Ludwell Denny

America conquers Britain

Chapter Seven


THE LONDON AND Washington governments are closely identified, even to the extent of interchangeable personnel, with the private interests representing export capital.

Mr. Brailsford, in his book on imperialism quoted above, describes this identity of export capital and government in Britain:  “When once the government of a great Power has habitually, in its thinking and in its actions, identified the national interests with the interest of exported capital ... it becomes the mouthpiece of the rentier class which lives upon these profits, and of the bankers, promoters, entrepreneurs, contractors, and merchants who direct the stream of its investments.  The ruling class in England is as completely identified with these groups which guide the flow of Imperial capital, as it was once with the landed interests.  The late Lord Milner, who once controlled the public finance of Egypt, became, some years later, the chairman of the Anglo-Egyptian bank.  The younger brother of a duke served as a high official in the Foreign Office, quitted it to become a director of an oil company, and thereafter sat in the Tory Cabinet.  Imperial policy is decided in a little social world in which men pass alternately from official to commercial positions, and spend their lives with guests, and hosts and clubmates, whose incomes depend on the yield of the holdings in Indian mills, Chinese banks, and Soudanese irrigation schemes.”[1]

Here are ten high British Government officials most of whom have more or less left political life to become leaders in British Empire key industries, and are fighting, as we shall see in later chapters, American penetration in England and American rivalry abroad.

Lord Birkenhead was Solicitor General, Attorney General, Lord Chancellor, Secretary of State for India.  Now he is on the boards of Imperial Chemical Industries, Johannesburg Consolidated Investment, Tate and Lyle (sugar-refining), Greater London and Counties Trust (public utilities).

Lord Reading was Solicitor General, Attorney General, Lord Chief Justice, President of the Anglo-French Loan Mission to the United States, Special Ambassador to Washington, Viceroy of India.  He is now director of several newspaper corporations and chains, Palestine Electric, London and Lancashire Insurance, National Provincial Bank, Financial Company of Great Britain and America, Imperial Chemical Industries.

Mr. Reginald McKenna was Financial Secretary to the Treasury, President of the Board of Education, First Lord of the Admiralty, Home Secretary, Chancellor of the Exchequer.  He is now chairman of the great Midland Bank, and director of Canadian Pacific Railway, Clydesdale North, Yorkshire Penny Banks, Sun Life Assurance of Canada, Council of the Corporation of Foreign Bondholders.

Sir Robert S. Horne was Assistant Inspector General of Transportation, Admiralty Director of Materials, Admiralty Director of Labour, Civil Lord of the Admiralty, Minister of Labour, President of the Board of Trade, Chancellor of the Exchequer.  He is now chairman of the Burmah Corporation, Zinc Corporation, National Smelting, and director of Suez Canal Company, Great Western Railway, the Underground, Commercial Union Assurance, Lloyds Bank.

Mr. F.G. Kellaway was Parliamentary Secretary to the Ministry of Munitions, Secretary to the Department of Overseas Trade, Postmaster General.  He is now director of A.D.C. Aircraft, and managing director of Marconi’s Wireless Telegraph, Marconi International Marine Communications and the moving genius in the new empire merger and monopoly, Cables and Wireless- Imperial and International Communications.

Sir A.S.T. Griffith-Boscawen was private secretary to the Chancellor of the Exchequer, Parliamentary Charity Commissioner, Parliamentary Secretary to the Ministry of Pensions and to the Board of Agriculture, Minister of Agriculture, Minister of Health.  He is now director of Johannesburg Consolidated Investment, General Co-operative Investment Trust, Rhodesia Broken Hill Development, Manx Electric Railway, Loangwa Concessions.

Sir Auckland Geddes was Director of Recruiting, Minister of Reconstruction, President of the Board of Trade, Ambassador to Washington.  He is now chairman of Rio Tinto Mines, and director of Friars Investment Trust, Pyrites Company.

Sir Eric Geddes was Director General of Munitions Supply, Director General of Transportation, Director of Military Railways, Minister of Transport, First Lord of the Admiralty, Chairman of the Committee on National Expenditure.  He has since been chairman of the Federation of British Industries, and Imperial Airways, and is now chairman of Dunlop Rubber and allied companies.[2]

When the Tory Government fell in 1929, several of its members went over to commerce and finance, including the Foreign Minister, Sir Austen Chamberlain, and the War Minister, Sir Laming Worthington-Evans, both of whom joined Lord Birkenhead on the public utilities board of Greater London and Counties Trust.  Former Prime Minister Baldwin heads one of Britain’s great industrial families.


Interchange of personnel between government and big business is even more characteristic of the United States than of Britain.  Headed by Secretary of the Treasury Mellon (magnate in oil, aluminum, steel, coal, banks, and one of the three or four richest men in the country), half of the members of the Coolidge Cabinets represented large commercial interests, as do two-thirds of the Hoover Cabinet.  Mr. Hoover has long been a man of world-wide business interests and great wealth.  Mr. Charles Evans Hughes, after fighting the diplomatic battles of the oil companies and other export capital as Secretary of State, resigned to become an attorney for such interests, including Standard Oil.  Perhaps most of our Cabinet members and assistant secretaries, who are not too old, become active business directors on leaving office.

Mr. Dwight Morrow, partner in the House of Morgan, became ambassador to Mexico to negotiate settlement of the land, oil and debt disputes with which his bank is associated.  There is a gentleman who has served in a high capacity at the State Department handling Latin American affairs, who for several years has changed back and forth from diplomatic to commercial employment;  one month he would be handling a case with a foreign government as a State Department official, some months later he would be in that foreign country representing the American business interests, later he would bob up again at the State Department.  It is not unusual for American diplomatic officers in the field to leave the Government service for employment with bankers interested in the foreign country to which they have been officially accredited—as happened recently in Nicaragua.  The dominant group in our professional diplomatic service are men of great wealth.  There is a smaller group of unusually brilliant and scholarly men, usually not rich, who are rapidly drawn away from the State Department by Wall Street interests with large foreign business.  These men also, after leaving Washington for New York, sometimes return on leave of absence from a bank to serve for two or three months at the Department, after which they return to the bank.  As Secretary of Commerce, Mr. Hoover considered it his function not only to train an effective corps of commercial attaches for foreign service but made that service in part a training school from which government agents graduated to the foreign service of American banks and corporations.

