The Ambassador in Austria-Hungary (Penfield) to the Secretary of State

My Dear Mr. Secretary: In both Austria and Hungary the Third War Loan closed a few days since, and it was successful to a remarkable degree. The aggregate figures as semi-officially announced are 5,500,000,000 crowns, which sum in ordinary times would be more than a billion dollars. The first loan, made when the Russians occupied the most of Galicia and were well through the Carpathians, was not very successful. The second loan, occurring a few weeks after Italy entered the fray, was but moderately successful. But this new loan, to run fifteen years and netting the holder about six and one-quarter per cent, has been a veritable triumph in financing.

Great corporations and firms and municipalities subscribed liberally. The Archduke Friedrich appears on the subscribers’ list for 12,000,000 crowns, and his brother Archduke Eugen is down for 2,000,000 crowns. The Wiener Bank Verein claims to have placed a tenth of the loan with its clients.

If one could know the inside facts it might be discovered that the loan’s success is more apparent than real, especially when intelligent Austrians assure one that perhaps half the gross amount has been [Page 643] arrived at by hypothecating every form of obligation having pecuniary value, including government pensions, public bonds of lower interest, and even certificates of the first and second war loans netting lesser revenue. It is well known that a goodly part of the loan was subscribed on what Americans would recognize as the “margin” plan. But, with all these deductions, the third loan is an unqualified success.

Probably two-thirds of the gross sum realized has already been spent, as it must have been by a Government whose direct war cost is stated to be $7,000,000 a day, and whose cash-box was practically empty when the war began.

From this time forward the war must be a test of resources quite as much as a trial of military strength, I feel. There are several raw materials of which Austria-Hungary is absolutely destitute, and were it not for Holland, Sweden and Denmark there would be little possibility of getting another pound of such vital requisites as cotton, copper or rubber. Bohemian cotton mills, those not already closed, have for months been running on half time, and were it not for the accommodating neutral neighbors of Germany and Austria all the factories would have closed many months ago. I hear of an enterprising speculator who last week succeeded in getting twenty carloads of crude rubber through from Holland and cleaned up a small fortune therefrom.

The Austrian Government has issued an appeal to the public to take all gold and silver jewelry, plate and other articles made of these metals to the mints for conversion into coin or bars. The necessity of strengthening the gold reserve and meeting payments abroad for goods for military purposes is given as the reason for the appeal. Persons who surrender gold or silver will receive full payment in bank notes as well as certificates of honor, it is stated.

By way of showing existing conditions at Fiume I extract these pertinent sentences from a letter of Consul Chase to me under date of the 5th instant:

“The Croatian authorities have placed an embargo on foodstuffs of every kind being taken out of that province. This affects Fiume very seriously, as much of the vegetable and garden truck used was brought from near-by Croatian places. It makes more serious the question of food supplies for Fiume. One paper advocates seriously the use of wooden shoes, especially for children, owing to the shortage of leather. In Fiume the question of the war seems to be partly forgotten and to have given way to the one great question of food. It seems the sole live topic of constant street discussion. This is the result of conditions, not theories. The city has been unable to procure over one-fifth of the grain promised long ago by the Government. At a meeting of the City Council the director of the gas plant reported that he would soon have to suspend unless arrangements were promptly made for more coal and other prime necessities. Gas is [Page 644] much used for heating, cooking and lighting. The director of the civic hospital at the same meeting demanded that an increase in the sum for the daily feeding and care of the inmates be provided or the hospital would have to be closed. Another member of the Council urged the importance of procuring potatoes before the price became too high.”

This picture of conditions in a city at the beginning of winter forebodes great misery through scarcity of staples of existence before the cold season is half over. And what Consul Chase writes of Fiume must be true of Trieste and probably of every city and town in the Monarchy.

To one possessing adequate means the matter of existing in Vienna has thus far presented no very serious problem. But one has to exist in keeping with the possibilities of this war time, and not as he might prefer to live. There are scores of essential articles that cannot be had at any price, and nearly every obtainable article of food has doubled or even quadrupled in cost. Meats cost generally a dollar a pound, while pork and ham is even more expensive. And on two days in each week it is forbidden to purchase meat. Fish is practically unobtainable. The price of butter and eggs is practically prohibitive. Milk has decreased in purity and doubled in cost. Coal and coke have correspondingly advanced in cost.

As I have said, these conditions may be met by persons of means, but the masses can be in no position to purchase articles of food having these inflated values. Great self-denial has to be practiced on all sides by the millions, and the wonder is that poor people can find ways of existing. Yet the proletariat seems to do so, and without complaining. How much longer the people can go on living under these conditions I know not.

In this connection I think I may be permitted to tell a little of how my wife and I manage to live in this capital rent by conditions of war. More than a year since, perceiving that the conflict was to be a long and bitter one, we decided to guard against possibilities by having our own milk, butter, fowls and eggs. Being Catholics, we had, before hostilities began, been generous to an order of Sisters having a convent ten or fifteen miles out of Vienna. When it was seen that the war was to be a terrible one, these good souls were glad to lend us the small farm connected with their institution. There we installed a Tyrolean cow and a hundred hens, and the Embassy has had the products of these to a bountiful extent. Recently we have added forty live turkeys to our holdings—and famine can gain no foothold in our modest home. An attendant goes daily back and forth, and Vienna society has enjoyed many a laugh over the Ambassador’s neutral cow and hens. Just now I am getting a thousand litres of gasoline from Roumania by favor of the Roumanian [Page 645] Minister in Vienna. There are practically no private motors in commission in the capital, and none in the diplomatic service save those of our Embassy. Our wheat flour comes from Bucharest by the slowest imaginable train, through the personal influence of our colleagues in that capital.

Naturally members of this Embassy, as well as of the Embassy in Berlin, are living in a beleaguered land shut off by sea power and blockade from a good part of the world. There are many necessary things, perhaps not essential to actually keeping alive, that we want and should have. Certain articles not too bulky we used to get through from London, but that medium seems harshly to have been cut off. If the war runs a few months longer the Department, it seems to me, must consider plans for getting certain supplies if not succor to its diplomatic and consular servants loyally performing a burdensome duty in the Central Empires without complaining.

I have [etc.]

Frederic C. Penfield