naval balance, the three
signatories should reconvene to revise the agreement. As all non-
signatory naval Powers were members of the League, the Ameri-
can delegation felt it was unlikely that they would initiate a
building program which would upset a disarmament agreement
reached at the League headquarters. The British Admiralty
urged some other capital ; Brussels was mentioned for a time, but
the American Government pressed for Geneva.
The situation existing in the Preparatory Commission, in which
the American delegation had outranked the other delegations, was
reversed at the Three Power Conference. Mr. Gibson, who had just
been appointed ambassador to Belgium, headed the delegation,
with Admiral Hilary Jones as his chief naval adviser. The Japa-
nese sent Admiral Saito, ex-Minister of the Navy, and Viscount
Ishii, their ambassador in Paris. The British sent two cabinet
ministers and Admiral Jellicoe.
The contrast with the Washington Conference was also striking.
There the American delegation consisted of Secretary Hughes,
Senators Lodge and Underwood, and Mr. Root; the political
weight of this delegation was thus far greater than that sent to the
Three Power Conference at Geneva.
THE CONFERENCE
PRESIDENT COOLIDGE read his message to Congress on February
10, 1927, announcing his proposal that the five Powers which had
signed the naval treaty at Washington — the United States, Eng-
546 AMERICAN FOREIGN RELATIONS
land, France, Italy, and Japan — should empower their delegates
to the Preparatory Commission at Geneva to discuss, draft, and
sign a new treaty, extending the ratio system to the categories of
warships not covered by the Washington Conference.
France and Italy having refused the invitation, the representa-
tives of the British Empire, Japan, and the United States met
for the first time in the Council Room of the League on June 20,
1927; there was a second public plenary session on July 14;
the final failure was registered in a third public session in the
Hotel des Bergues on August 4. There had been many formal, if
private, meetings of sub-committees, and the chiefs of the delega-
tions had met frequently for informal conversations.
The tactics of this conference differed completely from those
of Washington. Mr. Hughes had opened the earlier conference
with a detailed program, calling for an all-round scrapping of
ships. He was in a strong position because the alternative was a
race in armaments in which the United States would be sure to win.
At the Three Power Conference the situation was reversed: the
British had more cruisers than the United States ; it mattered little
what the United States proposed ; the important thing was what
the British would decide.
The British decided against any reduction in cruiser strength.
Mr. Bridgeman, for the Admiralty, proposed to increase the Brit-
ish cruiser fleet and made any hope of agreement impossible by
basing his memorandum on what the British sea lords considered
to be "the minimum needs of imperial defense."
The technical aspects of the triangular dispute among the
naval strategists of London, Tokio, and Washington were dis-
cussed in detail by various sub-committees, and are still being
treated in technical publications by competent authorities. The
"Records of the Conference for the Limitation of Naval Arma-
ment" was published at Geneva without imprint in the usual
format of League documents. Only the main, non-technical aspects
of the conference can be set forth in the following survey.
The absence of the two Mediterranean naval Powers which
cannot afford to separate land from sea armaments rendered
success less likely; but among other causes of failure there were
THREE POWER CONFERENCE 547
two, either of which was sufficient to defeat the purposes of the
conference : first, the limitation of the discussions to the technical
aspects of the problem ; second, the British contention that each
nation should determine for itself what was "needful" for na-
tional defense.
For some reason the American Government, in planning for
this conference, abandoned the method which Mr. Hughes had
used successfully, and, instead of considering the problem of
naval strategy against its background of political relationships,
decided to attack the problem in the narrow form of "types and
tonnage." Certainly nothing which had happened at the Prepara-
tory Commission encouraged the hope that progress could be made
by an attempt to ignore the political factors. There is no "tech-
nical" base for establishing ratios of armament among nations;
it is impossible to determine what type of ships or how many of
them are "needful" unless there is an understanding of the pur-
poses for which they are intended.
This point, on which there has been much confusion, demands
clarification. In strategy, as in mathematics, it is necessary to
state the problem clearly. When the British Government had ar-
ranged an alliance with Japan which allowed it to count on the
Japanese navy to protect its interests in the Pacific, when it had
come to an understanding with France which assured its com-
munications in the Mediterranean, it could say to the Admiralty :
— "The Foreign Office has simplified the problem for you. It
further undertakes not to allow any controversy with the United
States to develop to the point of war. You may concentrate your
attention on Germany. What kind of ships do you need and how
many?" That was a real problem.
At Annapolis, the professors state the problems of Kriegspiel
precisely. "The Blue Navy, having bases at such and such points,
consisting of such and such units, is threatening the Virgin Is-
lands. What forces will you collect, based on Colon, to assure
their defense?" "The White Navy is divided into three fleets, based
on A, B, and C. You are in command of forces which are ordered
to rendezvous at D. United, you are stronger than any two of
the White fleets, but weaker than their combined strength. As
548 AMERICAN FOREIGN RELATIONS
your force concentrates, you receive news by air scouts that the
enemy fleet at A has left its base and is steaming towards C. What
orders would you issue?"
But if the civilian side of the government says to its naval ad-
visers: "What kind of navy is needful to meet all eventualities?
You must not think of any definite enemy or strategical problem ;
you may have to face all the world combined; you may have to
fight in any sea : what kind of ships and how many will you need?"
— neither a First Lord of the Admiralty nor a first year cadet at
Annapolis could answer honestly. An attempt to work out a ratio
on the base of "types and tonnage," when there is no agreement
as to the purposes for which the ships will be employed, is an at-
tempt to square the circle.
But though it might have been possible for the conference to rise
above the limitations of the invitation and to discuss at least in-
formally the political material on which the technicians were to
work, any hope of accord was ruined by the basic thesis of the
Bridgeman memorandum and Admiral Jellicoe's crude statement
of the Admiralty's position at a later meeting. That seemed to
be the following :
In 1914 we did not have enough ships to protect our commerce;
in spite of our superiority to everybody else, our force was inade-
quate; German sea-raiders caused tremendous damage to our far
flung commerce, endangered our food supply ; our navy was unable to
fulfill the promises it had made to the British people. Only God can
foresee the circumstances of the next war, but we need all the ships
we can get. We think we can persuade the tax payers to furnish the
price of seventy-five cruisers and we shall not agree to less. In fact,
considering our needs, the length of our communications and the de-
pendence of the homeland on sea-borne commerce, it is a moderate
demand. Obviously, it is a purely defensive program.
The Preparatory Commission had spent weeks discussing the
difference between "offensive" and "defensive" armaments on
land and had established no clear distinction. There is even less
distinction at sea, and especially in the case of warships of long
cruising radius. If the British are to have a navy capable of
defending their "imperial communications" with Canada, it must
THREE POWER CONFERENCE 549
be strong enough to drive every other warship from the North
Atlantic. If they are to have a navy strong enough to protect
their commerce in the Mediterranean, it must be strong enough to
deny that inland sea to the French or Italian flag. They cannot
hope to "defend" their own far-flung commerce unless they are
strong enough to cut the communications of all the world.
The Admiralty were ingenuous if they thought that the rest
of the world would accept the thesis that, in order to feel safe
themselves, the British were justified in denying security to others.
On the Admiralty basis, there could be no hope for an agree-
ment on the limitation of armaments. After the failure of the con-
ference President Coolidge accepted the same theory; in recom-
mending appropriations for an increased building program, he
told Congress that, while the new proposals did not mean competi-
tion in armaments, the United States, uninfluenced by foreign
propaganda, should determine for herself what manner of navy
was needful.
The American delegation to the conference had been optimistic
before it opened. They were not only disappointed, they were
astonished at Bridgeman's demands. This started a controversy
in the press, making good "copy" for newspapers which know
that stories of quarrels sell well; the only lesson to be learned
from it was that there had not been enough diplomatic prepa-
ration on one side or the other, perhaps on both. It would have
been the part of experienced diplomacy to hold preliminary
conversations with the British and to say: "The onus of any
reduction in naval armaments will fall on us both. It may be
impossible to agree on anything else, but at least we are agreed
that we have nothing to gain from a quarrel in public ; neither of
us wishes to stir up popular agitation at home against the other.
Let us make sure that we have the basis of a substantial accord be-
fore we call in the rest of the world to listen."
If the American Government had reasons to believe that it would
be possible in 1927 to obtain agreement from the five naval
Powers on the ratio for auxiliary ships which the Washington Con-
ference failed to reach, it has not made them public. America,
Britain, and Japan in 1922 accepted the 5-5-3 ratio on capital
550 AMERICAN FOREIGN RELATIONS
ships, but it was impossible, largely because of the situation in the
Mediterranean, to agree on this or another ratio for smaller ships.
If France and Italy had accepted the invitation in 1927, and had
been willing to reduce their navies to a ratio which seemed satisfac-
tory to the British, there might have been some hope, but neither
France nor Italy was willing to consider sea power separated from
land armaments, and France consistently insisted on making po-
litical security the basis of disarmament. It was the same vicious
circle that had limited the scope of the 1922 conference.
At this unfortunate 1927 conference, such fundamental con-
siderations were obscured, at least in the public mind, by an
Anglo-American quarrel over the meaning of the word "equality."
Anglo-American naval equality had been limited at the Washing-
ton Conference to capital ships, and the limitation was emphasized
by the unsuccessful attempt to establish the same ratio for auxil-
iary craft ; but this limitation was not stressed on the western side
of the Atlantic, and the American public generally thought not
only that there should be unqualified equality between the Brit-
ish and American fleets, but that the British had agreed to it.
In the discussions at Geneva, and in the newspaper reports of
these discussions, the word "equality" was superseded by "parity."
But there was no official statement to indicate whether "parity"
was more or less than "equality."
These words applied to naval matters are meaningless. If the
impossible happened, and the British and Americans agreed to
sink all their warships except one apiece, and the two survivors
were sister ships, exactly duplicate in all details, there would be
no "equality" or "parity" unless they made a supplementary
agreement only to fight in a zone equidistant from two respective
bases. A navy, whether it consists of one ship or a thousand, loses
in power as the distance from its base increases ; if the two fleets
could be made identical each navy would be supreme in its own
waters, and there would be equality only at points equally distant
from the two bases. When one considers the actualities of our day,
the difficulty of reaching a clear definition of "equality" or
"parity" is infinitely increased.
Because it is so difficult to define, it is particularly dangerous,
THREE POWER CONFERENCE 551
for it has become a phrase of "prestige" on both sides ; and of all
controversies a diplomat must consider, those that affect "pres-
tige" are the hardest to resolve.
Certainly the question: "What do you mean by 'equality'?"
should have been cleared up before the conference convened. It
developed at once that the British and American definitions were
worlds apart.
The British contended that when they agreed to "equality,"
they meant "strategic equality." We must try, they said, to ap-
proximate equality between our two navies as nearly as possible.
The ideal situation, they said, would be that if a diplomatic quar-
rel should arise, and the two governments should call in their
naval advisers and say : "The situation is strained ; if we declare
war, can you promise us victory at sea?" the naval advisers of
both countries should reply, "No, we have no more than an even
chance."
Under that definition of "equality" it is necessary to consider
only the high sea fleets which could conceivably be used against
each other. Such "strategic equality," the British maintained,
did not at all affect the problem of how many small cruisers they
needed to protect their commerce and imperial interests in seas
where the American battle fleets would not operate.
The Americans maintained on the contrary that "equality"
meant "ton for ton" or "mathematical equality." We must agree,
they said, on a total cruiser tonnage. You can build small cruisers
within this limit, if you wish. We prefer big ones. If we agree on
160,000 tons, you can build 20 cruisers of 8,000 tons; we shall
build 16 of 10,000.
Neither of these proposed definitions would give practical
equality. The small cruisers, which the British said could not
conceivably be used against our battle fleets, could be used effec-
tively to attack our commerce ; while in any naval engagement, the
10,000 ton cruisers which we insisted upon would be of vastly
more help to a battle fleet than any number of 8,000 ton cruisers.
A whole complex of geographical and political considerations
made it inevitable that the purposes of the two navies should
differ ; the strategical problems they must face are different. At
552 AMERICAN FOREIGN RELATIONS
Geneva each side argued for a definition of "equality" or "parity"
which, if accepted, would give it superiority.
Under the heated discussion of what is meant by "equality"
was a much deeper political issue. Bagehot says of Paley that he
"said many shrewd things, but he never said a better thing than
that it was much harder to make men see a difficulty than com-
prehend the explanation of it. The key to the difficulties of most
discussed and unsettled questions is commonly in their undis-
cussed parts."
The real issue in any Anglo-American naval discussion is what
has loosely been called "the freedom of the seas." Neither the
British nor the American Government is seriously considering a
war between the two countries ; it is what they please to call "un-
thinkable," Both are concerned with the rights of neutral trade
in case either is engaged in war with somebody else ; but the Ameri-
can note proposing the conference definitely limited the discus-
sions to the technical problem of "providing for limitations in the
classes of naval vessels not covered by the Washington treaty,"
and so definitely excluded consideration of the large political ques-
tions.
The temper of the British and American delegates was over-
strained by the impossible task of trying to find technical justifi-
cation for political purposes. The heat with which diplomatic
representatives defend what they consider to be the interests of
their country has been described by M. Cambon in his little book,
Le Diplomate, in a manner which loses some of its graceful wit in
translation. "Bismarck," he wrote, "called this difficulty the
morbus considaris. It is a disease which is endemic everywhere.
Talleyrand had long before prescribed the remedy when he said
to his secretaries 'Surtout, Messieurs, pas de zele* Thiers ex-
pressed the same thought in the phrase: *You must take every-
thing seriously, nothing tragically.' Bismarck, Talleyrand,
Thiers ! Is it not amusing to find all three of them equally anxious
to see their agents practice moderation in all things?"
Judged by the statements made in the American memorandum
of February 10, 1927, and the President's message of the same
date, the conference was a failure. Called for the purpose of im-
THREE POWER CONFERENCE 553
proving the relations between the nations, it drove the wedge
deeper between the land and sea Powers; it worsened the rela-
tions between the English-speaking nations. Called for the pur-
pose of reducing the burden of armaments, it paved the way for
the biggest naval bill in Congress since the World War.
CHAPTER SIX
192T ASSEMBLY
THE VITALITY OF THE PROTOCOL
AT the Assembly of the League in September, 1927, the prob-
lem of disarmament figured largely in the debates. The
delegates had to face the fact that the Preparatory Commission
had not produced the results for which they had hoped, and added
to the discouragement of this relative failure was the complete fail-
ure of the Three Power Conference; these setbacks stimulated
the Assembly to renewed efforts, and the most striking aspect of
the debate was the evidence of vitality in the Protocol idea ; it was
seen that the discussions of the Protocol had gone to the very roots
of the armament problem. Machinery for the pacific settlement of
international disputes as a substitute for war and the obligation
of appeal to that machinery seem to the statesmen of the conti-
nent the only road to security, the sole basis of disarmament.
Chamberlain once more had to defend the British refusal to
ratify the Protocol. This time he was able to secure more endorse-
ment from the Dominions. The delegate of Australia spoke of the
attempts at "compulsory arbitration" of labor disputes in his
country, and from the fact that it had failed to produce the hoped-
for industrial peace, he argued that compulsory arbitration in in-
ternational affairs would be an equal disappointment. The Cana-
dian delegate, who favored the principle of arbitration, said that
Canada could not consider the Protocol without taking into ac-
count the long unfortified frontier with the United States, and the
fact that the United States was outside of the membership of the
League made the problem of effective action against an aggressor
nation infinitely more complicated. The Canadian Government,
therefore, did not feel it possible to enter into any engagement
which might force it into a controversy with its great southern
neighbor. In the course of his speech Chamberlain admitted that
the British Empire stood alone in opposition to the Protocol.
One of the most notable events connected with the Assembly was
the adhesion of Germany to the optional clause recognizing the
1927 ASSEMBLY 555
compulsory jurisdiction of the Permanent Court of International
Justice. This act was of especial importance in the effort to sub-
stitute legal process for war, as Germany is the first of the Great
Powers to accept the principle of automatic, rather than optional,
reference to the court of juridical disputes.
It was, of course, generally recognized that no progress could
be made with the full program of the Protocol in the face of British
opposition, and considerable time was therefore devoted to the dis-
cussion of the Locarno accords, which had applied the principles
of the Protocol to a limited area, and to the possibility of nego-
tiating similar accords in other troubled areas. Although the for-
mal discussions in the sessions of the Assembly were intentionally
vague and "named no names," the possibility of accords similar
to those of Locarno in regard to the Baltic and Balkan areas was
discussed at great length by the diplomats of the countries con-
cerned in the private and personal discussions for which Geneva
is becoming famous. No definite results have been announced but
negotiations are in progress which may bring concrete results.
Another outstanding feature of this Assembly of the League
was the attention given to the American pandect — the "outlawry
of war." In general the attitude of the European nations has been
that the Covenant of the League, by which all are bound, has gone
as far as any declaration could go in declaring war to be a crime,
and their discussions have been concentrated on the questions of
how to define the crime in formal legal terms, how to educate pub-
lic opinion into a definite condemnation of the crime, and how to
organize police power to prevent and punish it. But the Polish
delegate introduced a new resolution, condemning aggressive war
as an international crime, and in the discussion that followed, he
and many of his colleagues supported the resolution on the ground
of its educational value and the effectiveness in educating public
opinion by frequent reiterations of a principle already accepted by
the more thoughtful. This resolution was unanimously accepted.
SPEEDING UP THE PREPARATORY COMMISSION
THERE was also earnest debate as to what should be done in regard
to the failure of the Preparatory Commission to perform the work
556 AMERICAN FOREIGN RELATIONS
which had been expected of it. Some voices were raised in favor of
discharging the commission and organizing a new one on different
lines. The opinion prevailed that to reconvene the Preparatory
Commission was desirable, to urge it to greater activity, and to
supplement its work by the creation in coordination with it of a
new committee to consider more explicitly the political problems
of security and arbitration and so reduce the temptation of the
Preparatory Commission to allow political considerations to com-
plicate its work.
