CHAPTER IV LOANS AND CREDITS TO BELLIGERENTS STATEMENTS ON LOANS, AUGUST 1914 Secretary of State Bryan informed President Wilson on August 10, 1914, that J. P. Morgan and Company had asked whether there would be any objection to their making a loan to the French Government. Although there appeared to be no legal objection to such a loan, Secretary Bryan suggested that for the following reasons the Government should not approve of loans to belligerent nations: 1. "Money is the worst of all contrabands because it commands everything else." The refusal of the United States to loan to belligerents would tend to hasten a conclusion of the war. 2. A loan would be taken by those in sympathy with the country in whose behalf the loan was negotiated, with the result that the citizens of the United States would be divided into groups. This situation would be "disturbing" as each group would be "pecuniarily interested in the success of the nation to whom its members had loaned money." 3. The financial interests concerned with these loans would be tempted to use their influence through the newspapers to support the government to which they had loaned, since the value of the security would be directly affected by the result of the war. American newspapers would be violently arrayed on one side or the other. This influence would make it "all the more difficult for us to maintain neutrality." 4. An American citizen who went abroad and voluntarily enlisted in the army of a belligerent nation lost the protection of his citizenship while so engaged. Why should there be more protection for "dollars, going abroad and enlisting in war?" Although the Government could not "prevent dollars going abroad at the risk of the owners," would not the Government be justified "in using its influence against the enlistment of the nation's dollars in a foreign war?" On August 15, Secretary Bryan informed J. P. Morgan and Company that "loans by American bankers to any foreign nation which is at war are inconsistent with the true spirit of neutrality." 1 Document 7. 'Document 10. 44 CREDIT ARRANGEMENTS The Department of State announced on October 15, 1914, that the President possessed no legal authority to interfere in any way with trade between the people of the United States and the territory of a belligerent. One week later, President Wilson gave orally to Acting Secretary of State Lansing, his views "concerning bank credits of belligerent governments in contradistinction to a public loan floated in this country." The Acting Secretary was authorized to give his impressions of these views to persons entitled to hear them, upon the understanding that he had no authority to speak for the Government. His "impressions" of the President's views were as follows: 1. There was a "decided difference between an issue of Government bonds, which are sold in open market to investors, and an arrangement for easy exchange in meeting debts incurred in trade between a government and American merchants." The purchasers of bonds were loaning their savings to a belligerent government and were, "in fact, financing the war." 2. The acceptance of evidences of debt in payment for articles purchased in the United States was merely a means of facilitating trade by a system of credits which would "avoid the clumsy and impractical method of cash payments." As trade with belligerents was "As legitimate and proper, it was desirable to remove obstacles such as interference with an arrangement of credits. 3. The question of such an arrangement "ought not to be submitted to this Government for its opinion, since it has given its views on loans in general, although an arrangement as to credits has to do with a commercial debt rather than with a loan of money." In his letter to Senator Stone, January 20, 1915, Secretary Bryan explained the difference between war loans and the purchase of arms and ammunition. The disapproval of war loans was not an unneutral act, as it affected all governments alike, but the prohibition of the export of arms and ammunition "would not operate equally upon the nations at war." The Secretary believed that a war loan offered for popular subscription in the United States would be taken chiefly by those in sympathy with the belligerent obtaining the loan. With a material interest in the success of the belligerent whose bonds they held, the American people might become more earnest partisans in the war. On the other hand, Secretary Bryan stated, contracts for and sales of contraband were mere matters of trade; no "general spirit of partisanship is aroused—no sympathies excited." 'Document 20. 'Document 27. 'Document 44. Two months later, the Department of State announced that it had been informed of arrangements for credits which belligerent nations had made with banks in the United States." While loans to belligerents had been disapproved, the Government had not felt justified in "interposing objection to the credit arrangements which have been brought to its attention." The Government had neither approved nor disapproved these arrangements, it had "simply taken no action in the premises and expressed no opinion." ANGLO-FRENCH LOAN OF 1915 In August 1915, it was decided that an Anglo-French commission should be sent to the United States to negotiate for a loan. During that month a Chicago banker asked what would be the attitude of the Government toward "the flotation of a large British loan" in the United States. The Secretary of the Treasury commented on the subject in a letter of August 23 to the Secretary of State. He felt that the foreign exchange situation was so serious that it might become imperative for some of the foreign governments to establish credits in the United States in order that they might continue their purchases of supplies. The attitude of the Government as expressed in Secretary Bryan's letter of January 20, he stated, might "seriously embarrass" the creation of the