American delegation could do was to urge upon its associates, in their own and in the whole world's interest, the necessity and practical wisdom of fixing Germany's liability. When, however, they were not persuaded, the American delegation felt that it had done all that it properly could do in the circumstances. To have adopted any other course and to have insisted as a matter of right that creditors of Germany should waive in part their admittedly just claims against Germany might have encouraged the effort to reopen the whole question of Interallied indebtedness and refinancing".

It will be interesting at this point to refer to some of the plans brought forward during the Peace Conference which involved American participation in the payment of the European costs of the war and reparations. Mr. Baruch refers to a proposal brought forward

to the effect that bonds for part of the reparations to the value of £1,800,000,000 ($9,000,000,000) as from January 1, 1925 (the date from which they bear interest), should be issued by enemy states or by certain states acquiring enemy territory. The proposition further provided that these bonds should be guaranteed by the principal Allied and Associated Governments, by the three Scandinavian Governments, and by the Governments of Holland and Switzerland.

It was proposed under this scheme that the United States should guarantee 20 per cent of the issue. In the event of any of the guarantor Governments failing to meet their guarantees, the remaining guarantor Governments might be obligated to double their original proportionate share. That might have made it necessary for the United States to guarantee 40 per cent, or about $3,450,000,000. No serious consideration was ever given to this plan.10

The origin of the proposal is not disclosed, but, since it is stated in pounds sterling, it was probably of British origin. Other schemes having the same object in view, presumably French in origin, have been brought to light by M. André Tardieu, one of the leading French representatives at the Peace Conference. He says:

Besides the guarantees of payment taken directly from Germany, right and reason suggested others based upon the unity existing among the Allies. After unity in war, unity in peace. Could not sacrifices borne in common include, after the losses in lives and property, the costs of settlement-the richest helping the less rich to bear their share of the burden? 11

This burden he places at 700,000 millions as the cost of victory, the repayment of which was not demanded by the treaty, and the possible non-payment by Germany of all or part of the reparations debt which she was called upon to pay. He states frankly however: "Now, let us make no mistake about this. Stripped of its disguise of words and transformed into plain figures, the idea of financial unity, as regards the settlement of the cost 'The Making of the Reparation and Economic Sections of the Treaty, pp. 53, 55, 71. 10 Ibid., pp. 71–72.

"The Truth about the Treaty, Indianapolis, the Bobbs-Merrill Co., 1921, p. 336.

of the war, had but one meaning-an appeal to the American Treasury with a view to its acceptance of additional liability" 12

The details of two such plans are supplied by him as follows:

We studied a plan to lump the costs, whatever they might be, of the war in one sum, basing responsibility on the population and national wealth of each country. This scheme would have reduced France's war debt from 30.2 per cent to 11.4 per cent; that of Great Britain, 31.1 per cent to 20.2 per cent; that of Belgium, from 5.4 per cent to 1.7 per cent; that of Serbia from 4.6 per cent to 0.8 per cent. On the contrary it would have increased the United States obligations 29 per cent, that of Japan 6 per cent, that of Italy 6 per cent, that of Canada 1 per cent, that of the Union of South Africa 1.4 per cent, etc. This percentage increase represented in round numbers 250,000,000,000 francs for the United States, 65,000,000,000 for Japan, 9,000,000,000 for Canada, 12,000,000,000 for the Union of South Africa".

"The simple statement of these figures", he adds, "provoked absolute protest from those countries whose debts were to be so increased". The same fate, he informs us, attended another scheme, "which was equally officially submitted to the Allied delegations and which used as a basis for the share in the war debts the war dead of the several countries, as compared with the total population of the Allies. The adoption of this calculation would have reduced the debt of France by about 30,000,000,000 francs". But, he again laments, in every case, "no matter what was the method applied to the solution of financial unity, those who were called upon to pay for the others or to pledge themselves for others affirmed the doctrine of financial autonomy so jealously safeguarded during the war "13

Whenever American officials were approached on the subject of the cancellation of the Allied debts to the United States, the record shows that their answers have been uniformly and firmly in the negative, and that they have disavowed the insinuations of the Allies that the United States is responsible, on the principle of partnership or otherwise, for any nation's war debts other than its own.