So to-day, from the banker, Mr. Dawes, in the premier diplomatic post at the Court of St. James, on down to the smaller countries, our diplomatic and commercial foreign service has a very close relationship with the interests of export capital.  Of course this hook-up is natural, considering that we are a commercial nation and that our empire is not so much territorial as economic.

Both the London and Washington governments take direct and open interest, sometimes even control, as we have seen, in the business of private loans and investments abroad.  British private loans to the Dominions are properly considered by the London Government as of political consequence.  They tie the Dominions closer to the homeland.  Thus they are to be encouraged, and American loans to the Dominions are to be discouraged.  Not that London is very successful with this policy.  Canada has long since fallen out of line, and Australia more and more is going to New York for her funds despite London’s displeasure.  The United States Government pursues the same policy in regard to our foreign possessions, and is successful-though the analogy in this case is with the British colonies rather than with the Dominions.  Similarly the two governments apply this policy in the case of protectorates and quasi-protectorates, such as Egypt, Nicaragua, Panama, Cuba.

There is also an indirect type of political control exercised by the United States through financial arrangements, treaty officials, customs receiverships and the like, in Caribbean countries.  In 14 of the 20 Latin American republics, there is some form of fiscal, political, or military power wielded by the United States, which in virtually every case is based on American loans and investments.

Then there is the system of financial “advisors,” under which foreign governments call in American experts to reorganise national finances.  Nominally the United States Government has no connexion with this system;  but actually it has great influence, for in all such cases the action of the foreign government is mixed with political motives.  American experts are appointed not because they are better than any other, say, than British experts, but because the foreign government which reorganises its finances on the plan of an American mission thereby achieves a higher credit and political position in the eyes of New York and Washington.  If the great Powers in handing the reparations settlement over to experts found it expedient both times to pick an American chairman, how much more natural that smaller nations standing alone should symbolise their present and future dependence upon the favour of New York and Washington by picking American financial advisors.  Ecuador, for instance, in 1928 obtained United States diplomatic recognition after carrying out recommendations of an American financial advisor.

These American advisors have served in about 25 foreign countries.  Some, like Dr. Edwin W. Kemmerer, Dr. W.W. Cumberland, Dr. A.C. Millspaugh, have made this almost a separate profession.  Dr. Kemmerer in 1929 headed the financial mission employed by the Chinese Government, a mission whose work will be of undoubted political and diplomatic as well as financial significance.

This system is perhaps best described by Dr. Kemmerer who says that in eight of the 10 countries served by him “questions of foreign loans and of foreign loan policy were involved.”[3]  He gives the following reasons why foreign governments choose American rather than native or other foreign advisors:  “the belief that the United States is comparatively free from ambitions of political aggrandisement, particularly in Europe and in the Orient;  the economic and financial prosperity of the United States in recent years;  and the desire to attract American capital. ... The unjustified popular belief so widely found in Latin American countries that the United States is seeking by every means in its power to extend its sovereignty over the entire Western Hemisphere has on more than one occasion been responsible for the appointment of European advisors by Latin American countries.”  Despite this fear, however, a dozen Latin American countries have chosen American missions in the last decade, Kemmerer himself heading six of them.

These American advisors naturally are close to the State Department.  Some of them indeed change back and forth between service at the State Department and such service with foreign governments.  Mr. Arthur Nicholls Young, who was financial advisor to Honduras, later became chief economic officer of the State Department, from which he resigned to become a member of the 1929 financial mission to China, and from which he may return to the State Department.  Dr. Cumberland was an economic expert with President Wilson at the Paris Peace Conference, economic officer of the State Department, fiscal dictator of Peru, customs receiver and financial advisor in Haiti.  Mr. Charles S. Dewey resigned as Assistant Secretary of the Treasury of the United States to become American advisor to the Polish Government to carry out the reforms outlined by an earlier American mission.  Mr. S. Parker Gilbert left the United States Treasury Department to become agent-general for German reparations.  America’s financial and political world power, responsible for the choice of these Americans by foreign governments, is in turn multiplied by their positions and services.

Britain for the most part has given up trying to interfere with this system of American advisors, which has extended to almost half of the countries of the world.  The London Government by intrigue was able before the War to get Mr. W. Morgan Shuster, American financial advisor to Persia, out of that country. More recently certain British officials helped to make impossible the position of Dr. Millspaugh, as administrator-general of Persian finances.  British officials tried to prevent Persia from appointing an American oil advisor.  Elsewhere the British apparently take the appointment of American advisors with somewhat better grace, especially in places where London’s opposition would be unsuccessful.


That an American, rather than a British or international, commission is outlining the economic and financial reorganisation of Nationalist China is significant.  China is one of the richest remaining major fields for foreign financial exploitation.  Chinese financial history in the last 50 years has been a series of battles and armistices among foreign capitalists for control.  America has had the disadvantage of getting into the scramble late, and the advantage of having gained thereby somewhat less Chinese ill will.  Before China can obtain the large loan desired by the Nationalist Government for purposes of reconstruction and modernisation, she must come to terms with the Powers regarding old debts.  That may involve co-operative action on the part of the Powers leading to some kind of joint agreement.  But behind that front of international co-operation, Anglo-American financial conflict for supremacy in China continues.  This conflict is magnified because the bulk of old British loans are secured by the railways, salt tax revenue, and other resources, while the American loans are not secured.  There is also a lesser internal American conflict between financial and industrial capital, the former representing outright loans and the latter credits for materials, chiefly railway.

As in the past, much of the Anglo-American manoeuvring for position now turns on the railways with 500 miles of construction as the prize.  The Nationalist Government desires $600 million of railway reconstruction and extension loans to run for a period of 10 years or longer.  It wants to give this business to American bankers and companies.  As a first move Nanking in 1929 appointed an American, M. J.J. Mantell, as consulting manager of the government railways.  But so long as the old international Consortium stands as the official medium of the United States Government, American bankers must permit participation by the British (and by the French and Japanese in lesser degree) in any such Chinese financing.