necessary credits. Secretary McAdoo mentioned that Germany had disregarded this letter and had 66 placed more than ten million of short time notes in this country." Finally, he expressed the opinion that it seemed entirely inconsistent for the Government to hold that the purchase of supplies by foreign governments was lawful and to be encouraged, and then to "discourage and discountenance as being unneutral the credit operations which are an essential part of such transactions." Secretary of State Lansing referred to President Wilson the inquiry of the Chicago banker, with the comment that "conditions have materially changed since last autumn when we endeavored to discourage the flotation of any general loan by a belligerent." The President replied on August 26 that the Government "would take no action either for or against such a transaction." However, "this should be orally conveyed, so far as we are concerned, and not put in writing." Secretary Lansing considered the subject of loans to belligerent nations in a long letter of September 6 to the President.10 He Document 59. 8 Document 116. 9 'Document 117. 10 Document 120. mentioned that for 1915 the excess of American exports over imports would be about $2,500,000,000. If the European banks should withdraw any considerable amount of the gold in their vaults, he believed that the credit of the European nations would be disastrously affected. Furthermore, if these nations could not find means to pay for the excess of goods sold to them over those purchased from them, they would have to stop buying and the export trade of the United States would shrink proportionately. The result, according to the Secretary, would be "restriction of outputs, industrial depression, idle capital and idle labor, numerous failures, financial demoralization, and general unrest and suffering among the laboring classes." Secretary Lansing believed that the means of avoiding this situation was the flotation of large bond issues by the belligerent governments. Financial institutions of the United States, he stated, had money which they wished to loan and the proceeds of these loans would be expended in the United States. The result would be "a continuance of our commerce at its present volume and industrial activity with the consequent employment of capital and labor and national prosperity." The Secretary mentioned that the difficult aspect of the situation was the 1914 statement that loans by American bankers to belligerents would be inconsistent with the true spirit of neutrality. However, popular sympathy had become crystallized in favor of one or another of the belligerents to "such an extent that the purchase of bonds would in no way increase the bitterness of partisanship." He expressed the opinion that the Government ought to allow the loans to be made "for our own good." President Wilson and Secretary Lansing discussed the situation on the following day. Although no record has been found of the results of this conference, it may be assumed that the decision. was in accordance with that outlined in the President's letter of August 26. Shortly thereafter an Anglo-French loan of $500,000,000 was consummated. RUSSIAN LOAN OF 1916 Ambassador Francis in Russia reported to the Department of State in a despatch of May 20, 1916, that the Russian Government was negotiating with American banking firms for a loan of $50,000,000.11 He stated that he was rendering all the assistance he "consistently" could toward the consummation of this loan, as he thought it would have a very beneficial effect on the diplomatic and commercial relations between the United States and Russia. "Document 194. Before this despatch reached the United States, the Ambassador cabled two private messages in regard to the proposed loan, with the expectation that the Department of State would forward the messages to their destination. The Ambassador was informed, however, that the Department could not participate in the transmission of messages referring to a Russian Government loan; participation would be contrary to the accepted rule of international law "that neutral governments should not lend their assistance to the raising of war loans by belligerents." 12 The Ambassador reported that most of the loan was to be used for paying indebtedness already incurred for non-contraband commodities. The loan was consummated on June 18. On the following day the Ambassador informed the Department that the "Embassy had no participation in negotiation but I am personally glad loan was effected." 18 14 STATEMENT ON LOANS, AUGUST 18, 1916 In a letter of August 18, 1916, the Department of State mentioned the announcement made at the beginning of the war that in the judgment of the Government, loans by American bankers to any belligerent nation were inconsistent with the true spirit of neutrality.1 While expressing its position with regard to these loans, "there was no way in which the Government could prevent private loans being made to the belligerents." Such loans violated no law of the United States and there was no way in which those making the loans could be prosecuted. The Government had "in no way facilitated or encouraged any loans that may have been made.” FEDERAL RESERVE BOARD STATEMENT, NOVEMBER 28, 1916 The Federal Reserve Board issued a statement on November 28, 1916, that the investment by member banks in treasury bills of foreign governments was not then regarded "in the interest of the country." 15 The Board believed that the banks should remain liquid in order to respond to domestic requirements; that they "should proceed with much caution in locking up their funds in long term obligations or in investments, which are short term in form or name but which, either by contract or through force of circumstances, may in the aggregate have to be renewed until normal conditions return." 12 Document 196. 18 Document 197. 14 Document 200. 15 Document 212. |