CHAPTER SEVEN
NAVAL ARMAMENTS: A SPECIAL
AMERICAN INTEREST
IN President Coolidge5s message to Congress of February 10,
1927, and in the memorandum to the five naval Powers, he em-
phasized the fact of our special relation to sea power. Our land
forces, like those of Japan, have not the functions of the European
armies, and an increase or decrease of men under arms in Europe
would not affect the plans of the General Staffs in Washington or
Tokio; but navies are inter-continental, no new warship can be
launched anywhere without influencing naval strategy every-
where.
The United States can contribute little to solve the problem of
reducing land armies, but in the matter of warships it has a vital
interest ; we cannot escape responsibility, and we can, if we will,
take the leadership in the campaign for reduction, as Mr.
Hughes's experiment demonstrated.
The proposal has been made in many quarters that a new con-
ference should be called. The five signatories of the Washington
Naval Treaty meet again automatically in 1931, but there is little
hope for accord in a new conference if its bases are to be the same
as those of the one that failed. A by-product of good import from
the Three Power Conference may be a discovery of some of the
conditions which might make a new conference more promising.
Neither the British Admiralty nor our General Navy Board
can work out a program on the basis of what is "needful55 for
defense against all comers and expect the others to accept it.
If war between us is "unthinkable,55 as statesmen say while navy
men are thinking about it, we could both scrap a great many
ships ; if it is not quite "unthinkable,55 we shall have to watch each
other5s building programs carefully ; if war is inevitable, as some
retired admirals proclaim, we should try to outbuild each other
before it breaks out, and it would be wise for the British to declare
war at once while they have some superiority.
There cannot be any naval accord until this question is faced.
558 AMERICAN FOREIGN RELATIONS
There must be consideration of the political situation, some frank
understanding of the purposes for which warships are planned.
The chances of success in another conference would be enhanced
if the membership were enlarged. The British Admiralty cannot
make their plans solely in regard to the United States and Japan ;
they must consider the problem of the Mediterranean, which
does not vitally affect or interest either Tokio or Washington.
The effort should be made to include at least France and Italy,
which, as continental nations, are both forced to consider armies
as well as navies. A sharp divorce of the two problems, or any ap-
pearance that there is conflict between them, makes it almost im-
possible for these amphibious powers to cooperate.
All nations must consider the problem of "security" when
they discuss armaments. Americans do, even if they do not realize
it, for the fact that we are not so exposed to invasions as are other
countries profoundly influences our military plans. Many in-
genious and fantastic explanations of why Congress refused to
accept the Wilbur naval program — ranging from church influ-
ence to communist conspiracy — have been constructed ; undoubt-
edly many motives were mixed in the revolt of public opinion
against the proposed expenditure. But the obvious, the simplest,
and certainly an adequate, explanation is that the American peo-
ple are not afraid.
The chances of success in any future discussion of the limita-
tion of naval armaments will be enhanced if there is a return to
the policy of Mr. Hughes, and a frank acceptance of the truth
that political adjustments which tend to render the menace of war
more remote are a necessary accompaniment of the reduction of
armaments.
In the memorandum of February 10, 1927, President Cool-
idge stated that the naval conference he was proposing was in-
tended to supplement and support the work of the Preparatory
Commission at Geneva. Unfortunately a number of infelicitous
circumstances made it seem to some observers that the President's
proposal was in competition with and hostile to the work of the
League of Nations ; if there is any appearance of such antagonism
in future proposals, we can expect that those nations which have
NAVAL ARMAMENTS: AN AMERICAN INTEREST 559
more confidence in the disarmament plans of the League than in
those of the American Government will inevitably be in opposition.
A good example of the kind of preparation that is necessary
was furnished by the long diplomatic negotiations which pre-
ceded the conference at Locarno. The Germans made their pro-
posal of a Rhine security pact in February, 1925. All through
the spring, summer, and early fall there was an active exchange
of diplomatic notes between London, Berlin, and Paris and an
informal preliminary conference of jurists. There is advantage
in the opportunity for careful study of written documents if they
are something more than an exercise in public dialectics ; the ideas
of the different governments and the mutual concessions necessary
are made clear, and the words are sharply defined. When the con-
ference assembled in November, everyone was amazed at the speed
with which the complicated documents were drafted and agreed
upon. The Locarno conference would probably have failed, cer-
tainly its work would have been greatly prolonged, if there had
not been this careful preparation.
Obviously no progress can be effected in naval disarmament
unless there is an agreement between London and Washington.
Reviews of the Three Power Conference show a marked agree-
ment on the conclusion that the real issue, the undiscussed diffi-
culty which caused the failure, was the question of the rights of
neutral trade in times of war. Unless this difficulty is brought
out of the shade and a way found for resolving it there is small
chance that any future discussion of the types and tonnage of
cruisers will be more successful than in 1927.
CHAPTER EIGHT
ANGLO-AMERICAN NAVAL CONTROVERSY
NEUTRAL RIGHTS IN NAVAL WARFARE
FROM the earliest times those who go down to the sea in ships
have had to give thought to the problem of how to protect
their argosies from the arbitrariness of power. In the oration
"On the Treaty," Demosthenes accused Alexander the Great of
having violated the article which read: "The signatory Powers
shall all have the full freedom of the seas ; none shall molest them
nor seize their ships on pain of being regarded as the common
enemy."
The idea of piracy was gradually separated from that of war.
Piracy was defined as "an act of war in times of peace" and out-
lawed ; but well into the nineteenth century privateering, the act
of piracy in time of war, was still good form.
The protection of peaceful cargoes from arbitrary seizure was
one of the principal preoccupations of the Hanseatic League, and
something approaching a code of sea law was worked out by the
Mediterranean Powers in the fourteenth century and called the
Consolato del Mare. Under this rule the ships and goods of the
enemy were lawful prize, but the property of neutrals was immune.
Grotius in the seventeenth century made the distinctions of three
categories of cargoes which have been the subject of endless dis-
cussion among international jurists :
(1) "Innocent," always free from seizure.
(2) "Conditional contraband," seizable if destined for enemy
forces.
(3) "Absolute contraband."
During the Seven Years' War, Great Britain by the "Rule of
1756" forbade neutrals to become carriers between France and
her colonies. When neutrals tried to evade this ruling by trans-
shipment the British prize courts developed the doctrine of "con-
tinuous voyage and ultimate destination." Commenting on the
development of the theory of neutral rights in naval warfare,
ANGLO-AMERICAN NAVAL CONTROVERSY 561
Leonard Stein writes in The Nation and Athenaeum (London, De-
cember 31, 1927) :
... in the final struggle with Napoleon, Great Britain used her
sea power to the furthest limit in her effort to annihilate the enemy's
trade. The culminating point was reached in 1807, when, in retalia-
tion for Napoleon's Berlin Decree, prohibiting trade between Great
Britain and the Continent, a British Order in Council declared a
blockade of France and of all states which excluded the British flag
from their ports. Great Britain's assertion of her belligerent rights,
as she construed them, at the expense of neutral trade and shipping,
ranged against her the Armed Neutralities of 1780 and 1800 and in-
volved her in 1812 in war with the United States.
The logic of circumstances has forced the United States into
controversy with Great Britain over this question of neutral rights
ever since our birth as a nation ; it is almost the longest thread in
the skein of our diplomatic history. The conflict has flared up or
died down as our interest in the seas has waxed or waned. All na-
tions that use the seas as an area of peaceful trade have in-
terests inevitably in opposition to those of any Power that con-
siders the seas as an arena of warfare. Circumstances change the
role of the various nations in this dramatic debate between neu-
tral and belligerent, but it is a general rule that those who wish
to trade at sea are opposed to those who wish to fight at sea. This
means in practice that the nation which in any decade "rules the
waves" finds all other seafaring nations united against it in in-
terest if not in formal alliance.
In the early days of our republic, before we turned our atten-
tion to our own continent, we lived by the sea and were in constant
conflict with the British, who ruled the waves. As the Napoleonic
epic developed it became more and more difficult for us to remain
neutral ; we found both groups of belligerents invading what we
considered to be our rights, and for a time it was uncertain whether
we should fight for or against Napoleon ; at last we declared war
on England in 1812. It was a futile, indecisive war; we were un-
fortunate in our land campaigns, but had some striking successes
at sea. In the end we obtained a favorable treaty, but the question
of neutral rights was not settled. National interest in the con-
562 AMERICAN FOREIGN RELATIONS
troversy died down as we turned our attention to the winning of
the west.
The controversy became once more acute on a broad, interna-
tional basis in connection with the Crimean War. In January,
1854, when Russia had declared war on Turkey, but before Eng-
land and France had entered the conflict, the Swedish Government
addressed a note to the British Foreign Office, stating the Scan-
dinavian view of the rights of neutrals and containing an implied
threat of a reorganization of the Armed Neutralities of the Na-
poleonic era. The British Government replied that, while not
prejudicing its traditional claims, it would, as a special exception
and for the duration of the war, meet the wishes of the neutrals
by not exercising some of the rights which international law ac-
corded to a belligerent.
Many reasons were given for this temporary waiver of tradi-
tional claims. Such a self-sufficing land Power as Russia could not
be reduced by a naval blockade. The war was to be waged in alli-
ance with France, and the French theory of sea law differed so
sharply from that of England that the efficient conduct of the war
demanded some compromise. The British and the French were
separated from Russia and from their ally, Turkey, by the neu-
tral mass of central Europe. The chance that Sweden, Denmark,
the German states, or Austria might join the Tsar was too grave
a danger to be ignored. Russia had no large mercantile marine to
serve as a target for the navy, but there was danger that, although
she had no navy of her own, the Tsar might issue lettres de marque
to adventurers of other nationalities to prey on British shipping.
In such circumstances, Anglo-Saxon common sense dictated con-
cessions to neutral opinion.
But these concessions, which were granted "temporarily," "for
the duration of the war," were to a large extent rendered perma-
nent after its successful conclusion by the Declaration of Paris
in 1856; the widespread protest of the nations which had been
neutral in that war forced a discussion of the whole subject. The
resultant Declaration recognized the rights of belligerents to
publish lists of contraband commodities which neutrals could not
furnish to the enemy without risk of seizure. Aside from contra-
ANGLO-AMERICAN NAVAL CONTROVERSY 563
band, the Declaration announced the immunity of the private
property of enemies on neutral ships and the private property of
neutrals on enemy ships; it stated that a naval blockade to be
legal must be effective; and it abolished privateering. The
Declaration was a compromise, as all codes of agreement must be.
The compromise lay principally between England and France,
the main antagonists in the Napoleonic wars, more recently allied
against Russia in the Crimean war ; the British accepted definite
limitations on "the right of seizure" and the French gave up their
theory of "paper blockades" or "blockades by edict."
The acceptance by France and England at the outbreak of the
Crimean War of "certain relaxations" favorable to neutrals gave
the American Government an opportunity to move, and in his
message to Congress of December 4, 1854, President Pierce
stated that as the allies, at least for the purposes of this war, had
accepted the American position, he thought fit to propose a gen-
eral and permanent agreement. "Accordingly a proposition em-
bracing not only the rule that free ships make free goods, except
contraband articles, but also the less contested one that neutral
property other than contraband though on board enemy's ships
shall be exempt from confiscation, has been submitted by this gov-
ernment to those of Europe and America."
Russia at once accepted the proposal, and a treaty was con-
cluded. The other Powers expressed sympathy, but desired to wait
till hostilities were over. The King of Prussia approved, but wished
to add an article abolishing privateering.
President Pierce devoted two long paragraphs in explaining
why this was unacceptable. He pointed out that the British had ten
times as many warships as we had. If the destruction of the
enemy's commerce were limited to ships already in commission,
the English could do ten times the damage to us that we could do
to them. (This consideration undoubtedly influenced the British
Government in its insistence that privateering should be abol-
ished.) President Pierce drew an ingenious analogy between pri-
vateers at sea and volunteers on land; a nation had to choose
between maintaining a large standing army or trust to the pa-
triotism of its citizens to volunteer in time of war. It was the
564 AMERICAN FOREIGN RELATIONS
same at sea ; unless a nation developed a large navy in peace-time,
it had to rely on private commercial shipowners to arm their
vessels for national defense in war.
He qualified this refusal by the following important statement
which was later quoted in substance, if not in words, by the Hors-
f all Select Committee of the House of Commons on Merchant Ship-
ping in I860.
The proposal to surrender the right to employ privateers is pro-
fessedly founded upon the principle that private property of un-
offending noncombatants, though enemies, should be exempt from the
ravages of war; but the proposed surrender goes but little way in
carrying out that principle, which equally requires that such private
property should not be seized or molested by national ships of war.
Should the leading Powers of Europe concur in proposing as a rule
of international law to exempt private property upon the ocean from
seizure by public armed cruisers as well as by privateers, the United
States will readily meet them upon that broad ground.
So the American position on the freedom of the seas was well
known to the European governments which met at Paris two years
later to liquidate the Crimean War and, incidentally, to draw up
a declaration in regard to the laws of naval warfare. Their re-
quest that the American Government should adhere to their four
principles evoked an indignant reply from Mr. Marcy, the Sec-
retary of State, dated July 28, 1856.
Mr. Marcy was indignant that a conference of European
Powers, to which the United States was not a party, should as-
sume the function of discussing and amending international law.
He was the more indignant because this limited conference, in
undertaking this revision of the Maritime Code, had ignored the
negotiations started two years earlier by the President of the
United States, not with the small group of belligerents, but with
all the maritime nations. But most of all he was indignant because
in the protocol of the last sitting of the conference, the statement
was made that the four points of the Declaration were "indivisible"
and that the nations which adhered to it "ne pourront entrer, a
ir, sur V application du droit des neutres en temps de guerre,
ANGLO-AMERICAN NAVAL CONTROVERSY 565
en aucun arrangement qui ne repose & la fois sur les quatre prin-
cipes, objets de la dite declaration." The Powers represented at the
Paris conference had In this manner sought to veto the negotia-
tions then in progress on the initiative of the American Govern-
ment.
Mr. Marcy then considered the points of the Declaration on
their merits. The second, third, and fourth presented no difficulty ;
they were in fact exactly what the American Government had al-
ways desired. In regard to the first point he reiterated and ex-
panded the argument of President Pierce. Speaking definitely
from the point of view of neutrality, the American President and
Secretary of State could not see that it hurt the private shipper
more to have his goods seized by a privateer than by a man of war.
We were willing to grant immunity to all non-contraband private
property but were unwilling to give up privateering unless this
were done.
The American Government returned to the charge the follow-
ing year and, under date of February 24, 1858, Mr. Dallas, our
Minister in London, presented a note to the Foreign Office, argu-
ing the whole matter again and submitting a draft treaty which
was word for word identical with the Declaration of Paris, ex-
cept that the first point was expanded as follows :
First: That privateering is, and shall remain abolished, and the
private property of subjects or citizens of a belligerent on the high
seas shall be exempted from seizure by the public armed vessels of
the other belligerent, except it be contraband.
On April 25, 1857, Mr. Dallas notified the Foreign Office that
he had been instructed "to suspend negotiations" on this subject.
The reasons for this withdrawal of the proposed treaty are ob-
scure. There had been a change of administration in Washing-
ton, and also there may have been some indication that it was un-
acceptable to the British.
There were no new developments in this age-old dispute until the
outbreak of the Civil War in 1861. The rapidity with which the
center of interest then shifted is typical of this whole controversy.
From the Declaration of Paris, 1856, to the beginning of the
566 AMERICAN FOREIGN RELATIONS
Civil War, a period of less than five years, the argument had been
over privateering. The British wished to abolish it; we insisted
that it was legal. Both governments had been thinking of a hypo-
thetical war in which we should be engaged against a European
nation with rich sea trade for us to raid. The Confederacy, how-
ever, had no merchant marine. The government at Washington
lost interest in privateering. We did not formally give up the right
to issue lettres de marque; we abandoned it in practice, and that
issue has dropped out of the dispute. In fact, the diplomatic cor-
respondence of the early 'sixties between Washington and the Eu-
ropean capitals was dominated by another question — were the
hostilities an international war or a domestic rebellion?
In a dispatch of May 6, 1861, Lord Russell wrote to Earl Cow-
ley, the British Ambassador at Paris :
Although Her Majesty's Government have received no dispatches
from Lord Lyons, (British Ambassador at Washington) by the
mail which has just arrived . . . the accounts . . . from some of
Her Majesty's consuls . . . are sufficient to show that a civil war
has broken out among the States, which lately composed the Ameri-
can union. ... it appears to Her Majesty's Government that look-
ing at all the circumstances of the case, they cannot hesitate to
admit that such Confederacy is entitled to be considered as a bel-
ligerent. . . .
Referring them to
President Lincoln, on behalf of the Northern Portion of the late
United States ... on the other hand, President Davis, on behalf of
the Southern portion of the late Union. . . .
Lord Russell went on to propose that the French and British Gov-
ernments should make joint representations to both portions of
the "late Union" on behalf of the Declaration of Paris. The haste
with which the British Government had decided to recognize the
belligerency of the Confederacy — without waiting for advices
from its ambassador at Washington — was deeply resented by Lin-
coln and Seward.
The discussions of international law touching the freedom of
the seas which arose during the Civil War — blockade, continuous
ANGLO-AMERICAN NAVAL CONTROVERSY 567
voyage, the Trent affair, the Alabama Claims, etc. — must be
viewed against the background of this original dispute — was the
Federal Government engaged in an international war or in police
action against a domestic rebellion?
The American Government refused to accept the Declaration
of Paris because it prohibited "privateering" ; we had found this
method of sea- war effective in 1812 and refused to surrender the
right to issue lettres de marque; we asserted that for a nation which
could not afford or did not care to build a standing navy of battle-
ships, "privateering" was a legitimate defense, the natural weapon
of the peaceable and poor.
Our interest in maritime matters was slight in those decades;
we had no navy to speak of and no intention of building one. The
Civil War called the attention of our people once more to the
problems of the sea. The Federal Government closed the ports of
the seceding states by decree, and as fast as it could develop a navy,
attempted to institute what had been defined by the Declaration
of Paris as "an effective blockade," the effectiveness of which, how-
ever, was threatened by the fact that the British had island colonies
close to the Confederate coast. International law, as understood
in those days, recognized no belligerent right which would au-
thorize us to interfere with commerce between British ports, but,
taking up the old doctrine of British prize courts of "continuous
voyage and ultimate destination," we employed it to suit our pur-
pose. Without this new interpretation of that old doctrine, our
navy would have had no way of preventing British traders from
shipping goods ordered by the Confederate army to the Bahamas,
and thence from running them over to the mainland in small boats
amid reefs where our warships could not follow. It was a case of
necessity distorting an old "law" beyond the recognition of its
author.