In Manchuria and Japan the situation is different.  There political aspects of foreign financing are even more a determining factor than in the case of China south of the Wall.  Hundreds of millions of dollars will be required for the development of Manchuria.  The railroads of Manchuria caused one war, and in 1929 threatened to cause another.  The United States has a financial claim against the Chinese Eastern Railway, the road over which Russia and China are disputing.  Under the “international” operation of the road in 1919-22, an American was operating manager and the United States extended loans, still unpaid.  For several years political complications have held up a $30 million South Manchuria Railway loan.  That road is the key to Japan’s economic and military domination of the province.  Hitherto the United States, despite its treaties with China and its nominal Open Door policy, has in fact recognised Japan’s “special interest” in that nominally Chinese territory.

American hands-off policy toward Japanese imperialism in Manchuria is the price of the growing Japanese-American accord, which American diplomatic and naval officials have developed as America’s “ace in the hole” in event of war with Britain.  To break the Anglo-Japanese alliance in fact as well as in name, the United States at the Washington Arms Conference agreed to give up the right to build naval bases at the Philippines and Guam.  At that time the United States granted Japan a capital ship ratio making her superior to the United States in any battle in Japanese waters (due to the distance from bases the American ratio of 5-to-3 would be reduced in fact by one-half as compared with the Japanese navy, if the latter were fighting close to its own bases).  With the exception of one period of a few months, since the Washington Arms Conference the Japanese-American accord has grown, until now the United States has a tacit understanding with Tokio under which the latter in the proposed naval agreement on cruisers and other auxiliary ships will be given a larger ratio.

No real cause of friction remains between Washington and Tokio.  Artificial friction between the two peoples is created by the insult of our immigration laws.  Tokio, however, is willing for the United States to exclude Japanese under the quota system applying to European nations, which if applied to Japan under the law would admit only about 200 Japanese annually.  Both governments (though not Congress) are in agreement as to the solution of this problem, which is a popular issue in both countries but which in no way restricts the close accord of the two governments themselves.

To make that accord doubly sure Japan would create a situation in which the United States would underwrite her imperialistic Manchurian policy.  For, though Washington has caused Tokio no embarrassment hitherto, Manchurian conditions are unsettled and the future in doubt.  The traditional Russian-Chinese-Japanese struggle there has been resumed.  The 1929 flare-up is a standing warning of sudden and general war in that region.  Meanwhile the Chinese are undermining Japanese dominance there in the only manner possible to a people weaker in military strength;  that is, by peaceful penetration.  By sheer numbers Chinese immigrants from south of the Wall are slowly regaining for China its richest province.  Thus the time may come soon when Japan will need not only the negative but also the positive diplomatic support of Washington in Manchuria.  Hence the proposed South Manchuria railway loan.  Japan reasons, and rightly, that American public sentiment, by tradition vehemently insistent on the rights of China against foreign aggression, will be somewhat less intent on “making the world safe for democracy” in Manchuria if American money is in that Japanese railway and its subsidiary industries.

Here, then, is a striking example of the inter-connexion between loans and foreign policy, upon which hang issues of diplomatic and naval alliances, of foreign imperialism, and of peace and war.  When this loan was first arranged between the Japanese Government and the House of Morgan, Secretary of State Kellogg gave his approval.  Thanks to the press, the American public came to a quick realisation of the issues involved.  As a result of popular protest, the State Department’s approval was withdrawn, in form at least.  Since then the loan agreement has waited in a pigeon-hole until there is a more auspicious moment for its reappearance.  New York and London bankers divided equally the 1929 yen stabilisation credit of $50 million to the Tokio Government.


The State Department is very sensitive over the part it plays in foreign financing operations of private American interests.  On several occasions responsible Washington officials have defined that relationship.  American bankers are required by the State Department to submit to it in advance all of their proposed foreign loan contracts.  This requirement was explained by Secretary of State Kellogg in his address before the Council of Foreign Relations, December 14, 1925, as follows:  “The object of this was that the Government might state whether it believed certain loans were, or were not, in the public interest, such as loans for armament, loans to countries not making debt settlements with the United States, or loans for monopolistic purposes.  The Department has received notice of a great many loans to foreign governments, municipalities, and industries.  It has objected to loans to countries which have not settled their debts with the United States, as it believed that it was not in the public interest to continue to make such loans, and it has objected to certain loans for armament and the monopolisation of products consumed in the United States.  The Department has not assumed and could not assume to pass upon the validity of loans or the security.”

Dr. Young, then economic advisor of the State Department, in an address on January 15, 1925, denied the charge that State Department approval of such loans implied their protection by American military force—a charge made in connexion with American military intervention in such countries as Nicaragua receiving American loans:  “Nothing is further from the truth.  No such promise has ever been made nor can any one cite an instance in which the American Government has used armed force for the purpose of collecting unpaid bonds held by American citizens.”

There is, of course, no way to ascertain the relative importance of financial, political, and naval strategy as motives impelling American marine intervention in Nicaragua, Haiti, and other Caribbean countries.  Doubtless naval strategy, and the fundamental foreign policy of all Washington administrations that the Caribbean is and must always remain an American lake, have been more important factors in determining Washington policy than Wall Street’s interests in those countries, which are so small compared with our total foreign investments.  But after all, our Caribbean-Panama political and naval policy itself arises from larger economic motives conditioning our expansion as a commercial empire.  Thus the endless argument between American liberals and imperialists as to whether foreign loans are directly responsible for our frequent adventures in marine intervention in that region is beside the point.  The fact that we do intervene in those countries is tremendously significant;  the official excuse given, or indeed the actual immediate cause, is inconsequential compared with the basic and permanent economic cause.

But the Washington Government’s attempt to use private loans as a club to force foreign governments and industries to conform to its desires is restricted except in the case of weak countries or weak foreign industrialists.  The reason in part is British or other foreign credit competition.  Just as Britain cannot use her financial power now as in the days when she had a virtual monopoly as world banker, so the United States has to use its credit club with discretion.  The American club is effective if at all only in two types of cases:  in Caribbean countries, where Britain does not dare interfere, and in outlawed countries such as Russia, where Washington and the London Tory Government joined temporarily in a virtual credit boycott for the protection of their common capitalist interests.[4] While the Washington Government has not been able to recognise the Communist dictatorship in Russia, it has not been so squeamish about dictatorships elsewhere.  To mention only a few, American bankers have underwritten with State Department approval such dictators as Machado in Cuba, Leguia in Peru, Pilsudski in Poland, Horthy in Hungary, Mussolini in Italy, and Borno in Haiti.  Only when dictators have refused to reach satisfactory agreements with American capital, as in the case of Roumania, the State Department has not been friendly to such loans.

