“Your money lend and lose a friend” is an adage that the former comrades in arms have been ruefully recalling ever since the stirring days of the World War, when they were borrowing and spending with no thought of the day of reckoning. We kept no books in which were charged up to one another’s account the expenditure in human lives. We gave our own lives and our son’s lives, and expected nothing in return. The appalling loss of life and the human wreckage were cheerfully accepted; for that was traditionally the expected sacrifice of war. Each member of the coalition contributed without stint, for service on all the fronts, all the fighting men it could muster; and if there was ever any haggling about quotas, the public knew nothing about it.

But when it came to money and material wealth there were no free-will offerings, no pooling of resources. Although money and credits furnished the sinews of war and were used as weapons to crush the common enemy, books were kept down to the smallest outlay. The Allied powers did not forget to charge up every item against one another; and while the soldiers were fighting on the fields of battle, the accountants were buried in vouchers and ledgers, working night and day to record the biggest expenditures the world had ever seen. When the armistice came, there were outstanding bills. It was taken for granted that accounts would be settled. On the books friends were to all intents and purposes on the same footing as enemies. Whether it was the individual in account with his own Government, or one Government in account with another, it was assumed that amounts owing would be paid with interest.

All the warring nations had internal obligations to meet. In the period of reconstruction as well as during the actual war years, successive loans had been floated, partly by pyramiding, at increasing rates of interest. In every country the national debt had grown beyond belief. Most of it was owed at home, but millions of people had patriotically invested their own savings and reserve funds and the capital essential to their business enterprises. Governments had to meet the interest charges, and, because they needed to borrow still more money, their people had to be assured that all that had been advanced would be paid back. In many of the countries staggering under the load of unprecedented internal obligations, budget deficits confronted the Governments, and new loans had to be floated to keep abreast of current expenses. And yet there were added burdens, for reconstruction, for demobilization, and for liabilities of all kinds, most important of which were pensions and interest on war loans. As if these seemingly insurmountable obstacles to balancing budgets were not enough, the vanquished nations had reparations to pay, and the victors owed stupendous sums to one another. With the exception of the United States and the British Empire, gold reserves were depleted, further credit abroad was shut off, and paper money was progressively issued, in defiance of economic laws, until inflation drove down European exchanges to the lowest levels in the record of international finance.

In four years French money dropped to one-third of par, Belgian between one-third and one-fourth, Italian one-fourth, Czechoslovak one-eighth, Jugoslav one-twelfth, and Rumania one-fifteenth. Greek, Bulgarian and Turkish money kept well above Rumanian. Poland, on the other hand, shared with Russia, Austria, and (after the invasion of the Ruhr) Germany the problem of keeping the paper money from becoming altogether valueless. Hungary and the Baltic Republics (except Finland) gave up the struggle of supporting their money in international exchanges in the early part of 1923.

For a time the English-speaking peoples looked upon the decreasing values of Continental European moneys with indifference or amusement. Trade with the Continent, which could not pay pounds sterling or dollar prices, fell off and threatened us with a crisis of over-production. This was a danger to which we quickly adjusted ourselves, with the consoling thought that the business would have had to be done on credit anyway. Who could afford to sell on credit to countries already virtually bankrupt and with a constantly falling currency? The English-speaking peoples had the rest of the world to trade with, and it seemed that there was nothing to do but to wait until some of the countries affected by chaotic financial conditions became bankrupt and repudiated their worthless paper money, as revolutionary France had repudiated the assignats and the American Southern States had seen their Confederate dollars become worthless. The more stable European countries could in time conquer the problem of inflation and rebalance their budgets.

Were it not for the two intimately related problems of reparations and interallied debts, Great Britain and the United States would probably not have become involved in the political and financial implications of the European financial situation. But all these countries owed Great Britain and the United States large sums, representing either advances made during the war or sums due on reparations account. This being the case, it was impossible to expect the Continental European countries to settle their accounts with one another until some agreement had been reached with Great Britain and the United States in regard to the accounts of all the Continental European countries with the creditor nations. The problem of international debts was still further complicated by two facts: that Great Britain owed nearly as much to the United States as was owing to her from her European debtors; and that the United States, while demanding preferred settlement for her bill against Germany for the expenses of the army of occupation, had failed to ratify the Treaty of Versailles and had made a separate peace with Germany.