As this is the outstanding case in which we have departed from
our traditional policy of protecting neutral rights against the en-
croachments of belligerents, it is well to recall the frame of mind
of official Washington at that time ; it will make more intelligible
for us the frame of mind which developed in London in 1914. It
was the heat of war ; it was a crisis in which national life seemed
568 AMERICAN FOREIGN RELATIONS
at stake. Every shipment of supplies which reached the forces
under Lee meant the prolongation of the struggle, more boys sent
to death, more fraternal blood spilled; in such circumstances, it
seemed less than human to dispute over the niceties of the law or
to look far into the future. Then the government at Washington
thought that winning the war was more important than scrupu-
lous respect for old precedents, and did not worry about the petard
which was to hoist our own commerce half a century later, when the
British Government took this American interpretation of "con-
tinuous voyage" and by re-interpretation shaped it to their pur-
poses and our disadvantage.
National interest in maritime matters lapsed again after the
Civil War ; locomotives were more important than steamships. The
old discussion was revived in government circles by The Hague
conferences, the attempt to create an international prize court,
and the Conference of London in 1908-1909 which sought to
codify the laws of the sea.1
The main contention of the American Government in this long
dispute, clearly shown in the instructions to its delegates at the
Conference of London, has been that the rules of sea warfare
shall be determined by common consent, that the rights of neutrals
shall be defined in the cool atmosphere of peace and shall not be
arbitrarily altered by belligerents in the heat of war. From time
to time we have argued for or against certain rules ; once, in-
deed, we argued for privateering; but, although we made an
exception for our own benefit in the Civil War, our basic argu-
ment has always been that the rights of belligerents and neutrals
should be established in times of peace, that when war is declared
neutral traders should know what rights they possess and not be
subjected to the uncertain and capricious edicts of the Power that
establishes its supremacy at sea. We have had definite ideas as
to what the law should be, but have held, in common with all neu-
tral nations, that any law which could be agreed upon was pref-
erable to the rule of might. At the outbreak of the World War
in 1914, nobody could say what was the law of the sea. Foreseeing
i See Section I, "American Foreign Policy," Chapter 2, "Traditions," "The Free-
dom of the Seas."
ANGLO-AMERICAN NAVAL CONTROVERSY 569
the confusion and controversies which would arise if the neutrals
did not know what rights would be accorded to them, Wilson
suggested to the belligerents in a note of August 6, 1914, that
they accept the Declaration of London for the duration of the
war; unfortunately, since the British sea lords had been strong
enough to defeat the Declaration of London in time of peace, there
was no chance that they would accept it when war was on.
The British Government replied to the American note on Au-
gust 27. It was entirely within its rights to refuse or to accept,
as the Declaration of London had not been ratified. It was hard to
tell whether its reply was a "conditional acceptance'5 or a "condi-
tional refusal." It agreed to the idea in principle, but reserved the
right to make such alterations in practice as the "circumstances"
— or its own views of the necessities of war — suggested. The basic
American contention that the law of the sea should be a matter of
common agreement, and not the dictation of the strongest, was re-
jected; the neutral world was notified that at sea might made
right and that the ruler of the waves would make the "law" to
suit his purposes.
The British Government proceeded rapidly to take all meaning
out of its conditional acceptance of the Declaration of London.
"At an early stage of the war, the doctrine of continuous voyage
was applied to conditional as well as to absolute contraband, and
the contraband list was extended to include goods, such as cotton,
which the Declaration expressly made free." The "Maritime
Rights" Order in Council of July, 1916, definitely annulled the
conditional acceptance of the Declaration of London.
When the outbreak of the World War forced the British Gov-
ernment to make a decision in this matter, it was not a simple
choice. On the one hand was the demand of the Admiralty that the
navy should have "a free hand," but all history showed that the
granting of this demand meant the hostility, at least the passive
resistance, of all of the neutrals. On the other hand was the sug-
gestion of the American Government that a pledge should be given
to respect certain rights which the non-combatants claimed, and
the acceptance of this suggestion would have meant less opposition
from the neutrals. The decision which the British Government
570 AMERICAN FOREIGN RELATIONS
actually made was that it had more to win by ignoring the neu-
tral world and "unchaining" the navy.
As it was, Britain was on the winning side, and no one can say
what would have happened under a contrary decision. Most of the
neutral nations were small and weak and could make no effective
protest. The Netherlands, for instance, under the guns of the
British fleet, lived by their sea trade and their distant and unpro-
tected colonies. The Dutch Government, unable to defend its own
rights, discreetly appealed to Washington. In general the Euro-
pean neutrals which suffered from the British naval action, not
daring to protest vigorously, urged the United States to lead the
fight for the maintenance of neutral rights. Unless our government
was to abandon the position which it had alwavs maintained, it
could not avoid a controversy with the Allies.
Inevitably, in the absence of any agreement on the rules of
naval warfare, a neutral in such cases finds itself in controversy
with both sides. While it was the Allies which first invaded what we
considered our rights at sea, the dispute with the Central Em-
pires, when it arose, was much more serious. The Germans tried
to justify their acts as "reprisals" for the violation of interna-
tional law by the British. This argument might have found some
sympathy at Washington if the "reprisals" had been confined to
the British, but we could not admit that innocent neutrals should
be punished for the sins charged against a belligerent.
In the course of this triangular discussion between Washington,
London, and Berlin, the Austro-Hungarian Government ad-
dressed to us a note dated June 29, 1915, asking us to put an
embargo on the export of arms and munitions. The argument of
this note was not based on legal precedents but on moral considera-
tions. It pointed out that, in the existing circumstances, British
supremacy at sea closed our markets to the Central Empires and
that, although we professed neutrality, we were in fact aiding
only one group of belligerents. The American reply of August 12,
1915, to the Austrian note ignored the moral issue. It gave the
traditional interpretation of neutrality: complete moral indiffer-
ence ; freedom to trade with both sides ; our willingness to supply
the Austrian army as freely as those of the Allies if the Austrians
ANGLO-AMERICAN NAVAL CONTROVERSY 571
could take delivery. The expediency of such a theory of neutrality
as against its legal validity has been questioned : it means, in prac-
tice, that the neutral is the economic ally of whatever country
rules the waves ; it puts a tremendous premium on the control of
the seas.
As happened in the Napoleonic wars a century earlier, we be-
came involved in controversies with both groups of belligerents,
found it impossible to maintain neutrality, and entered the con-
flict against the side which had done greater violence to our rights.
As our participation had arisen over maritime controversies, it
was inevitable that our attention should be drawn once more to
the laws of the seas. What might be described as an official inter-
pretation of "the freedom of the seas" was given by Wilson as the
second of his Fourteen Points :
Absolute freedom of navigation upon the seas, outside of terri-
torial waters, alike in peace and war, except as the seas may be closed
in whole or in part by international action for the enforcement of
international covenants.
But, as we have seen, the idea antedated the World War and had
a meaning quite independent of it. The fundamental contention
had always been that the seas are not the private domain of any
nation ; that they are international and should be ruled, not by
the dictation of the most powerful, but by laws agreed to and con-
sented to by the governed ; that the rules of naval war should be
established in times of peace ; that at the outbreak of hostilities the
neutral nations should know their acknowledged rights. To be
sure, we had acted during the Civil War contrary to this general
position ; single-handed we had invented and enforced new inter-
pretations of "continuous voyage" ; but it was this very danger,
the temptation of the belligerent to take advantage of any vague-
ness in the rules to encroach on the rights of neutrals, which made
us argue at The Hague and at the Conference of London for agree-
ment in times of peace on precise and unambiguous laws of war.
With this interpretation, the idea of "the freedom of the seas"
rallies the sympathetic support of every maritime nation, except
the one which, at the moment, happens to be the ruler of the waves.
572 AMERICAN FOREIGN RELATIONS
When Germany, in 1918, recognizing her defeat, appealed to
President Wilson for a peace based on the Fourteen Points, there
was an exchange of notes between Washington and the Allies in
regard to armistice terms; the British Government refused to
accept "the freedom of the seas" as a part of the armistice. They
had a plausible reason for this position : "the freedom of the seas"
was not an issue between victor and vanquished ; it had no logical
place in a peace conference ; it was a matter of grave importance
which would require long and careful preparation, and to achieve
peace as quickly as possible was desirable. The published evidence
has not yet disclosed the discussions which resulted in the drop-
ping of this point from the armistice and the Treaty.
In an interview with the newspaper men at Paris, Wilson, in an-
swer to a question, said that the American objective had been
gained by another method: when the Covenant of the League of
Nations had gone into effect, the old concepts of belligerency and
neutrality would lose their meaning ; never again would there be a
war in the old sense; all member states would be belligerents
against a Covenant-breaking nation and this question of neutral
rights would therefore disappear with the abolition of neutrality.
This explanation was over optimistic. The Covenant, even if all na-
tions accepted it, does not rule out all chance of war ; but the gen-
eral acceptance of the Covenant would greatly dimmish the chances
that the old controversy over neutral rights would again be revived.
There was another reason why the old issue seemed less im-
portant from the American point of view at the time of the Peace
Conference. We had begun to build up a great navy of our own
as part of our contribution to the war against Germany, and
Great Britain would never have such indisputable control of the
sea as she had had before. It was not likely that the British Gov-
ernment would treat our protests so cavalierly if any "next war"
should occur ; in order to assure respect for what a country con-
siders its maritime rights as a neutral, it is not necessary to win
command of the sea, it is sufficient to have that balance of power
which, if thrown into the scale, would prevent either belligerent
from establishing supremacy.
Our controversy with the British over the rights of neutrals in
ANGLO-AMERICAN NAVAL CONTROVERSY 573
naval war is so old, it has so often been acute, it has so effectively ,
been brought to the front by the failure of the Three Power Con-
ference, that it constitutes one of our major problems of interna-
tional relations. It is more than a routine affair of the Navy De-
partment and the Admiralty, of the Department of State and the
Foreign Office : it is a problem of public opinion in both countries.
Unless this controversy is liquidated, it is idle to talk of the reduc-
tion of naval armaments.
The problem of disarmament is complex ; it is difficult to sepa-
rate one phase from the others and impossible to isolate one as-
pect as the corner stone of the structure of the arch. If Amer-
ica is to contribute to the solution of the problem, we must address
ourselves to the old controversy with Britain over the rights of
neutrals and belligerents at sea; this is not a problem in naval
technique but one which demands the highest form of statesman-
ship.
AMERICAN AND BRITISH INTERESTS AT SEA
THAT the naval policies of nations must differ, that there is no
common and absolute standard by which it is possible to deter-
mine what is "needful" for national defense, becomes evident upon
a comparison of the maritime interests of the British Empire and
the United States. Geographically, historically, economically, and
even from the standpoint of political constitution, the problems
are incommensurable.
The shores of the United States under present conditions of
armaments are relatively free from overseas attack. The progress
of invention in air transportation makes such an attack for
raiding purposes conceivable, but compared to England our coast
towns are secure. War has never been forced upon us by the threat
of invasion. Despite the reluctance of the generals and admirals
to admit any distinction between "offensive" and "defensive" ar-
maments, it is possible for us to build up coast defense — land, air,
and sea forces — which would not menace any trans-oceanic power.
The moment we enlarge the problem from the defense of our
574 AMERICAN FOREIGN RELATIONS
continental shores to the defense of our overseas possessions, the
situation changes.
If we expand our "coast defenses" to protect our nearer pos-
sessions in the Caribbean — it would be only a slight increase —
they cease to be wholly defensive ; we cannot control the Caribbean
by force, assure our communications to the Panama Canal and
defense of it against all comers, without threatening the West
Indian colonies of England, France, and Holland, without hold-
ing at our mercy the commerce of the Central American repub-
lics of Colombia and Venezuela. Yet hardly a voice would be raised
anywhere in protest at our armaments if we confined ourselves to
the defense of our nearer overseas possessions.
When we come to the defense of our more distant overseas pos-
sessions the situation is completely changed. If we build a navy
with a cruising radius which would give adequate protection to
far away Pacific islands, we shall have a fleet capable of bom-
barding Auckland, Melbourne, Hong Kong, and Tokio. Even if
our motives were pure, i.e., purely defensive, we could not be sur-
prised at the uneasiness which such a building program would
excite. The naval defense of Manila demands a great deal more
than a fleet that could steam out there unopposed ; the fleet that
went out would have to be able to fight and sink any warships it
met on the way. If we are to have such predominance in the Pa-
cific, without leaving the Atlantic seaboard unprotected, we must
plan for the greatest navy afloat. Unless we secure absolute naval
supremacy, we shall in the future, as at present, have to rely on
diplomacy for the protection of our more distant overseas posses-
sions.
While we at present export and import little more than a tenth
of our production and consumption, a relatively small proportion
for us, our total production is so great that our tenth is more than
the whole of most nations. The total of our overseas trade is an
important element in the world's trade and is destined to grow.
The protection of this commerce of ours in the seven seas against
all contingencies by naval force raises the same question as the
defense of our distant possessions; it brings us into controversy
with the British. The demand of Mr. Bridgeman, for the British
ANGLO-AMERICAN NAVAL CONTROVERSY 575
Admiralty, for tremendous cruiser strength based on the convoy
argument is unacceptable. Neither the British navy nor the
American will be strong enough to protect its national commerce
against all contingencies unless it is strong enough to drive the
other's ships — men o5 war and merchantmen — from all the seas;
we live in a relative world, and the projects of admirals who be-
lieve that they are asked to guarantee absolutes lead to anarchy.
We must choose between a navy strong enough to protect our
commerce in the English Channel — sheer supremacy — or reach
international agreement on the rights of sea trade. The former
alternative means a long and bitter struggle for naval supremacy,
vastly expensive not only in money but also in dearer things.
Whether we won or lost, it might reduce us to impotence, as the
Peloponnesian War ruined Athens ; it might mean the end of our
experiment in democracy, as the Punic wars of the Roman re-
public were the highway down which marched the Caesars; it
might mean the development of democracy pari passu with the
creation of empire, as in the case of the British Empire.
In this alternative there is no hope of compromise ; there cannot
be two supremacies.
The other alternative is far from hopeless; there is no in-
evitable conflict of interests between the British Empire and
America in regard to what ought to be the agreed rights of mari-
time commerce.
We shall not, however, approach an understanding with the
British in this matter if we consider only our own interests. As
we have a right to demand of them to take into account our his-
tory, our hopes, and our dignity, so we must study their point of
view. We speak the same language as our English cousins, but use
the same words often in a different sense. We have read the Bible
in the same sonorous phrases of the King James translation, but
in different circumstances. They are an island-folk, seafarers by
necessity ; we are continental. Out of this contrast between island
and continent have grown most of the differences between ourselves
and the British.
Every interest that we have on the seas is multiplied many times
for them. We export about a tenth of our production ; they export
576 AMERICAN FOREIGN RELATIONS
a quarter of theirs. Few of our imports are indispensable ; they im-
port more than two-thirds of their food. Their sea-borne commerce,
aside from its absolute volume, is relatively vastly more important
to them than ours is to us.
The portions of their commonwealth, from the great self-gov-
erning Dominions to little islands like St. Helena, are scattered
more widely than ours. It is oceanic in far larger measure.
Their navy is important to the British from another point of
view which is foreign to us. It is a cohesive force, important in
keeping the empire together. Consider New Zealand. It is a white
man's island in the Southern mid-Pacific ; yet no one of the Do-
minions is more ardent in its loyalty. New Zealand's contribution
in the last war was magnificent because it was purely voluntary.
New Zealanders go about the work of peace undisturbed with
thoughts of national defense by reason of their reliance on the
British navy. There are no more fanatical big navy men in the Ad-
miralty buildings of London than in such distant Dominions;
naval supremacy is a large part of what "the Empire" means to
them.
As another example, consider the conditions in the Union of
South Africa, a small section of "whites" on the edge of a conti-
nent of "blacks." There this question of loyalty is a matter of
heated dispute. The "flag controversy" would be comic if there
were not such grim feeling behind it ; full-grown men were recently
disputing bitterly whether the new flag of the Union should have
more or less than one-sixteenth of its area devoted to the symbol of
the Empire. Every "loyalist" speech, every argument for more
than one-sixteenth, for continued membership in the British Com-
monwealth, is based on the supremacy of the navy. How will the
Union arrange for its national defense if it cuts away from the
Empire? Will the thrifty Boer burghers vote taxation for a
South African navy?
However one approaches the problem, it is evident that the sea
is a more intimate, more vital interest to the British than it is to
us. Just as the Germans used to say : "Keine Armee, kein Deutsch-
land," so the English believe: "No Navy, No Empire."
ANGLO-AMERICAN NAVAL CONTROVERSY 577
BRITISH ATTITUDES TOWARD NAVAL POLICY
THAT the British will be as determined as we to protect what they
consider to be their interests at sea is evident; but while our
interests in this problem have been simple, clear, and, with the
exception of the Civil War period, unchanging, British inter-
ests at sea have been complex, confused, and sometimes conflict-
ing. Since there has not been unanimity in English opinion as to
the nature of their maritime interests or the best way to protect
them, their policy has been shifting, inconsistent, and at times
irritating in their own body politic as well as to the rest of the
world. The "big navy" party in England have not had everything
their own way in Parliament ; Great Britain has not only the most
powerful navy afloat, she has also the biggest fleet of cargo boats,
and there is an inherent conflict of interests between the Ad-
miralty and the merchant marine. The interests of these two
powerful groups have to a certain extent run parallel when Eng-
land has been at war, but in the much longer periods when the Brit-
ish Empire has been at peace, the conflict of interests has been ap-
parent.