The Hungarian case is interesting because the State Department braved public wrath in barring from this country former President Károlyi upon unofficial representations of his enemies of the Horthy dictatorship.  The New York World, October 21, 1928, published an interview with a “spokesman” of financial interests to the effect that the Hungarian monarchy would not be restored as announced by Premier Bethlen because “Count Bethlen knows the bulk of the money put up by the financiers was placed conditionally upon the continuation of the [Horthy] regency, and that any violation of the agreement would not only halt any future investments or loans, but cause the recall of the bulk of that already in the country [estimated at upward of $200 million].”  The World story continues:  “That there will not be any change in the Hungarian Government also is the view of Ralph Beaver Strassburger, financier, number 60 Broadway, who is a member of the American group of Hungarian investors.  He is in close touch with Budapest and goes there every year.”  Mr. Strassburger, a former member of Congress, is a power in the Republican Party.

Mussolini was granted by the Washington Government a cancellation of 80.2 per cent of Italy’s debt and then was given a New York loan as a reward for accepting the cancellation or so-called friendly agreement—this by the same Washington Government which refused to grant similar terms to the British Government.  “The Fascists have managed to survive thus far by contracting more than $450 million of debts in America which are guaranteed by the best of Italian industries,” as former Premier Nitti, now an exile, points out.[5]

The relation of the State Department to such private loans having direct international political consequence is not covered by that explanation of former Secretary Kellogg, quoted above.  But he raises other interesting questions.

Take his statement that the Department “has objected to loans to countries which have not settled their debts to the United States, as it believed it was not in the public interest to continue to make such loans, and it has objected to certain loans for armament and the monopolisation of products consumed in the United States.”  Referring to the ban on private American loans to foreign monopolies, the Secretary doubtless had in mind, among others, the Department’s refusal to approve the proposed New York credits to the Franco-German potash cartel and to the Brazilian coffee monopoly.  At about the same time Chile, which has a monopoly in natural nitrates, had difficulty in obtaining a Wall Street credit.

But in none of these cases was the Department able to enforce its private credit boycott.  In every instance the money was obtained elsewhere.

Especial interest attaches to the potash case, because Washington’s ban was prompted by political expedience with an eye to the farm vote, and was in conflict with the financial interests of Wall Street.  The Franco-German potash deposits are not a world monopoly.[6] Germany in negotiating for the loan was prepared to regulate prices on a margin of so-called reasonable profit.  She argued that the cost of financing potash credits in Europe would be so high that it would inflate prices which the American farmer would have to pay for fertilisers.  If long-term low interest New York credits could be obtained, the German industry could then afford to stabilise export prices at a relatively low figure, it was argued.  Germany also pointed out that she was importing more than $300 million worth of American agricultural products annually, but in return was selling the United States less than $8 million worth of potash.  With elections coming on, however, in which the farm vote might be a determining factor, and with its general policy against the British rubber monopoly to be vindicated, Washington could not afford to listen to the pleas of Wall Street, which desired through the potash loan to extend its penetration of one of the most powerful industrial units in Europe.

Assistant Secretary of Commerce Klein in his Frontiers of Trade points out that Congress may pass retaliatory laws against foreign raw material monopolies if American bankers fail to execute the Department’s boycott, as some American bankers did defy the Department through their indirect participation with European bankers in the potash and coffee loans:  “The bankers have alleged that this position did not prevent the potash and coffee interests securing adequate funds in Europe in which it was reported, indeed, that some American participation was actually arranged.  Thus, they allege, the intentions of our Government were completely frustrated, and only ill will toward us was engendered in Brazil, Germany, and France.  Regardless of whether that was or was not the case, or whether enterprises operated with such loans would encounter our anti-trust laws (as happened in the Sielcken coffee case shortly before the War), it has been clearly demonstrated during the debates in Congress, and in the discussions in trade circles and among large consumer groups, that any direct American financing of such oversea monopolies would immediately arouse the bitterest resentment here and would be certain to stimulate legislation which might become most regrettably extreme in its reactions upon all of our oversea financing.”[7]

Mr. Kellogg’s second reference was to the ban on loans to nations refusing to fund their War debts to the United States.  This boycott also has been ineffective.  Wall Street, unwilling to be thus handicapped in its credit competition with London, has forced the State Department to give what is called a “broad interpretation” of the rule.  Mussolini, as we have seen, entered into a three-cornered deal which saved the Department’s face, gave Wall Street the business it wanted, and buttressed the Fascist regime.  (The large private loan obtained by Mussolini in connexion with his signature to the government debtfunding agreement, was unloaded by New York on the American public only with the greatest difficulty.)

France and Greece, which refused to fund their War debts, though shut out of the New York money market for a while by Washington, in the end obtained American credits directly and indirectly through Europe.

Behind these cases of Wall Street’s indirect sabotage of the Washington embargo policy is the sharp conflict between the interests of the United States Government as a creditor of European governments, which say they cannot pay, and the interests of the House of Morgan and other New York bankers, who are also creditors of those same European governments and who intend to be paid in full, as we shall see in examining the general War debt question.

The third specification by Secretary Kellogg was that the Department “has objected to certain loans for armament.”  Nor has this objection been effective.  The rub again is that it interferes with Wall Street business.  All governments are spending money for armament, and in the eyes of other nations those expenditures are excessive.  It is easy enough, of course, for Washington as a gesture to ban direct munitions loans-though in the case of a foreign government which it wishes to support, it will encourage the sale of American munitions as it did to Nicaragua and Mexico (if necessary selling such foreign governments old U.S. army stocks which the War Department wants to get rid of).  But to ban direct armament loans means nothing.  A foreign government requests a private American loan nominally for some other purpose, and transfers its own money from that fund to its armament budget.  Certainly the American Government embargo has not prevented foreign nations from obtaining money in New York with one hand and increasing their armies and navies with the other hand.