The American Government was unwilling to accept the thesis set forth in the Balfour note of August 1, 1922, that Great Britain’s debt to the United States should be considered in connection with the debts of Continental Europe to Great Britain. It was unwilling, also, to defer the payment of the Rhine occupation bill until the general question of German reparations had been satisfactorily solved. Adopting the attitude that “business is business,” the American Government not only concluded a refunding agreement with Great Britain, independent of European financial problems, and sent a Treasury official to France to press the claim for America’s share in the German payments for military occupation, but also announced its expectation that other debtors should follow Great Britain’s example.

Of the Continental European nations Finland alone has arranged to repay her obligation to the United States. The United States holds sufficient German assets to cover reparations, and a German-American commission met in Washington, in March, 1923, to adjudicate the claims of American citizens against the German Government. No progress has been made in the matter of claims against other enemy countries. France, Italy, and the smaller European countries, except Finland, have made no move to pay the interest and amortize the principal of the loans advanced by the United States.

What has happened, however, as we have already seen, is that our European debtors have announced the policy of making reimbursement to the United States dependent upon the collection of reparations from Germany and the other vanquished nations. The argument by which they support this policy is easy to grasp. They say: “We cannot pay the United States and Great Britain unless we receive the reparations granted us by the treaties of the Paris settlement. If we modify or waive our claims, as embodied in the Paris treaties, we must look to the United States and Great Britain to cancel our debts to them.” For several years this has been the answer of the French press to American and British criticism of France’s reparations policy; on May 11, 1923, it was stated officially in Mussolini’s reply to the German offer to settle reparations on the basis of 30,000,000,000 gold marks.

American public opinion, while sympathetic to France and Belgium in the Ruhr occupation, feels that debts should be paid all around, and is unwilling to accept as valid the contention of contingent payments or to realize that our European friends have the right to expect us to let up on them if they let up on Germany. Europeans ask: “Why should the conquerors pay, while the conquered go scot-free? Are we not the victims? Were they not the aggressors? It is incredible to expect us to forgive our enemies when you are unwilling to forgive your friends?” The Americans retort, “Why should we pay the German reparations, for this is what your proposal amounts to?” The principal interallied debts are as follows:

According to the ratio finally decided at the Spa Conference, France, Great Britain, and Italy are to receive respectively 52, 26, and 10 per cent of whatever reparations Germany finally pays, while Belgium is a preferred creditor of Germany, and Italy has a lien on the major part of Austrian and Hungarian reparations.

The figures are only approximate, for they do not take into account compounded interest; and there is some doubt as to the propriety of including the Russian obligations to France, most of which date from before the war and are owing French nationals and not the French Government. Roughly speaking, the United States is the largest creditor, with $11,000,000,000 owing her, while Great Britain follows a close second, with $10,000,000,000 on her books against Continental European countries. Great Britain stands to be the heaviest loser; for the payment of none of her loans is assured, while more than 40 per cent of the American advances is represented by the loan to Great Britain, arrangements for the paying of which with interest have already been concluded.

When we consider the short time that the United States was in the war, its cost was staggering. And we must remember that the United States lent no money out of surplus, but that her ability to grant the huge credits to her associates in the World War was due to the successive Liberty loans and the Victory loan, which are internal obligations the interest and amortization charges of which are being carried in our national budget. On the other hand, the money did not actually leave the country, but was spent by the borrowing Governments for goods and food-stuffs manufactured and raised in the United States. The repayment of Great Britain’s debt does not work great hardship either on the British or ourselves; for Great Britain and her Dominions are large holders of American securities and have extensive investments in Mexico and Central and South America. The Continental European belligerents sold most of their North and South American securities during the war. The repayment of $6,500,000,000 to the United States would have to come largely through an excess of exports over imports from the United States.28

The transfer of surpluses of wealth from one country to another is an economic problem of both reparations and interallied debts that has not yet been solved. In the midst of all our discussion of the insistence upon the settlement of reparations and interallied indebtedness, where is the economist who has shown us how this can be done without the willingness of French markets to absorb German goods and American markets to absorb European goods?

