What makes these U.S. attitudes so fascinating today is that almost no European (with the exception of Charles de Gaulle) made such demands on the U.S. in the 1960s, even though most Europeans disagreed with its military activities in Southeast Asia and were accumulating dollars that they found unusable for buying out U.S. industrial companies, even their European holdings. Just the opposite, as later chapters will describe; despite America’s shift into debtor position vis-à-vis Europe, American private investors continued to buy out European companies. This contrast between the 1930s and 1960s and 1970s should be borne in mind while reviewing the American diplomacy leading up to World War II. It shows how difficult it is to gain international acquiescence in a change in underlying financial and property structures.
Roosevelt meets with Hoover to discuss the debt problem
Roosevelt was well aware of the ideological gulf between himself and Hoover when, on Monday, November 14, he sent a telegram accepting Hoover’s invitation for a “wholly informal and personal” meeting on November 22. He asked Moley to accompany him; Hoover was joined by Treasury Secretary Ogden Mills, but not Stimson.
Moley describes Hoover as plunging “into a long recital on the debt question. He spoke without interruption for nearly an hour . . . Before he had finished, it was clear that we were in the presence of the best-informed individual in the country on the question of the debts. His story showed a mastery of detail and a clarity of arrangement that compelled admiration.” He started by explaining that “our government is now confronted with a world problem of major importance to this nation.” While he did not favor debt revision in itself, “he was willing to bargain if, in compensation for some readjustments on our part, we should receive benefits in an expansion of markets for the products of our labor and our farms.”5 The question was, what trade concessions did foreign countries really have to give America?
Roosevelt’s team complained that Britain had failed to include provision for the debt payment in her budget. Why had the Hoover Administration made no attempt to bring up the issue? The debt agreements provided “that questions concerning adjustment of the debt should be brought up ninety days before payment was due,” but this period had passed, as Britain and France had not sent notes to the State Department until November 10. Had Hoover promised these countries that if he were re-elected, he would pressure Congress to forgive the debts? If so, how had he planned to get Congress to approve of any such settlement? “Finally – and this was the core of our doubts and misgivings – we wondered if there was any truth in the rumor that the President had promised [French Premier] Laval or [Prime Minister] MacDonald, when these gentlemen visited him, that he would attempt to bring about a complete readjustment of the debt situation. Men close to Laval openly made this claim . . . the British seemed to believe it. (I was later flatly told by three of the highest British officials that such had been the import of President Hoover’s conversations.)”6 Just what unpublicized agreements had been made?
Laying out the common ground between his views and Roosevelt’s, Hoover described the Inter-Ally debts as normal business obligations, not political debts. But the way the United States could best negotiate them was indeed political, on a country-by-country (that is, divide-and-conquer) basis, treating each country individually and bargaining for trade concessions or other benefits in exchange for relinquishing the debt stranglehold. Hoover even agreed that the Allied debts were not related to reparations receipts from Germany, a link that would have let the Allies off the hook from paying the United States once Germany stopped paying them. America had not played a role in setting reparations, but entered the picture simply as an arms creditor and provider of postwar aid. On the other hand, Hoover pointed out, the fact was that the debtors simply could not meet their scheduled December 15 payment. Britain had only $78 million available. If it threw more sterling onto the market to buy dollars, the pound would decline, forcing the dollar up and, with it, U.S. export prices relative to those of Commonwealth producers.
Then, describes Moley, “Mr. Hoover moved to one of those plausible generalizations into which he so frequently fell. Either cancellation or default, he said, would shake international credit. And that would cause economic shivers to pass through this country.”7 Thus, “while both cancellation and default ought to be avoided at all costs, we could not insist upon payment without extending some hope of revision or reexamination unless we wanted to force the European nations to establish a united front against us on economic questions. The price of this policy would be ‘grave repercussions’ both here and abroad.” Hoover therefore wanted to revive the Debt Commission called for at Lausanne the preceding summer, for which his administration had been preparing.
Roosevelt rejected Hoover’s emphasis upon restoring financial normalcy. It was business as usual, he believed, that had brought on the depression, which was the result of structural problems such as monopoly power, especially the concentration of financial power. Roosevelt’s solution was to regulate business, whereas Hoover took for granted the political, legal and public regulatory structure. And Hoover hardly was amenable to Roosevelt’s intention of using public regulation to shift power into the hands of government agencies, and incidentally to the hands of the Executive Branch. But precisely because Roosevelt saw economies as being controlled by their governments, he played down the role of foreign relations, even for Europe’s more open and trade-dependent economies. Quite simply, Roosevelt and Congress viewed international debts as a marginal consideration as compared to national planning.
Hoover reports that he concluded the meeting by inviting Roosevelt to join him in calling for “a meeting with Congressional leaders of both parties, which I would call for the next day at the White House, where we would jointly urge the reactivation of a War Debt Commission. This would at once display our united front in the foreign field.”8 In fact, he recognized, without Roosevelt’s support he could not get the Congressional assent that was needed to wind up the debt issue. He therefore invited Roosevelt to join with him in naming a bipartisan government commission to negotiate with Europe.
This was just what Roosevelt did not want. He said that he could not be a party to giving up the December 15 payments, although he granted that if these were made as a show of good faith, he would agree to discuss future adjustments “through action of the Executive” at such time as his own administration took office. The problem was complex, and a settlement would take considerable time to work out – the kind of stall people use when they are not prepared to let an issue be brought to a head. “Hoover and Mills were visibly annoyed,” Moley reports. “They had hoped that Roosevelt would prove receptive to Hoover’s general conclusions about the dreadful urgency of the problem. They had hoped that he would go along on the Debt Commission proposal.” The atmosphere became tense as their attitude toward Moley turned from contempt “into cold anger as the afternoon passed.”9 They could not understand Roosevelt’s refusal to see what to them was obvious regarding the debt problem, that America hardly could expect to restore trade while the international financial system remained deranged by debts far in excess of the ability of countries to pay.
The press was informed that Roosevelt had accepted “the idea of continuing diplomatic negotiation on debt revision,” but not “the Hoover proposal to revive the Debt Commission.” The East Coast papers denounced his rejection of Hoover’s internationalism as if “he didn’t quite know what the meeting with Hoover was all about.” Much of the blame was put on Moley, whom Roosevelt had chosen precisely for his rejection of internationalist principles. Indeed, six years later, even as war was breaking out, Moley still believed that the refusal to accept Hoover’s proposal “was the first spectacular step Roosevelt took to differentiate his foreign policy from that of the internationalists . . . It was a warning that the New Deal rejected the point of view of those who would make us parties to a political and economic alliance