Bolivia is a case in point.  After receiving in September 1928 a New York loan of $23 million for refunding, for railway construction and “for other purposes,” in December she began a frontier “war” with Paraguay.  Suddenly she was revealed to be surprisingly well armed.  An American investigation revealed the arms came from Vickers of England.  She was so well armed, indeed, that she threatened to withdraw her delegates to the Pan-American Conference on Conciliation and Arbitration, which luckily happened to be meeting in Washington at that time.  American control was effective, but not in the matter of credit embargo.  Bolivia had obtained her loan and her arms.  That had displeased Paraguay.  Reporting a statement by the Paraguayan Charge d’Affaires, the Washington Post, December 17, 1928, said:  “Loans floated in the United States by Bolivia, Dr. Ramirez declared, have been used in large part to purchase armaments with which to make preparations for war with Paraguay.”  A war, however, was contrary to interests of the United States Government and its Pan-American Conference.  It was also detrimental to American tin and other business and banking interests which have investments there of $110 million.  They have loan contracts with Bolivia, giving them first lien upon “all import duties, all export duties, the tax upon mining claims or concessions, the revenues received by the Republic from the alcohol monopoly, the tax on corporations other than mining and banking, the tax on interest on mortgage credits, the tax on the net profits of mining companies, surcharges on import duties and majority control of the Banco de la Nacion Boliviana.”  Their financial control is exercised through a fiscal commission, the majority of which is named by them.  As we shall see later, the United States’s primary interest in Bolivia is her wealth of tin, which is America’s weapon against Britain’s attempted tin monopoly.  So when the very belligerent and nominally sovereign state of Bolivia decided to go to war, the United States Government and business interests decided that Bolivia would not go to war.  The American minister in La Paz received a curt message instructing him to use his “influence”—and Bolivia did not go to war.  Instead she submitted her dispute, as the United States insisted she do, to the Pan-American commission presided over by the American General McCoy, who had just returned from “pacifying” Nicaraguan objectors to Yankee military occupation.

So Bolivia got her loan, part of which she used for munitions, despite a State Department ban on armament loans;  the New York bankers got the credit business they desired;  and Bolivia got deeper into the control of Americans.  But Bolivia did not get her war because it would have been against the larger political and commercial interests of the United States. [8]

This attempt to determine the policies and destinies of other nations, even though it happens to be in the interests of peace, does not make the United States or its use of foreign credits popular.  It is one thing to interfere with a country like Bolivia.  It is quite another for our Government to set itself up as a moral judge of how France or another Power shall spend money.  Quite naturally the European Powers, as well as the smaller Latin American states, see in such use by the United States of its tremendous financial strength a menace to their freedom as sovereign nations.  And the fact that the United States Government has not been very successful in enforcing its credit embargo policy has in no way mitigated foreign hostility to its efforts.

Are such fears justified ? This raises the question of the extent of America’s present financial world control and the related question of that interdependence of nations which places automatic restrictions and responsibilities upon such a Power as the United States in its use of foreign credits.

The post-War period is filled with instances in which apparently stronger nations have had to forego selfish demands on a weaker state because an injury to one turned out to be an injury to all.  Such was the slow lesson learned by the Allies in exacting reparations from Germany.  Such was the lesson learned by the United States when it was forced in self-protection to assist European nations back upon a gold basis.  So in most major international financial operations, such as a Dawes or Young reparations agreement or in the stabilisation of international exchange, there is no choice other than to co-operate.  In a large sense whatever affects the economic conditions of one affects the other.  And, as we have seen, it was this necessity laid upon the United States which was chiefly responsible for most of our foreign loans in the early post-War period.


The great financial power of the United States is not to be measured so much by our ability to enforce a specific loan embargo as by the direct and immediate effect upon the rest of the world of our domestic credit policy, bank rate, and gold supply.  Many nations may laugh at our State Department.  But all must tremble before our Federal Reserve Board.

High money rates in the United States early in 1929, for instance, forced an increase in the official discount rates almost at once in England, in 10 European countries, in two Latin American countries, and two in the Far East.  And in almost every case that action restricted business and brought suffering to millions of foreign workers.

That blow hit Britain hardest of all.  It checked her trade revival.  As the Manchester Guardian Commercial March 7, 1929, commented:  “The U.S.A. hold the trump cards, and the plain fact remains that ‘Brother Jonathan’ is in the position to dominate European markets, whether in stocks and shares or in metals and produce, while controlling the destinies of impecunious nations in regard to necessitous loans.”  Or as one British critic said:  “It proves our bank [the Bank of England] is harnessed to Wall Street.”  Berlin bankers, as reported by the New York Times, February 8, 1929, “declare that it signifies defeat of England’s purpose of restoring London to primacy as the world money centre.  This wish is considered to have been largely responsible for the altogether too long retention of the 4½ per cent bank rate.”  Nevertheless the Bank of England, in the face of the most bitter criticism, was forced to raise the money rate to the highest level since the autumn of 1921 to prevent its gold reserve from disappearing—chiefly because there was a speculation orgy in Wall Street.  As a result, the British Board of Trade index soon showed a decline in commodity prices, which the British correctly attributed “to the rise in European money rates owing to the necessity which devolves upon central banks to withstand the pull of high call-money rates in America.”[9]

The London Herald, organ of the Labour Party, had correctly forecast that “more unemployment, a slump in trade and dearer living will follow inevitably the increase in the Bank of England discount rate from 4½, to 5½ per cent.”

To prevent this, which was especially embarrassing on the eve of a British general election, Mr. Montagu Norman, governor of the Bank of England, hurried to the United States to obtain a large American credit to safeguard British gold reserves.  He conferred with Secretary of the Treasury Mellon, with Federal Reserve Board officials, with Wall Street.  But he failed to get the credit.  There was nothing left to do but return to London and raise the bank rate to the disadvantage of British industry and British workers.  Later in 1929 the British bank rate under Wall Street pressure had to be raised again, to 6½ per cent or the highest point in eight years.