From 1814 to 1914, with the exception of the short Crimean
War, the British Empire was neutral in every European con-
flict. Inevitably the great shipping interests were paramount,
and the trend of British thought in regard to sea law during this
long period of peace was toward emphasizing the "rights of
neutral trade." This was made manifest during the Civil War. In
international law that was not a war at all ; it was a rebellion, and
the Federal Government had as much right to close the Southern
ports as the British Government had to stop shipments of arms
to Ireland ; but during the Civil War, because British merchants
wished to trade with the Confederacy, there was a recognition of
the belligerency of the South to justify a claim of right to neu-
tral trade with both sides.
An even more striking example of this neutrality attitude of
the British, in sharp contrast to the action they took in the World
War, was furnished by an incident of the Russo-Japanese war.
Russia put rice on the contraband list; Great Britain joined with
578 AMERICAN FOREIGN RELATIONS
America in protest against banning a necessary civilian foodstuff,
and Russia was forced to recede from her position.
When British shipowners had acquired the habit of neutrality
in the century after the fall of Napoleon, they resented the
risk of being dragged before a foreign prize court without hope
of appeal, and the British Government, then Liberal, joined with
us in promoting at The Hague the creation of an international
prize court, to which appeals could be taken from the decisions
of national prize courts. Maritime countries which expect to be
neutral have need of this reform. Unless there is an interna-
tional court of appeals in prize cases, there can be no international
law of naval warfare. The traditional system of national prize
courts means that the belligerent — by definition, not in fact, in
a judicial frame of mind — will be complainant, judge, and exe-
cutioner.2
No sooner had this convention been signed at The Hague than
the question arose: what law will it execute? The Conference of
London met in December, 1908, at the invitation of Sir Edward
Grey, to see if it were possible to reach a general accord on a code
of law for naval warfare. The instructions issued to the British
delegates by Sir Edward Grey gave a clear statement of the in-
terests of the British merchant marine when neutral as against
the interests of the navy when at war. At The Hague Conference,
on July 24«, 1907, Lord Reay had stated that the British delega-
tion held that "contraband should be abolished and neutral com-
merce restored to the freedom it requires." It was not possible to
obtain agreement at London on so sweeping an alteration in the
ideas of naval warfare, but the British argued for a short definite
list of "absolute contraband" and for a long and much more gen-
eral "free list" ; among other things which with British approval
were put on the free list were cotton, wool, rubber, and metallic
ores.
Paragraph 2 of Article 29 of the Declaration is interesting :
Ne peuvent non plus etre consideres comme contrebande dc guerre:
* * * * *
#. Les objets et materiaux destines a Vusage de navire oA Us sont
2 See British Blue Book. Miscellaneous. No. 4 (1909). Also, Proceedings of Sec-
ANGLO-AMERICAN NAVAL CONTROVERSY 579
trouves, ainsi qu'a Vusage de Vequipage et des passagers de ce navire
pendant la t raver see.
This was the translation into French of the old dictum of English
prize courts that nothing could be declared contraband which
was "needful for the working of the ship or the comfort of the
crew." This was the point at issue in the "bunker coal cases" dur-
ing the World War : by Order in Council the British declared that
"bunker coal" was contraband; their cruisers held up neutral
ships on the high seas and sent them into British ports ; if the ships
had coaled in an enemy port, their bunkers were stripped. And
so they lay idle, running up demurrage charges until they gave
in and filled their bunkers with British coal, and the British would
not even sell coal to a neutral ship unless its owners signed an
agreement not to be neutral. This was not a case of simply refusing
to recognize the (unratified) Declaration of London; in treating
"bunker coal," certainly necessary for the "working of the ship,"
as contraband, the British violated their own prize court prece-
dents and abandoned the tradition of fair play which had been
established by Lord Stowell in the days of Napoleon. Yet it should
be remembered that when we entered the war, we fully accepted
the British practice as to "bunker coal," in order to coerce the
neutrals.
On fundamentals the American and British delegates stood
shoulder to shoulder in the Conference of London, and made it
evident that there is no profound divergence of interest between
the two countries in regard to sea law when they approach the
problem from the standpoint of neutrality.
The resulting Declaration of London, signed in the spring of
1909, was of course a compromise, but on the whole it was a tri-
umph of the party of neutrality. It satisfied the main American
contentions in every point, it was welcomed by all the less power-
ful seafaring nations, and it was favorable to the trading inter-
ests, shipowners, and exporters of England as long as England
should be at peace.
But the ratification of the Declaration of London was defeated
in the House of Lords by the argument that Great Britain could
580 AMERICAN FOREIGN RELATIONS
not gamble on always being a neutral; the Declaration of Lon-
don, if adopted, would limit, to a degree that was difficult to esti-
mate, the action of the navy if the Empire should become bellig-
erent. But it was also true that the adoption of this code of sea law
would limit, to a degree equally hard to estimate, the naval threat
of Britain's enemies to her importation of food and raw materials.
The opposition to the Declaration was based on the assumption
that British naval superiority was so great that they could pro-
tect their own sea communications and cut those of their enemy ;
this assumption, which overlooked the possibilities of the sub-
marine, was not wholly justified by the events of the World War.
These two opposing attitudes in Great Britain toward naval
policy have never been reconciled ; they explain the inconsistencies
with which the British Government is reproached. On one hand
are the interests centered in sea trade, shipbuilders, and owners,
importers and exporters ; it is a rough approximation to say that
in the past they have been represented by the Liberal Party ; their
point of view is summarized in Sir Edward Grey's instructions to
the British delegates to the Conference of London; their plans
are based on the assumption that Great Britain is normally at
peace. Opposed to them is an influence much harder to define. Its
spokesmen are the admirals and the Navy League ; its supporters
in Parliament are generally on the Conservative side. Recently
Lord Webster Wemyss, who commanded the British fleet at the
Dardanelles and who was for a time First Sea Lord, proposed in
the House of Lords that Great Britain should denounce the Dec-
laration of Paris of 1856. He is reported as saying:
Every Englishman knows in a general way that his safety and
even the national existence depend entirely on the navy but he has
the vaguest idea what a fleet does. Its chief power lies not in guns
or torpedoes, but in the immemorial right of all belligerents to sup-
press entirely all sea-borne supplies of enemies on which the enemies'
continued resistance must depend.
It was this point of view that rallied an indecisive majority of
the Lords to defeat the ratification of the Declaration of London
in 1909.
ANGLO-AMERICAN NAVAL CONTROVERSY 581
The outbreak of the World War seemed to give the English
opponents of the Declaration of London full justification;
"Thank God,55 they said, "those Liberals did not succeed in crip-
pling our navy." But even without the hampering of the Declara-
tion of London, the British navy found it not so easy to end the
war by a naval blockade as they had expected; there will have to
be thorough study of the technique and effect of the blockade be-
fore anyone will have a right to a definite opinion of how much
and in what sense the situation would have been changed if the
Declaration of London had been in effect.
The absence of any code of sea law left the British navy a free
hand to do what they wished ; but in spite of this freedom, they
found that there were many things they had wished to do, things
they had expected and more or less promised to do, that they
could not do. Such a sword is two-edged. In 1914 few persons in
the British Admiralty thought that they would wish the United
States to enter the war, so a controversy with us which might
prevent and would certainly retard our entry on their side did not
seem important ; few Admiralty officials dreamed of the effective-
ness of the submarine as a commerce raider. The British navy
found that it was not a simple matter to protect by force the import
of food as it would have been protected in law if the Declaration
of London had been in force. The calculation of the debit and
credit of the two policies is a difficult task which has not yet been
adequately attempted. The archives of no one country will tell
all of the story. At what time and in regard to what materials
did the economic pressure of the Allies cause the Central Empires
most concern? Before the war, Germany imported raw copper
from America and worked it up in her factories for her own use
and for export, furnishing Russia with practically all her copper
utensils. Contrary to the spirit of the Declaration of London, the
Allies banned copper ; Germany of course stopped all her export to
Russia. The Swedes then tried to build up an industry to supply
Russia's and Germany's needs, and placed large orders for raw
copper in America. But the British stopped this import, knowing
that it was going to their enemy, as well as to Russia, Russia was
thus penalized by a policy aimed at Germany. Which country
582 AMERICAN FOREIGN RELATIONS
suffered more and first from the lack of copper, field telephone
wire, and shell rings, the enemy or the ally? The general problem
warrants careful study in all its ramifications, both by those who
advocated and by those who opposed the codification of the laws
of naval warfare in 1909, for it goes to the root of the Anglo-
American naval controversy.
THE HEART OF THE MATTER
IF the Declaration of London had been ratified by both coun-
tries this old dispute would have ended. It raised its head again
threateningly at the unfortunate Three Power Conference. It is
the excuse offered by all naval authorities for the immense building
programs they advocate. On both sides of the Atlantic the great
majority of people would rather have it thought out than fought
out. What has the World War taught us in the matter? Do the
arguments which defeated the Declaration of London in 1909 still
hold against any modern attempt to settle this dispute by con-
ference and agreement?
Nothing has happened in these last twenty years to alter the
American standpoint. Although our overseas trade is large and
grows apace, we still find it more economical to entrust a good deal
of it to foreign bottoms. Our efforts to build up a great and self-
sufficient merchant marine have not as yet been successful, and
without a great reserve of merchantmen to draw on it is difficult
to develop a navy strong enough to rule the waves. So, as in the
past, like all nations which go down to the sea in ships but do not
rule the waves, we have an undivided opinion in favor of defining
the rights of neutrals and belligerents in naval warfare.
But the events of the World War presented a number of new
aspects of the old problem to the British.
(1) No English shipowner or exporter can study the prece-
dents set up by his country during the last war without dismay.
Never have Orders in Council gone so far in denying any rights
to neutral trade.
The judges of the British prize courts made a brave fight for
the old concept that international law transcends domestic legis-
ANGLO-AMERICAN NAVAL CONTROVERSY 583
lation; they refused — in the Zamora Case — to recognize Orders
in Council which violated accepted dogmas of international law ;
but they were powerless before acts of Parliament. In opposing
the Declaration of London, the Sea Lords said, "We cannot gam-
ble on always being neutral." The practice established between
1914< and 1918 appears to be founded on a bet that Britain will
always be a belligerent ; if she should be a neutral in another war,
the precedents established by her prize courts in the World War
will be disastrous to her overseas trade.
There is a grim humor in the way that our Civil War inter-
pretation of the "doctrine of continuous voyage" was turned
against us by the British Admiralty in the World War. It had un-
doubtedly helped the Federal Government in the 'sixties to make its
blockade of the Confederacy successful ; and having ourselves de-
veloped this doctrine, we were in a weak position to protest against
its use and extension by the British. The shoe, however, is now on
the other foot; the British, their minds concentrated on winning
the last war, established precedents which will rob their own trade
of all protection in any future war in which they are neutral.
Suppose a war in the Near East between Greece and Turkey ;
citing British precedents, the Greek navy would be justified in
ordering into a Greek port for leisurely search every British mer-
chantman that passed Cape Matapan on its way through the Suez
Canal. Suppose a war between ourselves and any South American
republic; on the precedents established by Great Britain in the
war against Germany, we should be justified in interrupting all
British trade with any country possessing rail communication with
our enemy.
To the British subject, whose interests are engaged in peaceful
trade, who hopes that his country will be neutral in the next war,
the new developments of international law which his government
sponsored in the last war are terrifying.
(2) There has been a profound change in the armaments of
the world since 1909. Most of the arguments used for and against
the Declaration of London at that time were based on the prece-
dents used in the palmy days of sailing ships. Besides the inven-
tion of the steamship and the railroad, which profoundly alter the
584 AMERICAN FOREIGN RELATIONS
problem of naval blockade, the last war demonstrated the arrival
of a new and formidable weapon — the submarine. We shall have
to revise our ideas of what constitutes an "effective blockade,"
when cargo ships can dive under the patrolling fleet ; we shall have
to revise our definitions of "search" and "seizure." The British
will have to alter their strategical plans for keeping open the
sea routes for the importation of food. They may not agree with
us as to what sea law should be, but they cannot shut their eyes
to the fact that the submarine has so altered the problem that
some revision is necessary.
We can hardly be content with demonstrated fact, we must look
a little into the future; the progress in the development of air-
craft must also be considered. We cannot foretell exactly what
role the aerial weapon will play in the next war, but it will be im-
portant. As an instrument in blockading a vulnerable coast like
that of the British Isles, aircraft may prove not only cheaper in
money and men than submarines but also more effective.
The value which men like Admiral Mahan gave to surface sea
power has been definitely lessened by the development of instru-
ments for sea fighting under and over the waves. Neither as an
instrument for blockading the enemy nor for defense against
the enemy's effort to blockade is the old-fashioned navy on which
British sea power has depended so effective as it used to be. "Giv-
ing the navy a free hand" — the cry of those in England who op-
posed the Declaration of London — does not mean what it did in
1909. It may be that the British can develop a submarine force
and an aviation power which will give them the same supremacy
below and above the waves that they have had on the surface, but
the decisions of Lord Stowell's prize court in 1810 will have little
bearing on the situation. The problem has changed so completely
that the arguments of the Conference of London now have lost
much of their meaning.
(3) There has been as much change in the methods of bringing
economic pressure to bear on the enemy as there has been in the
weapons of the sea. The arguments of the Conference of London
and of the older discussion at Paris (1856) on the nature of
blockade are out of date ; in those days blockade was solely a naval
ANGLO-AMERICAN NAVAL CONTROVERSY 585
matter ; but in the World War the role of the warships was only
part of it.
There is general agreement that the economic pressure exerted
on Germany by her enemies was a considerable element in her de-
feat. Discussion as to which arm contributed more to victory is as
futile as argument on the question which nation won the war, but
even from soldiers, who might be expected to overstate the role
of land forces, great credit is given to the blockade ; added to the
actual want of necessities operated the psychological factor of
isolation to undermine the morale of the people.
The navies of the Allies contributed greatly to this economic
pressure, but they cannot claim credit for all of it. Besides what
Lord Stowell and the delegates to the Conference of London would
have recognized as a naval blockade, there was a highly de-
veloped economic and financial organization, which operated
against the enemy — not at sea, but in the offices of merchants and
bankers and in governmental bureaus. "Enemy Trading Acts,"
"black lists," various commercial agreements such as the British
purchase and destruction of the Norwegian herring catch to pre-
vent its sale to Germany, collaborated with the navy and supple-
mented its work in bringing pressure to bear on Germany. Of
course all these methods of economic warfare, which might be called
"boycott" as distinct from "naval blockade," had nothing to do
with the Declaration of London and could be employed as effec-
tively if the Declaration had been ratified. As far as the British are
themselves concerned, it is impossible to strike any balance as to
which of these methods, blockade or boycott, did the more harm to
their enemies.
We have an opportunity to separate the two more sharply when
we consider the war action of the United States. German opinion
is agreed that the economic pressure increased tremendously after
we entered the war, yet we contributed only slightly to the naval
blockade, and the British blockading squadrons were not notice-
ably strengthened by the warships we sent over. Our contribution
to the economic pressure on Germany was overwhelmingly by the
method of boycott; the work of the War Trade Board was far
586 AMERICAN FOREIGN RELATIONS
more effective than the addition of our naval forces to those of
the Allies.
(4) The political map of the world has been evolving for a
hundred years in the direction of the decentralization of sea power.
A far-sighted statesman could have seen this in 1909, when the
Declaration was under discussion ; it is evident to all today.
After the defeat of Napoleon, Britain was not only stronger at
sea than any of her rivals, but supreme over all combined. By the
middle of the last century that supremacy was becoming expen-
sive ; soon the Admiralty had to content themselves with a three-
Power standard ; by the turn of the century they were reconciled
to a two-Power standard : the Admiralty turned over to the For-
eign Office the task of seeing to it that no combinations were
formed against the Empire of more than two strong navies. But
"isolation," even at that ratio, proved too expensive ; once more the
Foreign Office took up some of the burden, and, by arranging an
alliance with Japan and an entente and naval correspondence with
France, relieved the pressure on the Admiralty and made it pos-
sible for them to maintain a fleet in the North Sea superior to the
growing German fleet.
That the World War has completely changed this situation is
illustrated by occasionally strained relations between London and
Paris, the lapse of the Anglo-Japanese Alliance, the influence on
naval strategy of the development of "the cheap weapons" (air-
craft and submarines) by nations which formerly did not count
in the naval balance, and by the growth of the American navy.
The kind of naval supremacy that the opponents of the Dec-
laration of London were talking about in 1909 has been made im-
possible partly by the development of new weapons and partly by
the changed political situation.
(5) The Covenant of the League of Nations has laid obliga-
tions not only on the imperial government at London but on the
governments of all of the Dominions. Although from the constitu-
tional point of view there is some uncertainty over the meaning
of phrases in the Covenant which the proposed Protocol of 1924
was intended to clarify, the British Commonwealth is pledged
(save in a few exceptional and remote cases) not to go to war on
ANGLO-AMERICAN NAVAL CONTROVERSY 587
its own initiative, and not to remain neutral in a conflict between
the League and a Covenant-breaking nation. In guaranteeing the
accords of Locarno, Great Britain has formally undertaken to
come with all her resources to the aid of the victim of aggression
in the Rhine area.
If these engagements mean anything — and similar engagements
have been accepted by all of the members of the League — it means
that the old problem of belligerency or neutrality has been pro-
foundly changed. States which have not joined the League may
preserve a traditional attitude in the matter, but for the member
states the juridical bases of war have been completely altered. The
change is so revolutionary that a generation or more must pass
before it can be assimilated by the public mind.
Except in the case of the much discussed "loopholes" in the
Covenant, which the Protocol was intended to close, no member of
the League of Nations can use force against another nation with-
out violating its covenant, except in international police action
against an outlaw nation condemned by an international tribunal
as a disturber of the peace.
For the members of the League there is now a constitutional
distinction between "private" and "public" war. Private war has
been renounced; public war has been made obligatory. Except
for the "loophole" cases there is no juridical basis left for the
old idea of neutrality. The situation is similar to that ascribed by
Plutarch to the old Greek republics in which it was compulsory for
all citizens to take sides in civil strife ; neutrality, when the fate
of "the City" was at stake, was regarded as immoral. So the
League tends to consider the world as a civic unit and any war a
rebellion, a struggle between constituted authority and the sedi-
tious.