Apropos of the attempted discussions of the subject at the Peace Conference, Mr. Rathbone, Assistant Secretary of the United States Treasury, on March 8, 1919, wrote to M. de Billy, the French High Commissioner at Washington, as follows:

I wish to clearly inform you that the Treasury Department of the United States, which, as you know, has absolute authority, conferred by Congress, in the matter of loans allowed by it to foreign governments, will not consent to any discussion, at the peace conference or elsewhere, of a plan or project having for object the liberation, the consolidation, or new division of the obligations of foreign governments held by the United States.14

12 Tardieu, The Truth about the Treaty, p. 340.

13 Translation of an article appearing in L'Illustration of October 20, 1920, quoted in Senate Document, No. 86, 67th Cong., 2d sess. p. 264.

14 Ibid., p. 264; Tardieu, ibid., p. 341.

When the question of the conversion into the form of long term bonds of the demand and short-term obligations of the British and Allied Governments held by the United States Treasury was taken up in the latter part of 1919, the British Chancellor of the Exchequer took advantage of the opportunity again to bring up the subject of the cancellation of the debts to America. Mr. Rathbone, to whom this suggestion was made and who was then in Paris, replied on November 18, 1919 as follows:

The United States Treasury has in no wise changed the views it has expressed, or modified the position that it has taken in the past, and regards the several obligations of the various Allied Governments held by the Government of the United States as representing the debt of each to the United States.

The United States Treasury has never accepted the principle that a payment by Great Britain on account of her indebtedness to the United States required the receipt by Great Britain of a similar account from the Allied Governments indebted to Great Britain. On the contrary, the United States Treasury has always taken the position that the question of the British debt to the United States was a question between these two Governments alone.15

In the course of the same negotiations, in February, 1920, the Chancellor of the Exchequer sent a message through the British Embassy in effect inviting the American Treasury to the consideration of a general cancellation of intergovernmental war debts. A reply to this message was sent under date of March 19, 1920 by the Honorable David F. Houston, then Secretary of the Treasury. Mr. Houston's letter not only declined to accept the invitation, but gave cogent reasons which apply with equal force to the arguments now raised in the British note of August 1, 1922. Mr. Houston's letter of March 19 will therefore be quoted in extenso as containing a full statement of the American Government's attitude on the subject:

As to the general cancellation of intergovernmental war debts suggested by you, you will, I am sure, desire that I present my views no less frankly than you have presented yours. Any proposal or movement of such character would, I am confident, serve no useful purpose. On the contrary, it would, I fear, mislead the people of the debtor countries as to the justice and efficacy of such a plan and arouse hopes, the disappointment of which could only have a harmful effect. I feel certain that neither the American people nor our Congress, whose action on such a question would be required, is prepared to look with favor upon such a proposal.

Apparently there are those who have been laboring for some time under the delusion that the inevitable consequences of war can be avoided. As far back as January a year ago, before it could possibly be foreseen whether any measures were necessary other than the adoption of sound economic policies, various schemes including that of a cancellation of intergovernmental war debts, were launched. Of course, I