At that time Mr. Snowden, Chancellor of the Exchequer, was explaining and lamenting to the Labour Party conference at Brighton:  “Rise in the bank rate under existing conditions was the only means we had of restoring unstable exchanges and regulating the basis of credit. ... There has been, as you know, a perfect orgy of speculation in New York in the last 12 months.  There must be something wrong, calling for attention, when speculation 3,000 miles away can dislocate the financial situation here and inflict grave suffering on the workers of practically every country in the world.”  When the New York bank rate was lowered, but not until then, London was able to reduce hers.

“The well-being of all of us, not only in England, but in all civilised countries, is affected by the good or bad management of the Federal Reserve system,” says the Hon. R.H. Brand, director of Lloyd’s Bank, London.  “As a power for good or evil, there is no doubt that, owing to America’s superior economic strength, the Federal Reserve system stands alone.”[10]

“The problem of maintaining a stable world value of gold (in its effect on prices) is an international one.  No one European country can do it by itself, although the United States is approximating to the position of being able to do it alone, because it is rich enough to stand the racket, when it is necessary to hold a mass of idle gold off the world market and treat it as non-existent,” according to Sir Josiah Stamp, director of the Bank of England.[11]

Sir George Paish put it more bluntly in his Mansion House speech March 30, 1926:  “London no longer holds the great position it held before the War.  We have to accept that London no longer holds that position;  in pre-War days we could control the rate of interest practically throughout the world, we had our money in every country;  it was only necessary for us to call money in to cause the rate of interest to rise everywhere, and the Bank of England rate controlled the rate of interest everywhere.  That position is largely true, but not so true, to-day.  It is true as regards the whole world, leaving the United States out.  The United States to-day is the great creditor nation, lending to the world;  and, if it calls its money in, it raises the rate of interest not merely on the Continent but in London.”[12]

London is thus harnessed to Wall Street, instead of having Wall Street and the rest of the world dragging at her heels as in pre-War days.  Britain chose after the War to return to a gold basis.  It was a question of being damned if she did, and damned if she didn’t.  She chose the lesser of two evils.  She chose, rather than abdicate entirely in favour of dollar supremacy, to put the pound on a basis where it could at least compete with the dollar.  Settlement of the debt to the United States was thus necessary.  “If we had postponed indefinitely either paying the 50 million pounds sterling or repudiating in the hope of getting a better bargain, we should never either on the one hand have made any progress in the restoration of the currencies of Europe, or on the other hand restored the credit of the City of London to where it stands to-day,” was former Prime Minister Baldwin’s justification of the settlement he made. [13]

To this day there is a wide divergence of opinion in England as to the wisdom of the return to a gold basis.  Even the London Economist has intimated that the Bank of England and European Central Banks should liberate themselves from this bondage to American gold by reducing their present ratio of gold stocks to liabilities.  But, having made its decision, it seems highly improbable that the Bank of England will reverse the policy which at such great cost is Britain’s only chance to compete with the United States for financial supremacy.


One reason the United States has gone up in the scale of financial power and Britain and others have gone down is the Allied War debts to the United States.  Those debts prior to funding mounted to somewhat more than $12,000 million, of which the British was $4,715 million.  They represent in the first place Allied purchases on credit, before we entered the War, of foodstuffs, cotton, munitions, ships, and machinery.  After the United States entered the War our Government took over the financing of such Allied purchases here.  Allied goods were paid for by our Government with money obtained by taxation and the flotation of Liberty Loans.  The debts were covered by notes of the foreign governments.  The present value of the funded foreign debts on the basis of a five per cent interest rate is $5,873 million, of which the British share is $3,296 million, or at a 4.25 per cent rate, $6,862 million, British share $3,788 million.[14]

From every angle the problem of War debts is a difficult and disagreeable one.  To the American people they represent obligations entered into in good faith by the foreign governments, which should be paid.  To the citizens of the Allied countries they represent an inadequate compensation to the Allied cause for our belated entry into the War, and therefore should be cancelled by the United States with a feeling of shame that we are unable to do more to equalise our contribution with the larger sacrifice in lives and treasure made by the Allies.  They think we got rich out of the War, and that collection of these debts is only added blood money.  Hence they call us “Shylock.”

These charges provoke similar recriminations by Americans.  We deny that we grew rich from the War.  President Coolidge computed that the War cost us more than $36,000 million, or half the pre-War wealth of the country.  He counted in such items as pensions for the future and debt carrying charges, as well as capital expenditures.  Mr. Robert H. Brand, director of Lloyd’s Bank, challenges these figures;  he places the cost at nearer 27 than 50 per cent of our pre-War wealth.

Americans say with truth that the way for this country to grow rich from the War was to stay out of it, that American profits were made during the years of neutrality.[15]

At any rate, the British and others reply, once you were in the War you should have been willing to do your share;  you could not equal our contribution in men, or in devastated areas in France and crippled industries in Britain, so any amount of money America put in would have been too little.

But, Americans answer, you profited from the War by taking territories and ships and in many ways reducing the strength of your German competitor;  we took nothing and want nothing, except what you owe us.

But, the British and others reply, surely the capacity to pay must enter in.  You Americans are rich, the richest people in the world, and we are poor;  our people are over-taxed, our financial and economic systems have been seriously impaired, and we cannot afford to pay.

If you are so poor, how can you afford to keep up the trappings of royalty, and how can you afford to spend more money on your military-naval establishments than before the War ? the Americans ask.

What, you Americans dare criticise our right to tax ourselves to provide the necessary defence of our country and of our Empire ? the Britons demand in wrath.

And so the argument goes round and round, getting nowhere.  Getting nowhere, that is, except to produce ever more misunderstanding and hatred.  Neither side understands the point of view of the other, or probably ever will.  Because the argument on each side is bogged in emotion and is barbed by the taxes which each must pay.  When the Briton pays his tax, he says to himself it is the bloated American turning the screw.  When the American pays his tax, he says he is paying part of the British debt so that the British can go on maintaining a navy large enough to beat the American navy.

The worst of it, from the American’s point of view, is that Britain, which he thinks profited most from the War, has by the “cunning” of the Balfour note policy succeeded in making the rest of the world blame only us.  The Balfour note, August l, 1922, stated:  “The policy favoured by His Majesty’s Government is that of surrendering their share of German reparations, and writing off, through one great transaction, the whole body of inter-allied indebtedness.  But, if this be found impossible of accomplishment, we wish it to be understood that we do not in any event desire to make a profit out of any less satisfactory arrangement. ... In no circumstances do we propose to ask more from our debtors than is necessary to pay to our creditors, and, while we do not ask for more, all will admit that we can hardly be contented with less.”