The decision of the American Government not to enter the
League blighted Wilson's hope that neutrality would be abolished
on the advent of the Covenant ; by staying out we are still free to
imagine ourselves as neutral in a future war, and do not feel the
necessity to think out the implications of this modern doctrine, the
distinction between public and private war, the difference between
international duelling and international police action.
588 AMERICAN FOREIGN RELATIONS
If two nations fall out and come to blows over some private
dispute in the old way, neutrals might see no moral objection to
supplying both sides with equipment for intensifying and pro-
longing the conflict. But, if, on the contrary, other nations vol-
untarily enter into engagements to renounce private war and
work out processes of conciliation and a juristic system, and if one
nation breaks out of the family of nations and brings upon itself
the ban of outlawry and the other nations unite to defend the
law and punish the disturber, then the resulting hostilities would
be as different from the wars on which our doctrines of neutrality
are based as aircraft are from the frigates which constituted the
basis of Lord Stowell's decisions. International police action, if it
ever takes place, cannot be assimilated to old-fashioned belliger-
ency.
When Englishmen were discussing the Declaration of London
in 1909, this new distinction between public and private war had
not been invented. In those days the Empire had not entered into
a covenant "to achieve international peace and security" ; it had
not given its "acceptance of obligations not to resort to war.*5
It had then acknowledged no limitation on its right to go to war
at any time and in any manner. It was juridically justified in con-
sidering the probability of being a belligerent in a private war and
planning for it.
To discuss whether there is any possibility of Great Britain
ever going to war again is futile ; such a possibility exists, even
without violation of existing pledges. But the probability of the
British navy again being used in a private war, the probability of
Great Britain again being a belligerent or a neutral in the old
sense, has been greatly reduced. No Englishman who believes that
his country will redeem its pledges can maintain that the argu-
ments used against the ratification of the Declaration of London
have the same force now as they had in 1909.
All of these developments between the Conference of London and
the Three Power Conference — the certainty that the great ex-
pansion of the rights of belligerents in naval war would be used
against Great Britain if she were neutral in a future war; the
progress of invention in armaments, which lessens the importance
ANGLO-AMERICAN NAVAL CONTROVERSY 589
of "surface control"; the discovery of new and more effective
methods of boycott ; the altered political map ; the new obligations
of the Empire under the Covenant and the Locarno pacts — all
these combine to make the British more desirous to end the old
naval controversy with us. These developments, by lessening the
value of the stake threatened by the Declaration of London, make
it easier to reach an accord. The new aspects of the situation have
not escaped the attention of the British and are now being openly
discussed; the process takes time, for traditional patterns of
thought change slowly.
CHAPTER NINE
SUGGESTIONS FOR AN ANGLO-AMERICAN
NAVAL UNDERSTANDING
WITHOUT some preliminary discussion of the problem of
the seas between Washington and London, some under-
standing of each other's difficulties and obligations, some accord
on the fundamentals of naval policy, a future conference would
be as futile as the conference of 1927. Other countries are in-
terested in the problem and should be considered if there is to be
any hope of a solution, but the British and American navies domi-
nate the situation so completely that the final responsibility rests
on them. There are three possibilities of the future, (1) continued
jealousy and friction, (2) Anglo-American copartnership, joint
dictatorship of the seas for the greater glory of the English-
speaking world, (3) freedom of the seas. In the first case, there
would be no hope of peace at sea, no prospect of naval disarma-
ment. In the second case, all the maritime countries excluded from
the Anglo-American "trust" would go in heavily for the "cheap
weapons" of sea warfare, aircraft and submarines. In the third
case, all the seafaring countries would quickly and joyfully ad-
here to such a regime supported by the United States and Great
Britain.
These three possibilities and all the permutations and combina-
tions of their elements have been the subject of endless discussion
in the press of the world. Judged by the amount of newspaper
space devoted to it, the failure of the Three Power Conference was
one of the major political events of 1927; the editorial writers of
even such land-locked countries as Czechoslovakia and Switzerland
have discussed the causes of the fiasco, the probabilities of the fu-
ture, and the effect on the policies of their country.
Nowhere has there been more space given to the affair, more
searching analysis of the problem, more proposals for a solution,
than in the British Empire. Disappointment at the failure of the
conference, concern at the idea of Anglo-American dissension, and
a searching into the future, are exhibited generally. One writer, for
ANGLO-AMERICAN NAVAL UNDERSTANDING 591
example, suggests the following text as the base of a possible un-
derstanding :
(1) England and America agree not to molest each other's com-
merce on the high seas in the event of their ever being at war with
each other.
(2) The whole of the North Atlantic and adjacent waters from
the American coast to the east coast of England is hereby declared a
free sea, in which their non-contraband commerce is exempt from
molestation by belligerent craft. England and America will regard
such molestation by any belligerent Power as an unfriendly act, and
will concert measures to prevent its commission.
The significance of this proposal is that it indicates that public
attention in England is being called to the root of the Anglo-
American controversy. The proposal in this form would hardly be
acceptable in America and would certainly be severely criticized by
other maritime countries, but the state of mind it indicates is
welcome. Other proposals, ranging from an Anglo-American al-
liance to such complete revision of the ideas of naval warfare as
would limit the function of warships to fighting other warships
and would free merchantmen from any naval interference, have
been common in the British press.
Compared to the seriousness with which this problem has been
discussed in the British press, the attitude of American newspa-
pers has been on the whole good-natured and somewhat frivolous.
A few newspapers, some of large circulation, have joined the big
navy chorus, but rarely has any organized propaganda in the
United States sputtered out with so little effect. Members of Con-
gress who first announced themselves as advocates of Secretary
Wilbur's naval program and who even wished to fix a time limit
for its completion, finding no support among their constituents,
have turned their attention to what they hope to be more popular
expenditures. Though there has not been so serious a discussion of
the basic controversy in our press as in that of England, it is
evident that the idea of a race for naval supremacy is as unpopular
on one side of the Atlantic as on the other.
Yet the problem will not solve itself ; the controversy will flare
up again and again unless it is faced and resolved ; even if it drops
592 AMERICAN FOREIGN RELATIONS
out of view for a while, it will be recalled in 1931 when the Wash-
ington Naval Treaty expires and the five signatory Powers are
under obligation to re-convene.
A comparison of a large number of "proposals," a study of the
history of the controversy and the current discussions, indicate
that the divergence of interests is not so great as it once was and
that the elements of the problem are not numerous. The prime
desiderata of the two countries can be stated in short space.
(1) Unless there is a complete and unforeseeable change in
American opinion, we shall continue in the future, as in the past,
to demand the freedom of the seas. Our contention has always
been that the code of the sea should be a matter of agreement
among the maritime nations and not a matter of the might of the
strongest navy. International lawyers might dispute among them-
selves over the definitions of "blockade," "contraband," "un-
neutral service," "continuous voyage," and the like, but the popu-
lar demand is for a definition of "contraband" and the greatest
freedom for neutral commerce in "non-contraband."
Of course any such rule would have to work both ways ; Ameri-
cans who believe that our destiny points to war will be opposed to
accepting any limitations in "the freedom of action" of our naval
forces, but the great mass of our people would favor securing
tangible gains for the periods when we are sure to be at peace,
rather than sacrifice them for hypothetical advantages in pe-
riods when we may be at war. Our interests overwhelmingly de-
mand a regime on the seas based on the kind of law that comes from
agreement and treaty. The actual terms of the code are not so
important as a definite understanding of what the rules are. If the
misfortune of war falls again on the seas, neutral trade can ac-
commodate itself to almost any set of laws, but that the laws should
be altered at will by the might of the strongest is a complete denial
of freedom.
(2) British opinion is not so clear cut or so nearly unanimous.
There is a strong Admiralty tradition, based on British naval
supremacy, which relies on sufficient power to enforce one set of
rules when Britain is neutral and an opposite set when Britain is
belligerent. As this position does not appeal to reason, it can be
maintained only by superior force.
ANGLO-AMERICAN NAVAL UNDERSTANDING 593
The vital interest of the British Isles is in uninterrupted im-
port and export. The navy was not so effective in the last war in
protecting the sea lanes, in assuring the import of food and raw
materials, or in reducing the enemy, as the Admiralty tradition im-
plied that it would be. The progress of invention in submarine and
aircraft has made it doubtful whether the Admiralty could even
come as near to fulfilling their promises in any future war as they
did in the last war.
Furthermore, even if Great Britain were prepared to seek pro-
tection for her food supply through an agreement on what we call
the freedom of the seas, instead of relying on the Admiralty, she
could hardly do so because of her obligations under the Covenant
of the League and the Treaty of Locarno. In case of a public war
— that is, international police action to enforce respect for some
international treaty, — the burden of naval blockade would fall
on the British. It is therefore of the utmost importance for the
government of the United Kingdom and all of the self-governing
Dominions to secure our recognition of their obligations in a pub-
lic war.
Consider the situation created by the Locarno treaty. France
and Germany agreed to renounce war in the Rhineland and to
submit any controversy which may arise to some organ for the
pacific settlement of international disputes. England guaranteed
the treaty. If either France or Germany violates her pledges and,
refusing to accept any peaceful settlement, marches an army
across the Rhine, Great Britain is pledged to come to the aid of
the victim of the attack. What would the United States do? We
were not asked to make any such pledge as those signed at Lo-
carno ; we were not asked to guarantee them ; but should we ignore
them? Should we, on the plea of our traditional rights as a neutral,
insist on furnishing both sides with munitions and food supplies?
Great Britain needs to know the answer. Must she have a navy
strong enough to blockade the nation which, violating its pledge,
becomes an aggressor? Or must she have a navy which is also
strong enough to prevent us from breaking the police blockade?
The difference is portentous.
Study of these different proposals from both sides of the At-
594 AMERICAN FOREIGN RELATIONS
lantic shows that the fundamental aspects of this old Anglo-
American naval controversy are relatively simple and that, if
there were a real spirit of accommodation between the two govern-
ments, it would be necessary to come to agreement on only two
bases. The details would not be difficult to arrange.
Base I. The contracting parties agree not to interfere with
neutral non-contraband commerce at sea in case of a private war.
Base II. The contracting parties will not insist on the tradi-
tional rights of neutral trade in case of a public war.
The first base would be a British concession in giving up a right
which they have always insisted upon in the event of private war.
It would not be a great concession for them, since they have already
accepted sweeping obligations not to become involved in such a
war. For us this article would mean the gain of almost everything
we have hitherto demanded of the British. This base would become
operative if the League of Nations should fail in its purpose, which
would bring on the kind of war from which all our ideas of bellig-
erency and neutrality have evolved.
The second base would be an American concession. It would be
a pledge on our part not to be the economic ally of a nation which,
by violating its freely accepted agreements, had brought upon
itself international police action. It would mean that if this new
kind of conflict broke out, no nation could rely on us to help it
out of trouble brought on itself by the violation of its treaties. This
base would become operative if the elaborate machinery which has
been created for the pacific settlement of international disputes
should fail in its purpose, and some nation, defying international
public opinion, were declared an aggressor.
Such an article would not add in any way to the obligations
which the British Empire has already accepted ; for us it would
put into treaty form the idea embodied in the Burton and Capper
resolutions now before Congress. Instead of being a unilateral
declaration, however, it would be a treaty of obligation, through
which we should receive satisfaction for our old demand for the
freedom of the seas.
If these bases were accepted by England and America, it would
of course be necessary for the diplomats to deal with detail in draft-
ANGLO-AMERICAN NAVAL UNDERSTANDING 595
ing a treaty. It would be necessary to make a sharp definition of
"contraband" and to arrange for a periodic revision of the "list,"
to define with precision the distinction between "private" and
"public" war ; and it would be to the interest of both parties to
add an article undertaking to use their influence in persuading
other maritime nations to adhere to the agreement. A general naval
conference might then be called not on disarmament, but on sea
law. Such an Anglo-American accord, even if not at once accepted
by other nations, would immediately affect the naval strategy of
both countries so strongly that they could at once revise their naval
programs downward.
Such an Anglo-American accord in regard to the laws of the
sea would be welcomed by all other maritime Powers. To such
countries as Holland, which live by the sea but have relatively
small navies, it would be the realization of a security for which
they have hardly dared to hope. It would profoundly alter the
strategical problems of France and Italy and markedly reduce
the incentive for naval expansion in the Mediterranean. And the
benefit to Japan, an island empire depending on importation for
food and raw material, would be direct and immense.
The pledge of the United States not to attempt to break an in-
ternational police blockade would greatly facilitate and encour-
age the movement for the non-military security pacts on which the
land disarmament of Europe rests, and would lead to hope for the
reduction of armies as well as navies. A conference on the limita-
tion and reduction of naval armaments, if based on a preliminary
understanding of this kind, would be a move in the direction of
general disarmament.
At present there is uncertainty as to the purpose of the United
States in this matter. The proposal of the General Board of the
Navy of an $800,000,000 building program on the heels of the
failure of the Three Power Conference was interpreted abroad as
the announcement of a determination to wrest the rule of the sea
from the British. Continental political writers, having previously
believed in an effective, if unacknowledged, Anglo-American en-
tente, swung to the opposite and equally exaggerated belief in "an
596 AMERICAN FOREIGN RELATIONS
irrepressible conflict," and discussed Anglo-American relations in
the terms of Carthage and Rome.
The idea of an attempt by the United States to displace the
British dictatorship at sea disturbs European thought, for no one
can foresee where the sparks of such a conflagration would fall.
While the maritime nations of Europe have suffered the British
dictatorship too long and too recently to have any affection for it,
they have no reason to believe that, if we supplanted the British
in that domination, we should be in any way preferable. But if the
United States should come out sincerely for the freedom of the
seas, for the abolition of dictatorship, for a regime of agreed
"rights" as against might, the majority opinion of Europe would
probably be on our side.
If the American Government proposed to discuss the naval
problem on the bases of (1) the freedom of the seas in private war
and (2) recognition of public war or international police action,
it could count on support from a considerable body of opinion
within the British Empire. It could probably count on effective
support at once from the self-governing Dominions, and while
time would be needed for opinion in the British Isles to consider
the proposal soberly, to balance the debits and credits — for such
questions of maritime policy are the most vital that British opin-
ion must answer — it seems probable that it would be found that
the proposal would meet the needs of the British people as happily
as it would meet ours.
After all, what one thinks of the texts of the various proposals
for an Anglo-American accord matters relatively little ; the prob-
lem can be stated in different terms, and the difficulties could be
met by a dozen different verbal contrivances, given an effort at
mutual understanding and a friendly desire for accord. But it is
obvious that if the United States is to contribute to this movement
for the reduction of armaments, there must be discussions with the
British on broader bases than those of the agenda of the Three
Power Conference. Without some Anglo-American accord in mari-
time policy, there is no reasonable hope for naval reduction ; and,
if Britain and America cannot agree to limit themselves at sea,
there is no reason to argue that the land Powers of Europe should
disarm.
INDEX
Abbott, Grace, 308.
Acton, Lord, 18.
Adams, John, 25, 26, 27, 28, 76, 93, 95,
98, 126, 137; quoted, 26.
Adams, John Quincy, 11, 30, 32, 39-41,
50, 52, 56, 97, 98, 99, 137; quoted, 39.
Adams, Samuel, 434; quoted, 26.
Adee, Alvey A., 133, 140.
Africa, 31, 467, 468.
Agriculture, exports in, 153, 222, 518;
production in, 158, 158 n.
Alabama claims, 101.
Alaska, 41, 474.
Albert, King, 336.
Algeciras Conference, 16, 32, 34, 37,
102, 105, 492.
Algiers, 145.
Aliens, property of, 465-466, 471-472,
483, 484, 487; protection of, 103,
117, 118, 261.
Alliance, Triple, 5, 492.
Allied and Associated Powers, 167, 265-
266 ; debts among, 371, 376, 405-450,
459-463; and secret commitments,
253, 412; tension among, 349-350,
350-354; war aims of, 326-327, 328-
329, 330-331, 412-413.
Allied Maritime Transport Council, 266.
Alsace-Lorraine, 327, 337, 383.
America, see Central America; Latin
America; North America; Spanish
America.
American Peace Society, 235-236.
American Society for the Judicial Set-
tlement of International Disputes,
236.
Anderson, Benjamin M., Jr., 221, 454;
quoted, 176.
Anderson, Chandler P., 473 n.
Andrew, A. Piatt, 433; quoted, 414.
Angell, Norman, 492, 493.
Antoninus, 63.
Arbitration, 12, 32, 48-49, 53, 98, 100-
101, 103-104, 107-108, 114, 120, 236,
237, 296, 298, 508, 512-514; compul-
sory, 236, 512-514, 516, 554, 555;
financial, 190, 198-199,366, 368.
See also Geneva Protocol; Permanent
Court of International Justice.
Argentina, 48, 52, 220; trade with, 161.
Armament, 5, 9, 20, 50; American, 7,
492-493 (see also Navy, American) ;
equality of, 550-552; loans for, see
Loans, non-productive ; post-war,
502-503; pre-war, 491-493, 502; war
increase of, 493-494.
See also Armament, limitation of.
Armament, limitation of, 104, 107, 233,
312, 317, 321, 489-559; Central
America and, 534-535; criteria for,
504-506; Germany and, 467, 468,
497-498, 499, 504; on land and sea,
540, 541, 543-544, 546, 550, 567, 558,
595, 596; League and, 498, 499,
501-507, 535, 537-539, 542, 654-556,
658-559; political aspects of, 312,
506-507, 535, 536, 537-538, 539-542,
643, 547-548, 552, 556, 558; public
opinion and, 525-526, 528, 539, 658;
Russia and, 533-534, 535; United
States and, 501, 509, 525, 535, 541,
543-547, 549-553, 557, 596 (see also
Washington Conference) ; Ver-
sailles Treaty and, 497-499.
See also Geneva Protocol; Washing-
ton Conference; Three Power Con-
ference.
Armament Year-Book, 502.
Armenia, 432.
Armenians, 30.
Arms, traffic in, 53, 102, 103, 116, 310-
312, 570.
Asia, credit to, 170; markets of, 15, 33;
American trade with, 152.
See also Far East.
Auld, George P., 344; quoted, 345, 380.
Australia, 524, 554; credit to, 170.
Austria, 29, 43, 73, 232, 318, 328, 338,
424, 432, 465, 466, 469; loan to, 169,
314, 342 n.; and reparations, 342 n.