15 Senate Document No. 86, 67th Cong., 2d sess., pp. 63 and 65.

recognize that a general cancellation of such debts would be of advantage to Great Britain and that it probably would not involve any losses on her part. As there are no obligations of the United States Government which would be cancelled under such a plan, the effect would be that in consideration of a cancellation by the United States Government of the obligations which it holds for advances made to the British Government and the other allied Governments the British Government would cancel its debts against France, Italy, Russia, and her other allies. Such a proposal does not involve mutual sacrifices on the part of the nations concerned. It simply involves a contribution mainly by the United States. The United States has shown its desire to assist Europe. Negotiations for funding the principal of the foreign obligations held by the United States Treasury and for postponing or funding the interest accruing during the reconstruction period are in progress. Since the armistice this Government has extended to foreign Governments financial assistance to the extent of approximately $4,000,000,000. What this Government could do for the immediate relief of the debtor countries has been done. Their need now is for private credits. The indebtedness of the allied Governments to each other and to the United States is not a present burden upon the debtor Governments, since they are not paying interest or even, as far as I am aware, providing in their budgets or taxes for the payment of their principal or interest. At the present time the foreign obligations held by the Government of the United States do not constitute a practical obstacle to obtaining credits here, and I do not think that the European countries would obtain a dollar additional credit as a result of the cancellation of those obligations. The proposal does not touch matters out of which the present financial and economic difficulties of Europe chiefly grow. The relief from present ills, in so far as it can be obtained, is primarily within the control of the debtor Governments and peoples themselves. Most of the debtor Governments have not levied taxes sufficient to enable them to balance their budgets, nor have they taken any energetic and adequate measures to reduce their expenditures to meet their income. Too little progress has been made in disarmament. No appreciable progress has been made in deflating excessive issues of currency or in stabilizing the currencies at new levels, but in Continental Europe there has been a constant increase in note issues. Private initiative has not been restored. Unnecessary and unwise economic barriers still exist. Instead of setting trade and commerce free by appropriate steps there appear to be concerted efforts to obtain from the most needy discriminatory advantages and exclusive concessions. There is not yet apparent any disposition on the part of Europe to make a prompt and reasonable definite settlement of the reparation claims against Germany or to adopt policies which will set Germany and Austria free to make their necessary contribution to the economic rehabilitation of Europe.

After taking all the measures within their power one or more of the debtor Governments may ultimately consider it necessary or advantageous to make some general settlement of their indebtedness. In such a case they would, I presume, propose to all creditors, domestic and foreign, a general composition which would take into account advantages obtained by such debtor country under the treaty of peace. How the American people or the American Congress would view partici

pation in such a composition I can not say. It is very clear to me, however, that a general cancellation of intergovernmental war debts, irrespective of the positions of the separate debtor Governments, is of no present advantage or necessity. A general cancellation as suggested would, while retaining the domestic obligations intact, throw upon the people of this country the exclusive burden of meeting the interest and of ultimately extinguishing the principal of our loans to the allied Governments. This nation has neither sought nor received substantial benefits from the war. On the other hand, the Allies, although having suffered greatly in loss of lives and property, have under the terms of the treaty of peace and otherwise, acquired very considerable accessions of territories, populations, economic and other advantages. It would therefore seem that if a full account were taken of these and of the whole situation, there would be no desire nor reason to call upon the Government of this country for further contributions.16

So far as known, no reply to the foregoing letter has been published, nor are Mr. Houston's reasons for declining to consider the proposal of the Chancellor of the Exchequer covered by the note sent on August 1, 1922 by the Acting British Secretary of State for Foreign Affairs to the debtor governments. In that note the Earl of Balfour makes a pretense to generosity in the offer of general cancellation which Secretary Houston's letter denies. In it also the British Government officially circulates a general assumption as to the effect of the inter-Allied indebtedness upon the economic situation in Europe which is not shared by the American Secretary of the Treasury.

The Treaty of Versailles went into effect on January 10, 1920, and almost immediately thereafter the British and French Governments began to discuss the question of giving fixity and definiteness to Germany's reparation obligations, which had already consumed so much time at the Peace Conference and which had been decided adversely for the reasons previously given. On August 5, 1920, we find the British Prime Minister writing to President Wilson in regard to these Franco-British discussions and proposing an "all around settlement of inter-Allied indebtedness". In view of what had already taken place at the Peace Conference, Mr. Lloyd George's letter to President Wilson of August 5, 1920 deserves quotation on this subject. He said:

The British and the French Governments have been discussing during the last four months the question of giving fixity and definiteness to Germany's reparation obligations. The British Government has stood steadily by the view that it was vital that Germany's liabilities should be fixed at a figure which it was within the reasonable capacity of Germany to pay, and that this figure should be fixed without delay, because the reconstruction of Central Europe could not begin nor could the Allies themselves raise money on the strength of Germany's obligation to pay them reparation until her liabilities had been exactly defined. After great difficulties with his own people, M. Millerand

16 Congressional Record, July 18, 1921, Vol. 61, Part 4, p. 3951.