However little it may appeal to us on first sight as a business proposition to cancel French and Italian debts in return for the sweeping modification by these two nations of indemnity demands upon Germany, we may yet come to see that such a course would be not only a magnificent contribution to world peace but also good business for ourselves. Is it not the alternative to a low tariff and dumping? Will it not lead to the economic rehabilitation of Europe, to which reparations and interallied debts are now the barriers? For our farmers and manufacturers alike, is not the restoration of Europe’s purchasing power a benefit worth a sacrifice of loans that either are bad debts or can be repaid only to our detriment?

Interallied indebtedness has also its psychological side. “Your money lend and lose a friend” is a true saying. The attitude of the American people on interallied indebtedness is a serious obstacle to Franco-American and Italo-American friendship. We cannot exact payment of the sums owing us without creating dislike, antagonism, and resentment. This may be a sad fact, but it is none the less true.

In conclusion, there are two points upon which Americans have the right to insist, and it would be foolish to cancel interallied indebtedness without insisting upon them.

The material advantages the United States gained from the World War were far less than those gained by the other victorious participants. Putting aside as hypothetical the argument that Germany, had she won, would have attacked us next (for it is an argument that does not take into proper consideration the importance of sea-power), we can say to our European comrades in arms, including Great Britain, that they ought to take into account not only the intangible rewards of victory, such as crippling a powerful adversary and competitor, but also the spoils—reparations already made, in which we did not share; shipping; territory annexed; and the division of rich German colonies and a portion of the Ottoman Empire. It is idle to say that these are not worth while and are liabilities rather than assets. If they are of no value, what shall we think of British and French statesmen who insisted on having them and who have been willing to spend blood and treasure, and to risk the friendships cemented in the war, in order to possess and enjoy them?

Even when the idea of reparations was enlarged to cover pensions, the United States did not lay claim to a share. This was in itself a generous contribution to our European associates. Nor did we ask for a sphere of influence in Turkey or a share in the German colonies. Our attitude was one of complete disinterestedness and of an unselfishness unparalleled in the history of peace-making by victorious coalitions. If we are now asked to make an additional contribution, should we not insist first of all upon a quid pro quo for our money in the form of definite understanding about the open door in Africa and Asia, especially in the mandated territories? Ought we not also to insist upon the military and naval neutralization of European possessions on the American continent and reciprocity in trade agreements between all these possessions and the countries of North, Central, and South America? The second point is one on which we need light badly. Just what are the holdings of citizens of debtor nations and of debtor governments in the United States and other parts of America? Our debtors are pleading poverty and the impossibility of paying reasonable interest, much less of amortizing, what they borrowed from us. Just what truth is there in this plea, which has the tacit indorsement of some of our largest banks? Speaking at Toledo on October 16, 1922, Secretary Hoover declared:

The settlement of international balances between America and Europe contains factors that are in their volume unique in international commerce. For instance, the annual expenditure of American tourists abroad, the remittances of emigrants in the United States to their relatives, the growing volume of investment made by our people in foreign countries, interest upon investments in the United States of private citizens of our debtor countries, and other items of so-called invisible exchange combine to furnish a large supply of our money to Europe with which they in turn can make payments of interest on debts or for the purchase of goods from us. In total to the world these sums amounted to about $1,500,000,000 in the last fiscal year, which was, indeed, a year of depression, and these are sums which with peace in the world will grow constantly in the future. These sums are largely expended directly or indirectly in our debtor countries.... During that fiscal year the world had a paying power to us in excess of goods bought from us of about $750,000,000.

Mr. Henry A. Forster, the New York lawyer, has gathered interesting statistics from various sources to prove that Great Britain, Germany, and France receive from investments abroad, many of them in the United States, incredibly large annual interest. It may be, therefore, that the United States is not the creditor nation—in the actual sense of that word—that she is assumed to be; and before we release any of our debtors abroad (they are debtors to the holders of American Government securities, and not to our Government out of Treasury surplus), it would be well for us to find out what are the investment holdings of these Governments and their citizens in securities of every kind in the United States, on which interest is being sent abroad. Then there will be a clearer and fairer conception of the merits of this question on both sides of the Atlantic.