The Secretary of State to the Secretary of Commerce (Hoover)

My Dear Mr. Secretary: I beg to acknowledge, with thanks, the receipt of your letter of June 16, 1922, with which you enclosed a copy of a memorandum concerning the sale of Polish Land Mortgage Bonds in the United States.

I have given careful consideration to the point raised in the second paragraph of your letter in regard to the course of action of this Government in matters such as this which are “outside of the limits of governmental action.” I realize fully the difficulty to which you allude, of determining just what degree of responsibility rests upon this Government in connection with international financial operations in which Americans desire to participate.

Although it is not easy to define with precision the sphere of proper action by this Government in all such matters, in view of our international relations, it is apparent that it is a limited one.

Transactions such as those referred to in Mr. Durand’s memorandum, unless they contain elements that might be considered to run counter to the so-called “blue sky” legislation of certain of our States, appear to be entirely lawful transactions in which American citizens are fully entitled to engage, and over which Congress has not provided control.

So far as foreign loans are concerned, the interest of this Department in being consulted arises primarily from its relation to the giving of diplomatic support in the event of future difficulties, and more broadly from the important bearing of these transactions upon the conduct of our foreign relations. For example, I am disposed to discountenance [Page 766] loans to unrecognized governments, or loans sought by foreign governments for military purposes or for objects that appear to run counter to clearly defined policies of this Government. However, it is obvious that if this Department is to interpose objection in any given instance, such objection must have an adequate basis from the standpoint of its proper province. I feel that this Department would be going outside of its proper sphere of action if it should undertake to intervene in transactions such as the proposed importation of these Polish Land Mortgage Bonds, since such action could only be based upon considerations primarily of a business nature, such as matters of rates of exchange or the merits of an issue of bonds from the viewpoint of the investor. The public statement on “Flotation of foreign loans” issued by this Department on March 3, 1922,1 explained that this Department “will not pass upon the merits of foreign loans as business propositions.”

It is, of course, not difficult to formulate specific economic objections to various financial transactions. However, it is unnecessary to dwell upon the practical difficulties of undertaking to express such objections. If we express objection in one case, simply because of economic or business reasons bearing on the nature of the enterprise or the value of the security, we may soon be regarded as having no objection when we express none, or as having assumed a responsibility which is not placed upon the Department by law and which it would be impracticable for it to attempt to discharge. I am sure you will agree that, in view of the delicacy of these matters, we are not warranted in offering objection in any given instance unless it is absolutely clear that we are not undertaking to set up an authority that would not rest upon an adequate basis.

I am [etc.]

Charles E. Hughes