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

My Dear Mr. Secretary: Probably there is not one person in the Dual Monarchy who is not heartily sick of the war and wishes for an early peace.

On all sides one now hears expressions bearing out the above statement, as well as the inquiry “How much longer can Austria-Hungary continue in the war?” That is the eternal question asked thousands of times daily.

Persons influenced by skepticism profess to believe that the resources of the Monarchy can last but another six months.

On the other hand I have the opinion of a member of the Hungarian Cabinet, reaching me second-handed, that Austria-Hungary can stand two years more of war before reaching final exhaustion. This oracle’s optimism is doubtless colored by officialism and the fact that Hungary is always in a better material position than Austria.

Taking the mean of the many predictions reaching me it would be my prediction that Austria-Hungary can go through another twelve months on the resources of men, food and money at her command, but not longer.

Throughout the Monarchy every essential commodity is decreasing in supply with an attendant increase in price of everything required by humanity. The practice of economy months since assumed an acute form. The country is supposed to have no cotton or copper, and we now hear of an alarming shortage of sugar, beer, butter and all fats. Having in mind that the Monarchy is essentially agricultural, I have maintained in all reports to the Department that the people cannot be starved. But it is a very different matter for the Empire-Kingdom to be in a condition to indefinitely carry on war with all its special requirements and great waste.

The above brief statements sufficiently explain the popular wish for an early peace. But how it may be brought about no one has the temerity to announce. Baron Burian, the Minister for Foreign Affairs, started last night for Berlin for a conference with Bethmann-Hollweg. Although the object of the journey is not explained, the newspapers surmise that it may be in connection with the pacific attitude expressed in Mr. Asquith’s recent speech.

It is common knowledge that the coffers of the Dual Monarchy are practically empty. At the present moment the plans for the Fourth War Loan are being groomed by the press, preparatory to formal announcement in a few days.

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American exchange is ruling at 7 crowns and 85 hellers, meaning that for a draft on New York one receives in local currency practically the equivalent of $1.50 for the dollars.

It is estimated that this season’s crops will have an acreage of but 70 per cent. of normal. And it is admitted that fields tilled by women, children and Russian and Servian war prisoners do not yield as bountifully as when worked by native men whose occupation has never been other than farming. There are few cattle and horses in the country, and consequently little manure for the properties of small farmers. Farming utensils have long been uncared for, and factories usually producing agricultural machinery are occupied with war munitions.

There is no longer talk of Austria-Hungary receiving an indemnity from any of her foes. Hitherto it was the mode to predict that Austria-Hungary would recoup the cost of the war by the indemnities received.

It seems more than rumor that Austria-Hungary means to weld conquered Montenegro and the Belgrade section of Serbia into the Hungarian government of the Monarchy. This would be a political step of decided merit, as it would unify under a single control most of the so-called “Sud-Slavs” a race believing it has political grievances and whose untiring agitation has ever been baneful. The assassination of the Archduke Franz Ferdinand at Sarajevo was claimed by many as directly traceable to the machinations of the “Sud-Slavs.”

I am [etc.]

Frederic C. Penfield