See, also Austria-Hungary.
Austria-Hungary, 409, 410-411, 670;
cost of war to, 408.
See also Austria.
Aviation, 505, 529, 573, 584, 586, 593.
Bacon, Senator, 105, 114.
Bagehot, Walter, quoted, 552.
Baird, Senator, 243.
Baker, Newton D., quoted, 460.
598
AMERICAN FOREIGN RELATIONS
Baker, Philip Noel, 498; quoted, 491,
498.
Baker, Ray Stannard, quoted, 330.
Balance of power, 4-6, 17, 22, 30, 492;
in Caribbean, 15; in Pacific, 16, 33.
Baldwin, Stanley, 364, 427, 511.
Balfour, Earl, Note of, 428-429, 435,
448.
Balkans, 6, 327, 492.
Bank of England, 184, 185, 204, 218, 219,
220, 222, 446.
Bankers Trust Company of New York,
168.
Banking, for foreign trade, 154, 159,
166, 197, 225; international co-
operation in, 220-223, 226.
Baring Brothers, 197.
Barral, Jean, 217.
Barthou, Louis, 287-288.
Baruch, Bernard M., 273, 332; quoted,
331, 332.
Bay Islands, 44.
Bayard, James A., 251.
Bayard, Thomas Francis, 30, 44.
Belgium, 252, 327, 333, 336, 342, 350, 357,
516, 527; armament of, 503; finances
of, 168, 336, 371, 405, 406, 409, 435,
437, 441, 442-443, 444, 445, 447, 451.
Bencs, Edouard, quoted, 512.
Bentham, Jeremy, 233.
Berenger, Henry, 434; agreement of,
with Mellon* 193, 429-430.
Bergmann, Carl, 343, 343 n.; quoted,
340 n., 343-344, 365.
Berlin, Treaty of, 466-470, 472, 474,
475, 477, 478, 479, 481-482, 483.
Berlin Conference of 1884-5, 31, 55.
Beveridge, Senator, 105.
Bid die, James, Commodore, 146.
Billy, Robert de, 424, 425.
Bismarck, Prince, 459 ; quoted, 360.
Black List, British, 518, 585.
Blackstone, Sir William, 88, 113.
Bliss, Tasker H., 248.
Blockade, 71, 75, 316, 513, 561, 563, 567,
584-586, 593; British, of Germany,
231, 518, 581, 685-586; submarine,
519.
Blue, Rupert, 308.
Bogart, E. L., 402.
Bolivia, 48; trade with, 161.
Bonar Law, Andrew, 364, 365; quoted,
287.
Bonilla, Manuel, 54, 56.
Borah, Senator, 115, 198, 244, 271, 276,
278, 296, 525-526.
Bowman, Isaiah, 315 n.
Boxer uprising, 15, 33.
Boycott, economic, 584-585, 589.
Boyden, Roland W., 343.
Brazil, 52, 61, 319; trade with, 161.
Brest-Litovsk, Treaty of, 360.
Briand, Aristide, 367, 532.
Bridgeman, Rt. Hon. W. C., 546, 548,
549, 574.
Bright, John, 70-71, 73.
Bruins, G. W. J., 369.
Brum, Baltasar, 52.
Bryan, William J., 118, 237, 250; quoted,
183.
Bryce, Viscount, 122; quoted, 124.
Buchanan, James, 137.
Bucharest, Treaty of, 360.
Budapest, Treaty of, 466, 468-469.
Buell, R. L., quoted, 520.
Buenos Aires, 40.
Bulgaria, 328, 338, 342 n., 412, 468.
Bullitt, William C., 273.
Burgess, W. Randolph, quoted, 215.
Burton, Theodore, 115, 312, 433.
Burton and Capper resolutions, 594.
Butler, Pierce, 94.
Buxton, Sydney, 409.
Caillaux, Joseph, 346, 434, 461.
Calhoun, John C., quoted, 50, 109.
Calmette, Germain, 351 n.
Calvo, Carlos, 52.
Cambon, Jules, quoted, 552.
Canada, 9-10, 50, 166, 178, 315, 514, 524,
554; loans to, 168, 168-169, 170;
trade with, 163-164.
Cannes Conference, 345.
Canning, Stratford, 39, 40, 41, 61, 62,
69, 73; quoted 61-62.
Capacity to pay, 433-434, 435, 450, 460;
German, 332, 335, 338-339, 365, 366,
372.
Capital, 7, 19, 87, 407; German, 356,
362, 365, 383-384, 385, 386, 390-391.
Caribbean, 7, 8, 9, 11, 15, 16, 48, 51, 55,
57, 101, 146.
Cass, Lewis, 47.
Cassel, Gustav, 216.
Castle, William R., Jr., quoted, 165.
INDEX
599
Castlereagh, Viscount, 459; quoted, 352,
410.
Catherine of Russia, 66.
Cecil, Lord Robert, 318.
Central America, 11, 45, 194, 534.
Chamberlain, Sir Austen, 317, 511, 512,
516, 554; quoted, 425, 514.
Chateaubriand, Vicomte de, 40.
Chile, 43, 48, 52; trade with, 161.
China, 16, 33, 76, 78-82, 100, 101, 103,
118, 120, 190, 338, 527, 531, 533; and
Japan, 78, 79, 276, 522-523, 527, 530-
531; loans to, 168, 176, 185, 195-196,
198; trade with, 77, 78-82, 163, 393.
China Consortium, 178, 196, 199.
Churchill, Winston, 428, 447.
Citizens, protection of, 29, 30, 33, 36, 37,
102, 183.
Civil service, 136.
Civil War, 14, 70, 100, 492, 565-568, 571,
577, 583.
Ciague, Ewan, 158; quoted, 158.
Claims, forcible collection of, 46-49, 52,
57; private, against Germany, 340,
476-487; settlement of, 98, 100-101,
103, 110.
See also War debts.
Clarendon, Earl of, 68, 69, 74.
Clay, Henry, 10-11, 41, 251.
Clayton-Bulwcr treaty, 11, 31, 45-46,
109.
Clemenceau, Georges, 254, 256, 287, 288,
326, 327, 335 ; quoted, 352.
Cleveland, Grover, 31, 32, 49, 99, 100 n.,
133.
Coal, 337, 338, 342, 347, 348, 348-349,
382, 385; as contraband, 579.
Coaling stations, 78, 79.
Colombia, 10, 11, 32, 48, 52; trade with,
161.
Commerce, 143, 171, 233; Congress and,
99, 100; finance and, 174-177, 192,
200, 453-455; foreign policy and,
12-15, 33, 36, 41, 75-82; treaties of,
25, 26, 29, 76-77, 77-78, 80, 82, 99,
118, 469.
See also Trade, American.
Commerce, Department of, 143, 154;
foreign agents of, 89, 147-148, 164;
and foreign trade, 143, 164-165; re-
searches of, 164, 181.
Commons, John R., 212.
Conger, E. H., quoted, 79.
Congress, 99, 100; constitutional powers
of, 94, 95-96, 105 n., 117; control of
foreign policy by, 99-103, 105-112;
on French in Mexico, 42-43; on
isolation, 27, 32; and legislation
violating treaties, 117-118; and
limitation of armament, 526, 635;
and State Department, 137, 139,
140, 141, 145; and war debts, 431-
432, 441 ; and war-making, 98.
Constitution, 111, 235, 267-268, 277, 284-
285, 296, 315; and isolation policy,
27-28; and non-centralized control,
94, 96, 108-109, 119, 283.
Constitutional understandings, 113-119.
Consular service, see State Department,
foreign service of.
Continental Congress, 8, 91, 92, 93-94,
95, 121; Department of Foreign
Affairs of, 95.
Contraband, 66, 70, 71, 75, 496, 560, 662-
563, 565, 569, 577, 578-580, 581-582,
592, 595.
Coolidge, Calvin, 134, 200, 435, 495,
519 n., 526, 535, 545, 649, 557, 558;
quoted, 164, 183, 190, 309, 450; ad-
ministration of, and League, 309-
310, 311-312.
Corfu, 317.
Costa Rica, 44, 48, 534.
Cox, James M., 295, 297.
Crawford, Earl of, quoted, 184.
Credit, control of, 212-218; and gold,
202, 204, 205, 209, 210-212, 220, 221,
224, 227; and reparation in kind,
346.
See also Credit, American.
Credit, American, 159, 226; export of,
166-182, 187, 325, 372, 408, 416, 420-
421, 455, 457; home use of, 171, 175-
176.
Crisp, C. Birch, 185.
Crisp, Charles R., 460-461.
Cruc£, Em£ric, 233.
Cuba, 14, 30, 31, 38, 44, 48, 100, 432;
freedom of, 10-11, 55.
Curtius, Julius, 386.
Gushing, Caleb, 140.
Cutcheon, F. W. M., 368.
Czechoslovakia, 424, 437, 444, 446, 506,
515, 541.
Czernin, Count, 328 ; quoted, 327.
600
AMERICAN FOREIGN RELATIONS
Dallas, George M., 565.
Davenport, F. M., 135; quoted, 138.
Davis, John W., quoted, 112.
Davis, Norman H., 332, 337.
Dawes, Charles G., 365, 397 ; quoted, 361,
366, 371.
Dawes Committee, 313, 361, 362, 363,
365-368, 390, 392.
See also Dawes Plan.
Dawes Plan, 313, 325-326, 346, 347, 350,
358, 363, 366-369, 371-385, 387-388,
389, 391, 394-401, 436, 459, 486; pay-
ments under, 358 n. (see also Repa-
rations, deliveries of).
See also Dawes Committee; Transfer
Committee.
Day, William R., 473 n.
Debt, public, American, 172, 227, 404,
439, 445, 450; British, 448.
Debts, see Claims; War debts.
Delacroix, Leon, 357.
Delaisi, Francis, 155.
Democratic party, 239, 240-246, 277,
278; 1920 platform of, 294, 295.
Denmark, 68.
Dennett, Tyler, 82.
Dennis, Alfred L. T., 517.
Diaz, Porfirio, 52.
Dicey, A. V., 113.
Dillon, E. J., quoted, 341.
Diodorus Siculus, 63.
Dionysius of Halicarnassus, 63.
Diplomacy, open, 259, 277; secret, 83, 85,
124, 253, 412.
Diplomatic service, see State Depart-
ment, foreign service of.
Dollar standard, 224, 225.
Dominions, British, 254, 261, 333, 511,
514, 51G, 524, 554, 586, 593, 596.
Dorsett, Marion, 308.
Drago, Luis M., 52.
Dresel, Ellis Loring, 466.
Drummond, Sir Eric, 321.
Dulles, John Foster, 332, 334, 350, 397;
quoted, 194.
Economic Conference, World, 309-310,
317-318.
Economics, Institute of, 359.
Ecuador, trade with, 161.
Edge, Waiter E., 243.
Edward I, 63.
Edward III, 409.
Edwards, George W., 198.
Eisenbach Brothers, 478.
Elizabeth, Queen, 63, 83, 232.
Elkins, Davis, 243.
Enemy Trading Act, British, 518, 585.
England, see Great Britain.
Entente, Petite, 506-507.
Entente, Triple, 5, 16, 492.
Esher, Lord, 504.
Esthonia, 437, 444, 447, 533, 534.
Europe, trade with, 152-155.
Evarts, William Maxwell, 43, 137;
quoted, 46 n.
Everett, A. G., quoted, 181.
Everett, Edward, 30, 31, 44.
Exchange, 395-397.
Executive, in foreign affairs, 83, 84-85,
87, 88-90, 104-105.
See also President in foreign affairs.
Experts, committees of, 364.
See also Dawes Committee.
Expert services in foreign affairs, 129-
138.
Exports, American, 325, 455, 518, 574;
agricultural, 153, 518; of credit, see
Credit, American, export of; excess
of, over imports, 151, 180, 408, 456;
invisible, 181, 182, 457; manufac-
tured, 153-154.
Far East, 14, 15, 16, 101, 104, 146, 169,
350, 467, 468, 526, 527, 530, 531.
Farquhar, Percival, 191.
Federal Reserve system, 159, 166, 167,
205-206, 211-222, 224, 226, 227.
Finland, 360, 432, 437, 444, 447, 533.
Fish, Hamilton, 31, 44.
Fisher, Irving, 202, 226; quoted, 215.
Fisk, Harvey E., 403, 404, 408, 430.
Foch, Marshal, 349, 491.
Foodstuffs, 154, 155, 168, 430-431, 522.
Force, international, see Police power.
Ford, Henry, 242, 245-246; quoted, 203,
407.
Foreign affairs, democracy and, 83-128;
development of, 88-91 ; evolution of
American system in, 92-104; expert
services in, 129-138; and presiden-
tial system, 83-88; public opinion
and, 119-128.
Foreign contacts, 89, 130, 138, 139, 148,
164.
Fosdick, Raymond B., 303 n.
INDEX
601
Four, Council of, 254, 256, 258 n.
Four Power Pacific Pact, 35, 81-82, 527,
528, 529-530, 532.
Fourteen Points, 238, 240, 257, 263, 326,
327-329, 332, 412-413, 571, 572.
Fox, Charles James, quoted, 404.
France, 6, 16, 25, 47, 78, 98, 291, 327,
and passim; American interests of,
3, 8, 40-41, 42-43, 44; armament of,
493-494, 503, 527, 532-533, 536,
543, 544, 546, 558, 586; commerce
with, 13, 155; cost of war to. 403;
finances of, 451-453; and freedom
of seas, 60-61, 66, 68, 562, 563; and
gold standard, 207, 208, 220; loans
by, 12, 176, 185-187, 406, 409, 419,
449-450; loans to, 192-193, 405; pay-
ment by, in 1871, 333, 358-360, 406-
407, 435; and Peace Conference,
254, 257, 260, 261, 468; and repara-
tions, 338-339, 342, 343, 344, 345,
346, 348, 349-350, 351-352, 356-357,
361, 364, 365, 367, 371, 376, 376 n.;
security for, see Security for
France; taxation in, 405, 451-452;
treaties with, 25, 26, 28, 29, 61, 76-
77; war debt of, 192-193, 405, 406,
425, 429-430, 432, 434, 435, 435-436,
437, 441, 443-449, 459.
Francis Joseph, Emperor, quoted, 409.
Franklin, Benjamin, 8, 27, 93, 95, 409.
Frazier, Arthur Hugh, 466.
Frederick the Great, quoted, 4.
Freedom of the Seas, 60-75, 231, 412,
495-497, 513, 516, 518-519, 523, 552,
559, 560-573, 575, 577-586, 590-596;
continuous voyage and, 560, 567-
568, 569, 571, 583; France and, 60-
61, 66, 68, 562, 563; and neutral
goods, 61, 67, 71, 560, 563, 564, 565,
567, 591, 594 (see also Contra-
band) ; and neutral ships, 29, 60-62,
66, 68, 69, 71, 72, 560-563; and right
of search, 61-62, 69, 71.
See also Privateering.
Frelinghuysen, F. T., 31, 44.
Frick, Henry C., quoted, 266-267.
Fullarton, John, quoted, 417.
Genet, E. C. E., 60, 72, 98, 122.
Geneva Naval Conference, see Three
Power Conference.
Geneva Protocol, 317, 507-514, 515, 516,
554-555, 586, 587.
Genoa Conference, 220, 222, 345.
Gerard de Rayneval, C. A., 95.
Germany, 16, 47, 73, 78, 187, 492, and
passim; and American neutrality,
231, 412, 471, 483-484, 570; Ameri-
can treaties with, 82, 465-470; ca-
pacity to pay of, 332, 335, 338-339,
365, 366, 372; colonies of, 254, 257,
467, 468; cost of war to, 403, 405;
credit for, 350, 356, 357, 359, 362,
364, 371-372, 381, 386, 391 (see also
Germany, loans to) ; currency of,
355-356, 362-364, 364-365, 366, 372,
373, 374, 378, 382, 389, 483; debt of,
387-388 (see also War debts, Ger-
man) ; and Fourteen Points, 327-
328; and gold standard, 207; in-
dustrial obligations of, 370, 374,
400; and limitation of armament,
467, 468. 497-f 98. 499. 504; loans to,
169, 175, 18*190, 191, 196, 325, 371,
372-373, 381, 385-391, 393-394,
401 n.; and Permanent Court, 554-
555; private claims against, 340,
476-487; production in, 382-383,
386; railroads of, 369-370, 374, 400;
rehabilitation of, 342, 345 n., 350,
352, 353, 355, 362-364, 366, 372-373,
381-389, 398; reparations from, see
Reparations; and Samoan Islands,
32; supervision of borrowing by,
197, 390; trade of, 155, 160, 175, 325,
353, 385-386, 389, 391, 392-393, 455-
456; and Venezuela, 15, 48.
Gerry, Elbridge, 94.
Ghent, Treaty of, 9.
Ghent Peace Conference, 251.
Gibson, Hugh, 538, 545.
Gilbert, S. Parker, Jr., Agent General,
369, 384-385, 386, 388, 462; quoted,
380, 399.
Glass, Carter, 199; quoted, 424.
Gold, 202-227, 453; and credit, 202, 204,
205, 209, 210-212, 220, 221, 224, 227;
distribution of, 166-167, 204-212,
218, 219-222, 223-224, 408, 417, 419;
return to, as standard, 169, 192,
205-208, 218-220, 223, 224, 379, 434,
453.
Grassmann, P., 362.
Great Britain, passim; American pos-
602
AMERICAN FOREIGN RELATIONS
sessions of, 8, 9, 11, 15, 16, 43 (see
also Canada) ; armament of, 503
(see also Great Britain, navy of) ;
coal industry of, 347; cost of war
to, 403; export of credit by, 170-
171, 177, 183-186, 457; and freedom
of seas, 61-62, 63, 65-72, 73-75, 495-
496, 513, 516, 518-519, 523, 552, 559,
560-563, 566-570, 572, 573, 575, 577-
586, 592-596; and gold standard,
208, 219 ; and Geneva Protocol, 510-
511, 512-514; Japanese alliance
with, 523-524, 527, 529-530, 533,
547, 586; navy of, 5, 15, 17, 67-68, 74,
519-521, 527, 536, 544, 546-552, 575,
576, 586, 596 (see also Washington
Conference) ; and Peace Confer-
ence, 254, 257; and reparations,
329, 338, 342, 343, 346-347, 349-350,
364, 371, 376; taxation in, 405, 451-
452; trade of, 5, 12, 28, 40, 69-72,
73-74, 78, 152, 152 n., 153, 155, 160,
161, 208, 352-353; treaty of 1782
with, 25, 96; and Venezuela, 43, 49;
war debt of, 416 n., 428, 437, 439 n.,
441, 442, 444-447, 459; war finance
of, 167, 405, 406, 409-411, 416-417,
416 n., 419, 421, 426-429, 431, 433,
435, 437, 439 n., 446-449, 450; war
preparations of, 494.