American resentment is typified by the following statement of Mr. Frank H. Simonds, the dean of American writers on foreign affairs, who is perhaps more friendly to Britain than most of his colleagues:  “The Balfour doctrine was enunciated for the express purpose of setting up a contrast between British generosity and American Shylockery.  The British announced that, unlike the United States, they would never think of collecting money from their Allies, or even their poverty-stricken enemy, simply for themselves.  They would only take enough to satisfy the exigent creditor across the ocean.  This little gesture made Britain popular and America still more unpopular in Europe, but to us it seemed ‘a bit thick.’ On the surface the proposal, which the British still keep presenting as the height of statesmanship and humanity, was engaging.  But what it actually amounted to was an invitation to us to hold the bag.  Britain had lent money and borrowed money and while she had lent more than she had borrowed, her chances of recovery were not of the best.  If she could come out even, she would do well.  But we had borrowed nothing in the way of money from any one.  We owed no one.  Cancellation for us was one-sided—we gave up everything, no one forgave us any debt.  Naturally this device appealed to the British, the French, the Italians.  Even the Germans, who saw that if our claims were reduced the claim against them must sink, applauded.”[16]

But Britain in fact is not yet “even.”  According to official British figures on April 26, 1929, she had paid out over $1,000 million more than she had received on War debts, or about $750 million more than received on debts and German reparations.  In 1929, according to Mr. Churchill, Britain for the first time received a small favourable balance, which probably will never be enough to make good the earlier deficit.  According to Mr. Snowden, in an article in the Manchester Guardian Weekly, May 24, 1929, explaining his famous Parliamentary “repudiation” of the Balfour note (later explained away) :  “The amount which Britain has to pay to America reaches 38 million pounds sterling a year.  Under Britain’s agreements with her debtors they have to pay about 20 million pounds sterling a year, so that if all the debt agreements stand Britain will be burdened for 60 years with an excess payment on her internal debt of 30 million pounds sterling a year.”

In all these foreign discussions of “America, the Shylock,” there is rarely any mention of the fact that the United States by the funding agreements already has cancelled the War debts on an average of 51.2 per cent, if values are figured at five per cent, or 43 per cent cancellation if 4.25 per cent interest is used.  Most of the American people themselves do not realise that such cancellations have been made.  Knowing the popular hostility toward any cancellation, the fact of what was done was not stressed by the Washington politicians.

But the conflict of attitudes goes deeper than indicated above.  Britain and the others insist that German reparations and Allied debts must be dealt with as one problem, that they cannot be separated either as a matter of justice or of finance.  Our Government officially denies that there is any connexion whatever between the two.  Hence Washington’s refusal to be represented on the Bank of International Settlements, which, however, will be under the influence of American financial power.  To admit the connexion would, of course, open the door for further debt reduction in conformity with the Young Plan reduction of reparations to a total of about $8,879 million.  In effect 65 per cent of Young Plan reparation receipts from Germany would cover Allied War debt payments to the United States, leaving 35 per cent to repair War damages.

Apart from the emotional arguments already outlined, strong economic arguments are advanced for further American debt cancellation.  It is stated that debts can only be paid in goods, that our tariff wall prevents debtors from paying in goods, that such payment in goods over a lower tariff wall would interfere with American production, and that therefore cancellation is economically expedient.  The Administration denies these premises.

“There has been much loose reasoning as to the influence of the War debt receipts upon our merchandise trade,” according to the official statement in The Balance of International Payments of the United States in 1928:  “It is a serious error to say that the debtor nations can pay us only by shipping us merchandise.  Our War debt receipts are an invisible export.  As such, they tend (1) to detract from all our other exports-including not only merchandise export but invisibles and (2) to promote every import, whether visible or invisible.  The numerous invisibles will absorb a large part of the influence of the debt receipts, and reduction in our merchandise exports may absorb even more.  No great increase in merchandise imports is thus to be expected as the result of debt receipts, and a part of such increase would be in noncompetitive goods on the free list, The reduction in our merchandise exports through War debt receipts will injure us precisely as a labour saving device would injure us;  imports, visible and invisible, will come to us without future efforts;  that is, without our being compelled to produce again a corresponding value of visible and invisible exports to exchange for them.”

This doubtless is an extreme and one-sided statement of the case, but it must be weighed against the more orthodox statement of the transfer problem.  It is true that there are large invisible items in our international balance of payments, which make our transfer problem different from that of other countries.  In 1928, when we received $210 million on War debt accounts, our net tourist expenditures abroad were $525 million and our immigrant remittances abroad $189 million.  Those two unusual items, then, supplied to Europe almost three and one-half times as much as was paid back to us on War debts.  Granted that our transfer problem would be much simplified and the way of our debtors made much smoother by further debt reduction, the fact remains that we have so far continued, and probably can for some time continue, to receive debt payments without suffering the dire consequences predicted by the orthodox theory of transfer.

Other things being equal, our Government will continue to do what Britain and the Allies have done in the case of Germany, get as large an amount as possible and expedient.

To be sure other things are not equal.  This normal, if grasping, attitude on the part of Washington cannot exist as in a vacuum.  Three forces bear down upon it.  Two of those forces have been suggested above.  One is the heavy price we are paying in the form of British and European hatred toward us by continuing debt collection.  This has reached such proportions that it can no longer be ignored by Washington, for it poisons much of our international relations and makes more difficult the execution of other policies.  A second force tends to balance the first.  It is the popular opposition to further reduction, an opposition which had been expected gradually to disappear but which in the last five years apparently has not diminished in the least.

The third force is Wall Street pressure for cancellation.  The explanation of this bit of humanitarianism on the part of the bankers is obvious.  They too have loaned money to the same foreign governments.  There is question regarding the ability or willingness of those governments to pay both the debts to Wall Street and to Washington.  Wall Street, of course, will not reduce the obligations due it by a penny.  It is not satisfied with Washington’s present 51.2 per cent cancellation, it wants more.  For the greater the government debt cancellation, the better the chances of private debt collection.  This factor in the already confused debt situation probably in the end will do more to prevent cancellation than anything else.

