Even before the Ottawa Conference, American economic antagonism toward the British Empire was apparent. In the Senate debate on the Hoover Moratorium, Senator Reed of Pennsylvania dismissed as “silly” the idea that payment of war debts could present any great difficulty to a country like Great Britain, “owning far-flung colonies, holding funds all round the circle of the globe, with museums stuffed with art treasures worth millions and millions.”37 The implication was that Britain should sell these art works, along with its colonies, to pay what remained of its war debt. The drive to break up the British Empire had thus begun in embryonic form. But so reluctant was Europe to recognize this ultimate policy intent – still only in its germinal stage – that the only response was an angry editorial in The Times of London denouncing the suggestion that Britain ship its National Gallery and the British Museum to New York in partial satisfaction of its debts.
The Hoover Moratorium expired on June 30. The first payment due was that of Greece on July 1. It “notified the Treasury Department that it would take advantage of a clause in its agreement with the United States permitting it to postpone payment for two and a half years, with interest to accrue on postponed amount at 4¼ per cent.” Smaller debtors followed suit.
The Hoover Administration recognized the need to negotiate some longer-term resolution, toward which a Preparatory Commission of Experts met at Geneva in autumn 1932. The U.S. representatives were John H. Williams, a respected Harvard economist specializing in balance-of-payments analysis who had worked for some years as a consultant to the New York Federal Reserve Bank, and Edmund E. Day. “One important development in the intergovernmental situation is indispensable,” their report stated: “a definitive settlement of the war debts must be clearly in prospect, if not already attained, before the Commission comes together again . . . With a satisfactory debt settlement in hand, or in the making, and with a willingness on the part of two or three of the principal powers to assume initiative in working out a program of normalization of the world’s economic order, the next meeting of the Preparatory Commission may be expected to yield highly important results.”38
The report was not made public in view of the nationalistic views of most voters, but Hoover and his Cabinet saw the writing on the wall and planned to implement its recommendations. Their stance was shaped by the fact that the balance of forces dealing with the Inter-Ally debts did not involve only the European and U.S. Governments. Private bankers also had an interest in alleviating the burden. Enlightened and compassionate as their internationalist position may have been, it was not entirely altruistic, for intergovernmental debt service had thoroughly crowded out private lending. Whereas private loans had played a facilitating role prior to 1929, the Crash had destroyed capital and debt-paying power from one economy to the next, forcing a choice to be made between Europe paying either the U.S. Government or, potentially, American bankers.
The bankers favored international debt leniency on the part of governments for much the same reason they did in 2000 when they urged that governments, the World Bank and IMF forgive the official debts owed by the poorest Third World countries. Their objective was not so much to let Third World debtors off the hook as simply to remove governments from their senior status as first claimants on the export revenues and foreign exchange generated by debtor countries selling off their public domain to pay foreigners. Government forgiveness meant that all the available revenues of the poorest countries would be “freed” to be paid to large private global creditors.
Farm interests also had an interest in alleviating Europe’s debts, for the more it had to pay in debt service, the fewer dollars it could raise to buy U.S. farm output. However, notes Raymond Moley, Roosevelt’s advisor on the debt issue, “the debt payments are relatively unimportant in comparison with the interest on the private debts (foreign bonds, etc.) and payments on short-term bank paper of which eight hundred millions (about) are in New York.”39 The issue of the primacy of intergovernmental or private finance capital thus was the determining issue. One or the other had to give.
The question was whether it would be intergovernmental debts or private loans that would suffer. Favoring private creditors, Hoover and his Republican Cabinet were amenable to seeing the government relinquish its claims on Europe. Roosevelt and his economic nationalists put the public sector’s interest first, that of private creditors last. To Moley and Rex Tugwell, two of the leading members of Roosevelt’s Brains Trust, that was the essence of the New Deal’s political philosophy. Tugwell pointed out that one reason why the Eastern establishment’s bankers favored cancellation or at least a major reduction of the debts was that it would help in the revival of their own international loan business. That was the essence of their internationalist position. Even though “the debtor countries were able to pay their installments, the international bankers wanted the government debts out of the way to help the revival of their own business abroad.”40
The prospect of negotiating a settlement of European debts a was disrupted when Franklin Delano Roosevelt defeated Hoover by a heavy plurality in the presidential election held on Tuesday, November 8, 1932. The Democrats also captured the Senate and House of Representatives, giving the White House control over policy. No mention of the war debt issue had been made at the Republican National Convention held in June 1932, but the Democratic Convention formulated a plank registering opposition to their cancellation.
Allied debt payments were scheduled to begin falling due just two days after the election, starting with Greece’s November 10 payment on its nonpostponable payment of $444,920. It defaulted. This was not unexpected in view of its June request for a postponement. More unsettling that day was the fact that “the British and French ambassadors had called on the Secretary of State Henry L. Stimson to ask for a review of the entire question of debts and, pending such a review, for a postponement of the installments due on December 15th.” Their notes demanded “not only that the debt payments due on December 15 be deferred but that we review the whole debt situation with debtor nations.” Stimson described this demand as a “bombshell,” but urged Hoover to take a lenient line toward the debts, hoping to avoid the outright break with Britain and other debtors that defaults would cause. In fact, reports Moley, Stimson “was not happy about Hoover’s determination not to cancel the debts without an adequate quid pro quo or about the President’s refusal to link the debts with reparations.”41
Roosevelt, Moley and Tugwell took a much less “internationalist” position, reflected in Moley’s complaint that Stimson’s professional life “had been that of a New York lawyer in close contact with the great international financial and cultural community that centered in that city . . . he leaned heavily upon advice from New York, especially from the partners of the Morgan company.” In fact, “Stimson’s sympathies for any relationship with the New York banking community were greater than Hoover’s and [Treasury Secretary] Mills’s.”42 Roosevelt’s supporters, especially from the silver states, were soft-money populists sympathetic to debtor-oriented inflationists, as it was the West that owed money to the East Coast bankers.
America’s leaders thus looked first to the domestic economy, not anticipating the scope of the world’s financial problems or grasping the extent to which the nation’s hard line toward European war debts would provide new impetus urging the continent toward a renewed nationalism and autarchy that would culminate in World War II.
America’s reasoning was neither devilish nor incorrect, as far as it went. But it did not go far enough. Europe did everything it could to avoid default on the tangle of reparations and Inter-Ally debt payments in the absence of U.S. permission to stop payment. This permission was not given. America therefore left Europe virtually no alternative but to pursue creditor-oriented deflationary policies at first, and protectionist and nationalistic policies after dollar devaluation in 1933–34. Domestically, the U.S. economy adhered to a much more populist, debtor-oriented economic philosophy than did Europe, but internationally it held to a hard creditor line.
| 3 | America Spurns
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