Greece, 419, 432; ancient, 3, 62-63.
Grew, Joseph Clark, 811; quoted, 311.
Grey of Fallodon, Viscount, 74, 249,
252, 282, 497, 578, 580; quoted, 286.
Grotius, Hugo, 63, 560; quoted, 460.
Guadaloupe, 44.
Guarantee, mutual, treaty of, 506-507.
Guarantees, see Security.
Guatemala, 534.
Hague, The, conferences of, 35, 73, 74,
253, 305, 568, 571, 578; conventions
of, 55, 104, 305-306, 307; Permanent
Court of Arbitration at, 48, 55, 308;
Permanent Court of International
Justice at, 306-307, 308 n., 508, 513,
555 ; prize court at, 578.
Haiti, 39, 44, 47, 48.
Hall, Ray, quoted, 457.
Hamilton, Alexander, 29, 98, 105, 409;
quoted, 38, 271.
Haniel von Heimhausen, E. J., 473.
Hanihara, Masanao, 622.
Hankey, Sir Maurice, quoted, 258 n.
Hanseatic League, 560.
Harding, Warren G., 35, 107, 137, 187,
296-301, 354, 355, 427, 435, 464, 469,
473, 473 n., 477, 524-525, 527;
quoted, 297, 309, 362, 428; adminis-
tration of, 302-309, 310-311, 464-
465, 467, 524.
Harris, Townsend, 78.
Harrowby, Lord, 109.
Hart, Albert Bushnell, 51, 57; quoted,
37.
Harvard Business School, 181.
Harvard economists, 218.
Hawaiian Islands, 7, 13, 14, 45.
Hay, John, 76, 78, 79-80, 82, 108, 114,
522; quoted, 80.
Hay-Pauncefote treaty, 15, 46, 108, 109.
Hayes, Rutherford B., 517.
Hays, Will H., 240, 242, 278.
Health work, international, 304.
Helfferich, Karl, 363, 404.
Henry IV of France, 232, 233.
Herriot, Edouard, 367, 508.
Hertling, Georg, Count von, 328.
Hibben, John Grier, 436.
Hill, David Jayne, quoted, 119.
Hirsch, Julius, 384.
Hitchcock, Gilbert M., 277, 279, 280,
281, 282, 296.
Hoar, George Frisbie, 115, 251.
Holland, see Netherlands.
Holmes, Oliver Wendell, quoted, 270.
Holy Alliance, 40, 41, 42, 234.
Honduras, 44, 54, 101.
Hoover, Herbert, 158, 164-165, 193, 298,
418, 456, 525; quoted, 181, 194, 341,
431, 454, 456.
Home, Sir Robert, quoted, 178.
Horsfall Committee, 69, 70, 73, 74, 564.
House, Edward M., 248, 249.
Hughes, Charles Evans, 90, 138, 242,
249, 261, 296, 361, 362, 364, 477, 525,
527, 528, 531, 532, 545, 546, 547, 557,
558; quoted, 110, 123, 132, 195; as
Secretary of State, 302-304, 307,
310, 311, 312, 313, 522.
Hughes, W. M., 333, 336, 524.
Hungary, 318, 338, 342 n., 378, 424, 437,
444, 447, 465, 466, 469, 506, 511;
loan to, 169,314, 342 n.
Hyde, Charles Cheney, quoted, 111.
Hythe Conference, 427.
INDEX
603
Immigrants, remittances by, 181, 182,
457.
Immigration, 18, 89, 100, 102, 103, 107,
118, 521-522; to British Dominions,
524.
Imports, American, 151, 177, 180, 408,
456.
Indemnity, 52 ; Japanese, 33.
See also Claims.
Inflation, 205, 211, 226, 404-405.
Insurance premiums, 478.
Interdependence of states, 86, 87, 155-
156, 182, 232.
Ireland, 279, 514.
Ishii, Viscount, 101, 545.
Isolation, 12, 16, 24-37, 55, 107, 231 ; de-
partures from, 31-37; and Latin
America, 32; Monroe on, 30, 42.
Isthmian canal, 11, 15, 31, 45-46, 58, 101.
See also Panama Canal.
Italy, 6, 32, 48, 207, 253, 266, 289, 291,
327, 451, 492, 511, 516; cost of war
to, 403; and limitation of arma-
ment, 527, 536, 543, 544, 546, 550,
558; loans to, 168, 405, 406, 447-
448; and Peace Conference, 254,
261; and reparations, 342, 371;
trade of, 78, 155, 347, 353-354; war
debt of, 425, 435, 437, 441, 443-444,
444, 445, 447-448, 448-449.
Jackson, Andrew, 47, 110.
James 1, 83.
Japan, 16, 33, 44, 77-78, 146, 196, 261,
276, 291, 342, 492, 521-527, 529-533,
595; British alliance with, 523-524,
527, 529-530, 533, 547, 586; credit
to, 174, 174-175; and emigration,
118, 261, 521-522; navy of, 520-521,
526, 527, 530, 543-544, 545, 546, 549 ;
and "open door" policy, 522-523;
trade with, 77-78, 163.
Jay, John, 95, 124.
Jay treaty, 28-29, 97, 114, 473.
Jefferson, Thomas, 28, 30, 40, 44, 72, 73,
97, 98, 137, 235; quoted, 26-27, 30,
31, 38, 61.
Jellicoc, Viscount, 545, 548.
Jeze, Gaston, 405.
Johnson, Hiram, 276, 296, 299.
Johnson, Samuel, quoted, 202.
Jones, Hilary, 538, 545.
Jones, John Paul, 145.
Judiciary, and foreign relations, 96.
Justinian, 63.
Kant, Immanuel, 233.
Kellogg, Frank B., 137, 165, 194, 278,
460 n.; quoted, 189-190, 196-197.
Kellogg treaties, 109.
Kemmerer, Edwin W., 195, 202; quoted,
203.
Keynes, J. M., 208, 329, 353; quoted, 361,
416, 458.
King-Hawkesbury treaty, 108.
Kitchin, Joseph, 209.
Klein, Julius, 164.
Klotz, L. L., 329.
Knauss, Dr., 405.
Knox, Philander C., 101, 137, 142, 259,
272, 280, 464, 465, 475.
Korea, 78, 146, 522.
Lafayette, Marquis de, 27, 29.
Lamartine, quoted, 233.
Lament, Thomas W., 332, 336.
Lane, Franklin K., quoted, 416.
Lansing, Robert, 101, 247-248, 273;
quoted, 248, 260.
Latan£, John H., 49; quoted, 29.
Latin America, 22-23, 32, 47, 161, 195,
511; American investment in, 169,
170, 174, 175; trade with, 160-161,
175; views of, on Monroe Doctrine,
42, 49, 52-53, 54.
See also Spanish America.
Latvia, 437, 444, 447, 533.
Lausanne Conference, 1922, 82.
Law, international, 56, 61, 73, 92-93,
103, 104, 117, 296, 471, 475, 481, 482-
484; enforcement of, 100; mari-
time, see Freedom of the seas.
Lay, Tracy, quoted, 164.
Lazard Brothers & Company, Ltd., 194.
League Commission, 256-258, 260.
League of Free Nations Society, 262.
League of Nations, 5-6, 48, 90, 126, 178,
238, 261-262, 266, 298, 314-322; As-
sembly of, 1927, 554-556; and
Austria, 169, 314, 318; Council of,
262, 291-292, 315-316, 501, 537-538;
Covenant of, see League of Nations
Covenant; creation of, 254-258;
German entry into, 379; and health
work, 304; and Hungary, 314, 318,
378; and international loans, 169,
604
AMERICAN FOREIGN RELATIONS
172, 198, 314; and limitation of
armament, 498, 499, 501-507, 535,
537-539, 542, 554-556, 558-559; and
Permanent Court, 306-307; projects
for a, 231-238, 247; United States
and, 296-314, 513, 525, 537, 587.
League of Nations Covenant, 22, 35, 54,
56, 237, 252-253, 262, 288, 305, 315-
316, 555, 586-587, 593; American re-
ception of, 35, 103, 236, 258-260, 261,
267-268, 272, 273-277, 278, 279-282;
Article X of, 260, 260 n., 261, 272,
273-274, 276, 281-282, 282, 289, 298,
315-316, 606-507; and limitation of
armament, 498, 501, 502; Switzer-
land and, 288-293.
League to Enforce Peace, 236-237, 249,
250, 250 n., 259, 262, 265, 278, 279,
280, 509.
Learned, H. Barrett, 277 n.; quoted, 275.
Lecky, W. E., quoted, 314.
Lee, Higginson and Company, 193-194.
Leffingwell, R. C., quoted, 225.
Liberty loans, 167, 173, 406, 415, 420,
422-423, 438-440.
Lincoln, Abraham, 11, 99, 100, 270, 566.
Lippmann, Walter, quoted, 109, 300-
301.
Lithuania, 437, 444, 447, 467, 533.
Liverpool, Earl of, 197, 411.
Livingston, Edward, 140.
Livingston, Robert R., 95, 139.
Lloyd George, David, 254, 256, 261, 287,
327, 333, 335, 349, 448; quoted, 361.
Loans, non-productive, 191, 193-197,
201, 388, 389-390.
Loans, supervision of, by British, 184-
186, 432; by French, 185-187; by
Germans, 187; international, 198-
199; by State Department, 183-184,
187-201.
Locarno, covenants of, 22, 379, 515-516,
530, 555, 559, 587, 593.
Locke, John, 83.
Lodge, Henry Cabot, 24, 34-35, 44, 238,
249-251, 259, 261, 271-272, 276, 278-
282, 298, 465, 528, 545; quoted, 32,
34, 35, 250, 250 n., 259, 267.
London, Declaration of, 74, 569, 578-
586, 588-589.
London, Treaty of, 253.
London Conference (1908-1909), 568,
571, 578, 579, 580, 684.
London Conference (March 1, 1921),
345, 349, 358.
London Conference (July, 1924), 366,
367.
London Schedule (May 5, 1921), 350,
353, 354, 355, 376, 377.
London Stock Exchange, 171.
Long, Robert Crozier, 390.
Loudon, J., 538; quoted, 320.
Louisiana, 9, 39, 97.
Lusitania, 103, 249, 474, 478, 479, 480.
Luzerne, A. C. de la, 95.
MacDonald, Ramsay, 508, 611.
Madison, James, 30, 40, 94, 98, 105, 114,
137, 235 ; quoted, 38.
Madrid Conference of 1880, 32.
Mahan, Admiral, 584; quoted, 493.
Maine, Sir Henry, quoted, 92.
Manchuria, 16, 190, 198, 522, 523.
Mandates, 257, 260, 261, 319, 468.
Manufactured goods, domestic con-
sumption of, 153; export of, 153-
154, 156; production of, 153, 158.
Marcy, W. L., 44, 45, 564-565.
Markets, 7, 12, 13, 15, 16, 33, 87, 177,
454; necessity of, 155, 353, 353-354,
361 ; reparations and, 346-347, 360,
391-393; in United States, 153, 177.
Marx, Wilhelm, 388.
Mason, George, 94.
Mason, John Young, 72.
Maximilian, 42, 43, 100.
McCall, Samuel W., 112.
McCormick, Medill, 243, 296.
McCormick, Vance C., 240, 332.
McCumber, Porter J., 274, 275-276, 278;
quoted, 275-276.
McDougall, William, 506.
McFadyean, Sir Andrew, 370.
McKenna, Reginald, 167, 208, 365, 379 ;
quoted, 224.
McKinley, Wrilliam, 100, 251.
McLean, Justice, quoted, 110.
Mediterranean, 253, 532, 536, 544, 546,
558, 560, 595.
Mellon, Andrew, 179, 180, 192, 222, 403,
414, 422, 427, 440-442, 445, 450, 455;
quoted, 155, 422, 433, 434r-435, 436,
440, 456; agreement of, with Be-
renger, 193, 429-430.
Mercantile Marine, see Shipping.
INDEX
605
Metternich, C. W. L., Prince, 234;
quoted, 42.
Mexican War, 10, 11, 99, 100.
Mexico, 10, 11, 19, 38, 42-43, 47, 100,
101, 103, 104, 120, 166, 237.
Midland Bank, 180, 185, 203.
Miller, Adolph C., 221 n.
Miller, David Hunter, 257, 257 n., 273;
quoted, 257-258.
Mills, Ogden L., 440 n.
Mixed Claims Commission, 325, 340 n.,
469, 471-487; awards by, 482, 484-
485; creation of, 471-474; private
claims before, 476-482, 485.
Moliegan, 478-479.
Mond, Sir Alfred, quoted, 208
Monroe, James, 29, 30, 40, 51, 55, 56, 137.
Monroe Doctrine, 10, 24, 37-60, 98, 100,
107; and Canal, 45-46; and collec-
tion of claims, 46-49, 52; economic
aspects of, 13; Latin American
views of, 42, 49, 52-53, 54; in League
Covenant, 54, 56, 260, 272, 276, 281,
507; and non-colonization, 9, 39-40,
41-45, 49, 57; and non-extension of
political influence, 8-11, 37-39, 41-
43, 51-54, 57, 59.
Montesquieu, Baron de, 88, 96, 113.
Moore, John Bassett, 47, 49, 103, 307;
quoted, 119.
Morgan, J. Pierpont, 356, 357.
Morley, John, quoted, 269.
Morocco, 32, 37, 104.
Morris, Lewis, quoted, 234.
Morris, Roland S., 522.
Morrow, Dwight W., quoted, 173.
Most-favored-nation treatment, 13, 76,
81, 466.
See aho "Open door" policy.
Moulton, Harold G., 377, 453.
Munitions, 431, 493-494; traffic in, 53,
102, 103, 116, 310-312, 570.
National Civil Service Reform League,
133.
National Industrial Conference Board,
451, 452.
Nationalism, 22, 178, 232, 234, 265-266,
321, 351, 510.
See also Sovereignty.
Navy, American, 7, 492, 493, 517, 519-
521, 524, 527, 528, 544-545, 546-547,
549-553, 557, 558, 572, 574, 591, 595.
Navy Department, and diplomatic ne-
gotiation, 145, 146-147.
Near East, 16, 104, 350, 357.
Nelson, Knute, 244, 249, 251.
Netherlands, 12, 24, 33, 61, 66, 67, 570.
Neutrality, 24, 406, 407, 495-497, 562,
570, 572, 587-588; American, 12, 25,
26, 231, 412, 471, 483-484, 561, 570-
571, 593 ; at sea, see Freedom of the
seas; force and, 99, 518-519, 561,
562, 572; guarantees of, 24, 252,
333; laws concerning, 103; recogni-
tion of, 98, 106; Swiss, 24, 288-292.
Newberry, T. H., 245-246.
New York, financial importance of, 224-
226.
New York Stock Exchange, 166, 171,
172.
New Zealand, 524, 576.
Nicaragua, 11, 19, 31, 44, 101, 195, 432-
433.
Niemeyer, Sir Otto, 223.
Nolken, Baron de, quoted, 25.
Non-Partisan League, 241, 243, 244, 245.
North America, claim of United States
to, 8-12, 39-40, 41, 50, 51.
Occupation, armies of, cost of, 358, 373,
375, 467, 475, 482, 486.
Olney, Richard, 37, 49 ; quoted, 49.
"Open door" policy, 12, 15, 34, 75-82,
196, 521, 522-523, 531.
See also Most-favored-nation treat-
ment.
Opium, 116, 304-306, 308.
Oregon, 9, 51, 99, 126.
Orlando, Vittorio Emanuele, 335.
O'Ryan, John F., quoted, 414.
Pacific, 17-18, 160-163, 177, 521, 524, 526,
529-533 ; balance of power in, 16, 33.
Pacifism, 242.
Palmerston, Viscount, 45, 70, 71, 72;
quoted, 70, 83.
Panama, 15, 492.
Panama Canal, 19, 51, 57, 104, 160-161,
574.
See also Isthmian canal.
Panama Canal Zone, 58.
Panama Congress, 97, 99.
Pan American relations, 53-54.
Pan American Union, 178.
Papers Relating to the Foreign Rela-
606
AMERICAN FOREIGN RELATIONS
tions of the United States, 125, 143-
144.
Paramount Interest, doctrine of, 46,
46 n., 48, 55.
Paris, Declaration of, 67, 69, 70, 71, 72,
73, 74, 75, 562-563, 564, 565, 566,
567, 580.
Paris Bourse, 171, 186.
Parker, Edwin B., 473-474, 473 n., 477,
478, 479, 481; quoted, 477-478.
Pasvolsky, Leo, 453.
Peace Conference, 254-258, 260-262, 289,
330-337, 352, 424-425, 468; Ameri-
can delegation to, 247-252, 263, 331,
342; and armaments, 497-498.
Peel, Hon. George, quoted, 154, 181.
Penn, William, 232-233.
Pensions, 335-336, 350, 450, 477.
Pericles, 62.
Permanent Court of International
Justice, 306-307, 308 n., 508, 513,
555.
Perry, M. C., Commodore, 14, 77, 78,
146
Pershing, John J., 4-58; quoted, 413, 414.
Persia, 305, 316.
Peru, 43, 48, 161.
Petite Entente, 506-507.
Philippines, 7, 21, 33, 78, 101, 161, 305,
492.
Pierce, Franklin, 73, 563, 565; quoted,
564.
Piggott, Sir Francis, quoted, 67, 68-69,
69.
Pitt, William, 3, 412; quoted, 67.
Platt amendment, 48, 55.