Ordinarily Washington is controlled by Wall Street pressure in such matters.  But the bankers’ selfish interest in the matter is so patent in this instance that no Washington Government within the next few years would dare face the displeasure of the voters by thus allegedly “selling out to Wall Street.”  As in other countries, this is precisely the sort of issue which any opposition party would pounce upon immediately to discredit the Government, with a large chance of success.  Especially because the farmers, who are most hostile to debt cancellation on general principles, are those who are suffering most from high taxes and who are most indignant toward Wall Street for the credit shortage and high money rates.

Apart from those general considerations, however, there are certain factors in the British debt settlement which make it different from the rest.  These factors have nothing to do with the British arguments about their high taxes and the claim that the money they pay us is needed for such humanitarian work as cleaning up the London slums.  We can hardly be expected to concern ourselves about British taxes—unless indeed we were given the right to cut British naval and other expenditures, the very suggestion of which is ludicrous.  Nor can we as a nation concern ourselves with the industrial slums of England.  The capitalist system of England which created those slums is quite capable of eradicating them;  and surely it is the business of the British rather than the American people to insist on that reform.  Anyway that portion of the British debt cancelled by us was not used for such humanitarian purposes.  Whatever else may be said of Americans as a nation, their record for post-War relief and philanthropy is perhaps as good as that of any others.  There were large voluntary American contributions to the miners’ relief fund raised by the Prince of Wales, but no similar British contributions for the starving and homeless Pennsylvania miners and their families.

All of which is beside the point.  Such discussions can only increase the misunderstanding and confusion, and thus solidify America’s anti-British attitude on this question.[17] The only hope for a change in American public opinion—without which this cause of friction between the two peoples cannot be eliminated—is to put the British case on a basis of justice and fair play.  As a matter of fact, that is all that the British want;  probably those who are using the “Shylock” and “slums” arguments are not representative of the British people as a whole.  Britain has a legitimate case.  It can be presented by the British and by their American friends without resorting to the usual lies that are used and without the loss of dignity inherent in the conventional British appeal.

The honest British case is simply this a Britain funded her debt to the United States without pressure and before any other of our debtors.  She did this not because she was more honourable than the others or more honest, but because it was more to her own advantage to do so.  That was the only way to re-establish her world credit—as stated by Mr. Baldwin in the quotation above.  This was more important to Britain than any other one thing she could do to re-establish, or rather approximate as a competitor with the United States, her former world position.  In funding her debt she received from us a cancellation of 30.1 per cent.  We, in turn, received certain benefits.  Her debt was well over one-third of the total War debts to us, and therefore its settlement was more important to us than any other.  Moreover, by settling she established a precedent which made it easier for us to force others to do likewise.  Finally, her settlement with us was a legitimate one in the sense that it provided for relatively high annuities in the first years, rather than postponing appreciable payments to the doubtful closing period of those 62 years which may never come for debt collection.  During the five-year period 1926-30 in which we receive $1,000 million in foreign debt receipts, about four-fifths is being paid by Britain.  That is, though the funded debt of our dozen Continental debtors is 150 per cent larger than the British debt, their combined payments in this period are only about 25 per cent as much as the British payments.  And in the period 1931-35, Britain will supply 65 per cent of our total receipts.

Besides the disparity of cash payments within the next few years, there is a difference in the amount of cancellation.  When we finally cajoled France in 1926 into signing a funding agreement, which she did not ratify until 1929, we gave her a 60.3 per cent cancellation, and the same to Belgium.  When we bribed Mussolini with a large private loan to fund Italy’s debt, we not only postponed all the appreciable payments until the hypothetical later years, but gave Italy a 75.4 to 80.2 per cent cancellation.  Britain, who settled first and has been making large payments ever since, got only a 30.1 cancellation.

That is discrimination against Britain.  It is unjust.  Historically, it may be explained by the fact that, when Britain settled with us, our Government had not yet admitted, as it later admitted, that “capacity to pay” should in part determine the settlement.  This “capacity to pay” principle obviously is relative.  In no case in which it has been used, either in reparation or debt negotiations, have the debtor and creditor presented the same figures.  But if the same American approach had been used in the case of Britain-whether the principle be called “capacity to pay,” economic realism, political expediency, or one or all of these somewhat vague principles-as was used with France and Italy, Britain would have been given a much larger reduction.  That discrimination should be wiped out.  It is the sort of unfairness that the American people, if they understood the facts, would not approve.

But it is the kind of unfairness which Washington is not unwilling to continue in view of the larger economic conflict with Britain.

Meanwhile Anglo-American financial competition continues.  Thanks to her savings of a century and her long experience Britain has not yet been entirely unseated as world banker.  But the United States grows more and more important as a creditor nation.  Already the dollar exerts more influence on world exchanges than the pound.  The London money rate, and thus British production and employment, is chained to Wall Street.  The United States has far greater wealth and natural resources, far larger savings than Britain;  and, while our capital surplus available for export tends to increase, hers is falling.  She needs her money at home.  It would appear only a question of a short time until the United States plunges far ahead of Britain in foreign loans and investments, which determine financial world hegemony.


1. Pp. 291-292.

2. The foregoing list is from Manchester Guardian Commercial, Nov. 22, 1928.

3. This and the following Kemmerer quotations are from the American Economic Review, March 1927.

4. Cf., Chapter X for discussion of Russian relations.

5. New York Times, April 28, 1929.

6. Cf., Chapter XI.

7. P. 163.

8. The best reports of this episode were those of Drew Pearson in the Baltimore Sun, especially his article, Dec. 13, 1928.

9. Manchester Guardian Commercial, May 30, 1929.

10. Quoted by New York Information (issued by Ivy Lee), Oct. 20, 1928.

11. —, Jan. 11, 1929.

12. Quoted by George Pell, The Economic Impact of America, pp. 195-196. 1928.

13. British Bankers’ Association address, London Times Weekly May 9, 1929.

14. Cf., Moulton and Pasvolsky, World War Debt Settlement, p. 95 ff. 1926.

15. Cf., Chapter II.

16. Washington Star, April 28, 1929.

17. Cf., Chapter I.