Plutarch, 62, 587.
Poincare, Raymond, 186-187, 350, 353,
356, 357, 364, 365, 366, 367, 413, 429,
452.
Poland, 195, 360, 424, 437, 444, 447, 515,
533, 541.
Police power, international, 236, 237-
238, 250, 250 n., 260 n., 264-265, 315-
317, 509, 513, 587, 588, 593-594, 595,
596; United States as, 32, 51.
See also Sanctions.
Polk, James K., 44, 45, 51, 99, 126,
Poole, Dewitt, 129; quoted, 120,
Porter, Stephen G., 115, 116, 135, 136,
145.
Porto Rico, 58.
Postscript Incident, 249.
Potter, Pitman B., 63.
Preparatory Commission for a General
Disarmament Conference, 501, 615,
537-542, 544, 547, 548, 554, 555-556,
558.
President, constitutional powers of, 96,
105 n., 106; in foreign affairs, 87,
96-103, 105-111, 112, 137, 140, 141,
147, 200; relations of, with Con-
gress, 100-103, 105-106, 109, 111,
115-117, 117-118, 127, 137; relations
of, with Senate, 97, 108, 110-111,
114-115, 137-138. 273, 277, 283, 470.
Presidential election of 1920, 294-301,
524-525.
Price levels, 202-207, 211, 213-218, 219,
220-221, 222, 224, 226, 227, 453 n.,
455.
Priority of service, 393-398.
Privateering, 71-72, 560, 563-564, 565-
566, 56T.
Prussia, 61, 394, 563.
Public opinion, 84, 85, 88, 119-128, 129,
131, 198, 596; education of, 123-125,
127, 143, 259; foreign influence on,
121-122; in Japan, 522; and League
of Nations, 237, 265, 271, 276, 278,
280; and limitation of armament,
525-526, 528, 539, 558; organization
of, 125-128, 236, 237 ; and outlawry
of war, 555 ; and war debt, 426, 427.
Race equality, 261.
Rapallo, Treaty of, 345, 392.
Rappard, William E., 289; quoted, 292,
317.
Rathbone, Albert, 343, 415, 421, 422;
quoted, 421, 424, 425, 430.
Raw materials, 19, 20-21; from abroad,
17, 87, 156, 163, 382-383, 456, 522;
monopolies of, 191, 193-194; from
United States, 153, 155.
Reay, Lord, 578.
Recognition of governments, 14, 60, 98,
100, 102, 106.
Reconstruction, 266, 325, 345, 351, 367,
425; financing of, 168, 169, 173, 430,
452.
Reddaway, W. F., quoted, 7 n., 37.
Redfield, William C., quoted, 156.
Reichsbank, 363, 369, 370, 372, 373, 378,
395-396.
Reinsch, Paul S., 86.
INDEX
607
Reparation Commission, 339-340, 342-
345, 348, 349, 364, 368-369, 368 n.,
370, 372, 374, 375, 394, 467; Loan
Committee of, 167, 855, 356-357;
United States and, 303, 342-344,
368, 369.
Reparations, 189, 254, 261, 263, 325-401;
administration of, 368-371; amount
of, 325, 350, 354, 375-377, 381, 398;
armistice and, 329-330, 337; de-
liveries of, 337-338, 339, 346-348,
357-358, 364, 370-371, 377, 380-381,
387, 397, 398, 400, 401 n., 436; pay-
ment of, in kind, 337, 339, 846-349,
373; Peace Conference and, 330-
338, 341; and priority, 372, 393-398;
to private persons, 340, 476-487;
restitution and, 337, 358, 375; and
sanctions, 340, 345, 348-850, 355,
372, 395, 398; security for, 370;
Treaty and, 326, 337-338, 339-341,
349; United States and. 326-329,
331-333, 334, 335-336, 337, 338, 342-
344, 354-357, 358, 358 n., 361-362,
364-366, 467, 468 (see also Dawes
Plan) ; war costs and, 331, 333-335;
and war debts, 351 n., 365, 376,
376 n., 400-401, 424, 426, 427, 428,
429, 435-436, 449-450, 459, 462-463;
Wilson on, 326-329.
See also Dawes Plan; Reparation
Commission.
Representatives, House of, 32, 50, 109-
110; relations of, with executive,
100-103, 105-106, 109, 111, 115-117,
117-118, 127, 137.
Republican party, 240-246, 248, 249,
261, 264, 279, 296-301; 1920 plat-
form of, 295, 296.
Reservations, 37, 55, 101, 102, 107, 271,
275, 278-282, 294, 295-296.
Revolution, American, 93, 95.
Rhineland, 261, 380, 467, 468, 514, 559,
587, 593.
See also Locarno, covenants of.
Robertson, Sir William, 494, 503.
Robinson, Henry M., 365; quoted, 219.
Rogers, J. J., 115.
Rogers Act, 91, 133-135, 141.
Rome, ancient, 3.
Roosevelt, Theodore, 16, 32, 33, 34, 47-
48, 51-52, 58, 101, 118, 133, 137, 242,
259, 295, 521; quoted, 47, 509.
Root, Elihu, 30, 101, 104, 122, 137, 190,
249, 261, 272, 296, 299, 306-307, 521,
545; quoted, 30-31, 85, 110, 122, 123,
192, 298, 303, 322.
Ruhr, 348, 349, 350, 357, 361, 362, 364,
367, 427, 452.
Rumania, 198, 327, 360, 437, 444, 447,
450, 467, 506-507.
Rush-Bagot agreement, 9.
Russell, Lord John, quoted, 113, 566.
Russia, 14, 16, 33, 39-40, 41, 58, 66, 67,
68, 78, 82, 142, 186, 338, 345, 360,
392, 426, 429, 432, 448, 467, 527, 562,
563, 577, 581; cost of war to, 403;
and limitation of armament, 533-
534, 535, 538; loans to, 191, 389,
392, 405, 406, 449; trade with, 163,
191.
Russo-Japanese war, 16.
Saar region, 338, 467.
St. Eustatius, 66, 67.
St. Germain treaty, 310-311.
Saint-Pierre, C. E. Castel, Abbe de,
233, 234, 237.
Saito, Admiral, 545.
Salisbury, Marquess of, quoted, 56-57,
58.
Salter, Sir Arthur, 266, 351 n., 378;
quoted, 89, 265, 351.
Salvador, 47, 56, 190.
Samoan Islands, 7, 32.
Sanctions, 22, 316, 509, 513, 516, 519;
economic, 513, 584-585, 589; and
reparations, 340, 345, 348-350, 355,
372, 395, 398.
See also Police power, international.
Santo Domingo, 43, 48, 101.
Scandinavian countries, 24, 68, 73, 316,
562.
Schacht, Hjalmar, 364, 369; quoted, 388.
Search, right of, 61-62, 69, 71.
Second Armed Neutrality, 67.
Securities, American, held abroad, 166-
167, 408, 408 n., 453.
Security, 6, 22, 321-322, 506-516, 543,
595; and armament, 494, 495, 498-
499, 506, 530, 543, 550; for France,
254, 261, 272, 274, 288, 318, 851-352,
425-426, 468, 511-512, 514-515, 516,
531, 550; for Great Britain, 548-
549, 574-576, 580, 593; for small na-
tions, 30-31, 32, 44, 45, 47, 48, 52,
608
AMERICAN FOREIGN RELATIONS
53, 5T, 252, 253, 256, 516; for United
States, 6-12, 13, 15, 44-45, 57, 573-
575.
See also Balance of power; Geneva
Protocol; Sanctions.
Security Committee of League, 310, 312.
Selden, John, 64.
Senate, and arbitration, 100, 103, 107-
108, 120; and Clayton-Bulwer
Treaty, 46; elections of 1918 to, 239-
246, 294; and foreign affairs, 97,
99-103, 106-112, 141-142; and Hay-
Pauncefote Treaty, 46, 100, 108;
and League of Nations Covenant,
103, 236, 259-260, 272, 273-277, 278,
279-282; and limitation of arma-
ment, 526, 528; minority power in,
107, 112, 127, 284-285, 285, 286; re-
lations of presidents with, 97, 108,
110-111, 114-115, 137-138, 273, 277,
283, 470; and treaties with Cen-
tral Powers, 468-470; and treaty
making, 28, 97, 99-100, 102, 104,
105 n., 107-112, 114-115, 260, 283,
284-286; and Treaty of Versailles,
102, 103, 108, 263, 271-283, 464, 469-
470, 501.
See also Congress.
Separation allowances, 335-336, 350, 477.
Serbia, 327, 343, 405.
Seward, W. H., 43, 44, 147, 566; quoted,
18, 24, 31, 47.
Shanghai conference, 305.
Shantung, 261, 263, 276, 467, 523, 527,
530-531.
Shaw, Tom, quoted, 287.
Shidehara, Baron Kijuro, 522.
Shipping, 518; American, 165, 518, 519-
520, 582; British, 347, 577; German,
347, 384, 386.
See also Freedom of the seas; Priva-
teering.
Shotwell, J. T., 500, 509.
Shufeldt, R. W., 78, 146.
Siberia, 523.
Siegfried, Andre, 352.
Simon ds, Frank H., quoted, 321.
Simons, Walter, 358.
Sims, William S., 414.
Slaves, emancipation of, 10, 44, 50, 51;
trade in, 108.
Smith, Adam, quoted, 406.
Smith, Grant, 466.
Smith, Melancton, quoted, 268.
Smuts, Jan Christian, 263, 336; quoted,
264, 330.
Snowden, Philip, 216; quoted, 439 n.
Sonnino, Baron, 254, 256.
South Africa, Union of, 576.
South America, see Latin America.
South Manchuria railway, 190, 198.
Sovereignty, absolute, 15, 22, 178, 232,
252, 317, 541.
Spa Conference, 345, 371.
Spain, 60, 101, 232; American posses-
sions of, 8, 10, 30, 31, 38, 40, 43, 61,
55; armament of, 503; treaties with,
33, 115, 251.
Spanish America, 13, 16; independence
of, 10, 30, 40-41, 42.
See also Latin America; Spain,
American possessions of.
Spanish-American War, 6, 14, 15, 45,
78, 86-87, 100, 103, 124, 492, 517.
Speyer, James, quoted, 199.
Spooner, Senator, 105, 124; quoted, 139.
Stamp, Sir Josiah, 216, 222; quoted,
343 n., 390, 393.
Standards of living, 450, 456.
State, Second Assistant Secretary of,
133, 140.
State Department, 27, 91, 104, 116, 124,
125, 131, 133-134, 135-148; appro-
priations to, 138; division of pub-
lications of, 125, 143-144; foreign
service of, 89, 133-135, 140-142, 164,
469; relations of, with Congress,
137, 139, 140, 141, 145; reorganiza-
tion of, 138-145; salaries in, 135-
136; supervision of foreign loans
by, 183-184, 187-201.
States, equality of, 232, 233, 235, 237;
sovereignty of, 22, 178, 232, 262,
317, 541.
Stein, Leonard, quoted, 661.
Stinnes, Hugo, quoted, 346.
Stowell, Baron, 579, 584.
Stresemann, Gustav, 388 ; quoted, 320.
Strong, Benjamin, 215; quoted, 214, 225.
Submarines, 412, 519, 581, 584, 586, 693.
Subsidies, 409-411, 412, 419.
Sully, Due de, 232.
Supreme Council of Allied and Asso-
ciated Powers, 261, 291, 334, 336.
Supreme Court, 100, 119.
Swan, Joseph R., quoted, 168.
INDEX
609
Sweden, 44, 68, 581.
See also Scandinavian countries.
Switzerland, 24, 185, 288-293, 538.
Syria, 147.
Tacna-Arica dispute, 48.
Taft, William Howard, 133, 13T, 242,
249, 260, 261, 278, 296, 298.
Takahira-Root agreement, 101, 521.
Talleyrand-Perigord, C. M. de, 4.
Tardieu, Andr<£, 334 n., 353; quoted, 329,
338-339, 352.
Tariff, 45, 103, 107, 240, 392, 454, 456;
Chinese, 531; French, 193, 217-218,
461.
Taussig, F. W,, quoted, 206.
Taxation, 235, 436, 451-452, 454; in
United States, 451-452; for war
costs, 404-405.
Texas, 10, 11, 99; Republic of, 50, 51,
100.
Th6ry, Edmond, 402.
Three Power Conference, 501, 633, 535,
541, 543-553, 554, 557, 573, 582, 590.
Tocqueville, Comte de, 85, 86; quoted,
83.
Tourists, 181, 182, 457.
Trade, American, domestic, 153, 154,
171; with Europe, 152-155, 456; for-
eign, 151-165, 218, 219, 456; with
non-Europe, 152, 153, 154, 155, 156-
158, 160-161, 456; war and, 151, 153,
154.
See also Exports, American.
Transfer Committee, 348, 369, 377-379,
394, 396-398, 399.
Treaty making, American, 90, 96, 111,
117-118, 142, 284-286; in France,
287-288; in Great Britain, 286-287;
House and, 109-110, 111; President
and, 97, 99, 105 n., 108-109, 112, 114,
284; Senate and, 28, 97, 99-100, 102,
104, 105 n., 107-112, 114-115, 260,
283, 284-286.
Trevelyan, Sir George O., quoted, 5.
Troves, 337.
Tripoli, 98.
Trumbull, John, Colonel, 473.
Turkey, 5, 30, 82, 146, 186, 253, 305, 338,
412, 468, 492; and reparations,
342 n.
Ukrainia, 360, 467.
Underwood, Oscar W., 280, 281, 545.
Unemployment, American, 525; British,
347.
United States of America, cost of war
to, 403; wealth of, 451.
United States Grain Corporation, 420-
421, 424.
Uruguay, 52, 161.
Van Buren, Martin, 44, 137.
Vanderbilt, Cornelius, quoted, 165.
Venezuela, 15, 43, 48-49, 58, 99, 100 n.,
161.
Vera Cruz, 47.
Versailles, Treaty of, 102, 103, 104, 108,
245, 248, 263, 341, 466, 471, 477, 483;
American attitude towards, 263-
264, 294-299, 343, 464-465, 467-468,
472 (see also Senate and Treaty
of Versailles); and armaments,
497-499; incorporation of League
in, 255, 256, 259-260, 264, 272; rati-
fications of, 286-291, 344; and repa-
rations, 326, 337-338, 339-341, 365,
366, 367-368, 368 n., 371, 394, 395,
397, 398, 426, 427.
Vienna, Congress of, 4.
Vienna, Treaty of, 466, 468.
Vilna, 317.
Walsh, Thomas J., 244, 278, 282.
War, outlawry of, 115, 555, 586-588;
prevention of, 496-497; public, see
Police power, international.
Warburg, Paul M., quoted, 355.
War debts, 171, 181, 183, 187, 191, 191-
193, 197, 402-487, 540; of Allied and
Associated Powers, 371, 376, 405-
450, 459-463; American (1786), 409;
Austrian (1823), 410-411; effects
of settlement of, 450-463; funding
of, 403, 424-436, 437-441, 444-445;
German, 340, 465, 470, 471-487; how
contracted, 411-424; payment of, in
gold, 205, 206-208; and reparations,
351 n., 365, 376, 376 n., 400-401, 424,
426, 427, 428, 429, 435-436, 449-450,
459, 462-463; settlement of, 431-450.
See also World War Debt Commis-
sion.
War-making power, 98, 100, 102, 110.
War of 1812, 98,
War of 1914-1918, see World War.
610
AMERICAN FOREIGN RELATIONS
Washington, George, 25, 28, 29-30, 31,
95, 97, 108, 109, 121, 124, 250 n., 255,
285, 459; quoted, 24-25, 234.
Washington Conference, 35, 81-82, 115,
501, 520, 526-533, 545, 546, 549, 550.
Washington Naval Treaty, 528, 545, 592.
Webster, Daniel, 41, 44, 76.
Webster-Ashburton treaty (1842), 9.
Welles, Gideon, 147.
Wemyss, Lord Webster, quoted, 580.
West Indies, 13, 15, 39, 44.
White, Henry, 248.
Wickersham, George W., quoted, 110,
115, 128.
Wilbur, Curtis D., 591.
Williams, John H., 167.
Williams, Mary Borchard, 480-481.
Wilson, T. Woodrow, 5, 22, 35, 54, 108,
114, 121, 122, 124, 126, 137, 196, 236,
239, 269-270, 314, 427, 443, 524, 528,
569, 587; quoted, 34, 53, 53-54, 87,
155, 237, 255, 255-256, 256, 259, 260,
273, 279-280, 326, 412, 413, 416, 419;
and armament, 519, 519 n. ; and
Covenant, 255-261, 269, 273-274,
289, 572 (see also Wilson, and Sen-
ate); and elections of 1918, 241-
242, 243, 244; and formation of
League of Nations, 237-238, 270,
302, 315; Fourteen Points of, 238,
240, 257, 263, 326, 327-329, 332, 412-
413, 571, 572; and Pan American-
ism, 53-54, 56, 237; and Peace Con-
ference, 247-252, 254-258, 258 n.,
263, 264, 465; and reparations, 326-
329, 333, 334, 336, 435, 477; and
Senate, 241-242, 243, 244, 248, 259-
260, 264, 272-275, 276-277, 279-283,
464.
Winston, A. P., 176.
Winston, Garrard, quoted, 433, 463.
Withers, Hartley, 177; quoted, 175.
Wolowski, L. F. M. R., quoted, 360.
World Court Protocol, 109.
World War, cost of, 402-404; and
finance, 166-167, 205; losses in, 403,
414; responsibility for, 380, 466,
467, 468, 471; United States in, 34,
102-103, 239-240, 403, 405, 406, 411-
424, 465, 540.
See also War debts.
World War Debt Commission, 431-434,
441, 450-451, 459.
X Y Z, 29.
Yap, 274, 466.
Young, Arthur N., quoted, 184, 188-189.
Young, Owen D., 159, 365, 369; quoted,
218.
Yucatan, 44, 51.
Yugoslavia, 346, 437, 444, 447, 506.
Live Music Archive
Librivox Free Audio
Metropolitan Museum
Cleveland Museum of Art
Internet Arcade
Console Living Room
Books to Borrow
Open Library
TV News
Understanding 9/11