800.51W89 Great Britain/356

The Secretary of State to the British Ambassador (Lindsay)

Excellency: My Government has considered with the greatest care the note of December 1, 1932, from the British Government in which it has set forth at length the reasons which it advances for a reconsideration of the whole question of intergovernmental war debts, and for the postponement of the payment due by the British Government to the Government of the United States on December 15th, next.

Whatever part debt payments may have played in the economic history of the post-war years, it is clear that in the present conditions of world-wide depression, accompanied by a sweeping fall of prices, their weight has greatly increased, and that they have a very definite relationship to the problem of recovery, in which both the British and the American people have so vital an interest.

The President of the United States is prepared, through whatever agency may seem appropriate, in cooperation with the British Government, to survey the entire situation and to consider what means may be taken to bring about the restoration of stable currencies and exchange, the revival of trade, and the recovery of prices.

I welcome the suggestion contained in the note of your Government of a close examination between the United States and Great Britain of the whole subject in preparation for the International Economic Conference, for I believe that there are important avenues of mutual advantage which should be thoroughly explored. Such an examination does not imply cancellation. In such an examination there would necessarily be consideration of other forms of tangible compensation available for the expansion of markets for products of American agriculture and labor. And you will understand that the [Page 772] problem of foreign debts has in the American mind very definite relationship with the problem of disarmament and the continued burden which competitive armament imposes upon the entire world.

In order that you may understand more fully the attitude of the American people, I feel that I should refer briefly to certain implications in your note as to which the facts are viewed by our people differently from the understanding set forth by you.

Your note seems to carry the thought that the loans made by the United States Government represent in their entirety expenditures on destruction; that the payments heretofore made to the United States have been largely responsible for the existing world depression and the concentration of a large amount of gold in the United States; and that complete cancellation of war debts, as indicated in the Balfour Note, is essential to world recovery. We cannot agree with these conclusions.

Many of the loans made before the armistice and substantially all the loans made after the armistice were not for destruction. Of the amount expended in the United States by our debtors after we entered the war, both before and after the armistice, most of which was borrowed from the United States Government on war and relief loans, less than a third was spent for munitions and remounts. Very large amounts were spent for food, tobacco, etc., for cotton and exchange, for relief and surplus supplies sold on credit, for repayments of commercial loans, and for interest. Much of the food, tobacco, cotton, relief and other supplies sold on credit were resold by the governments for use of their own civilian population. In certain cases these supplies were actually resold and the funds turned into the treasury of the debtor governments. The amounts used to purchase exchange were in reality loans by the United States to the allied countries which were no doubt expended by them in part at least in countries other than the United States; they served to maintain the value of allied currencies. Some of the loans made after the armistice were vital to the recovery, and indeed, to the very existence of the borrowing nations.

It does not seem accurate, therefore, to treat all of what are termed in the United States “War Debts” as representing sums devoted in their entirety to expenditures on destruction and totally unproductive in so far as the borrowing governments are concerned.

The United States Government in reaching the settlements with its debtors has combined loans made during the war period and loans made after the armistice, including commercial credits, funding all in the debt agreements. It is our understanding that a different practice has prevailed in Europe. The figures cited in the note of [Page 773] the British Government covering advances made by the United States of America and advances made by the United Kingdom, as well as receipts to date on these advances, are not therefore strictly comparable.

The note of the British Government also seems to us to overemphasize the influence which war debt payments may have had in the past on world economy. With various observations and figures presented by the British Government in that regard the American Government is not in accord, but it does not desire to enter into detailed discussion in the face of the larger immediate issues. In general it is our view that the causes of this depression lie in much more potent forces than these debt transactions. We notice that similar conclusions have been indicated in the careful study published by the League of Nations entitled, “The Course and Phases of the World Economic Depression.”4

Furthermore, in its inferences as to the difficulties of payment, the British Government treats merely some of the items of the balance of payments, leaving out of account service items. It may be pointed out that the expenditures of American tourists in foreign lands during the period 1924 to 1930 have totalled approximately $3,900,000,000, and that during that period immigrant remittances have aggregated net $1,495,000,000. This is in comparison to the total receipts of $1,673,000,000 on account of debt settlements during the same period. Again in measuring the transfer question, account must be taken not only of trade directly with the United States but of the whole area of international dealings. In the total of receipts and outgo arising from the international transactions of both our debtors and ourselves, debt payments have been a relatively minor item.

The argument that the payment of these debts to the United States has drained the gold reserves of other countries to the United States, does not seem to us borne out by actual experience. The gold holdings of the United States at the time these payments upon debts began were about $4,028,000,000, and they stand now at about $4,338,000,000. It is true that our gold supply has at times exceeded this sum but this extra gold was demonstrably temporary deposits by other nations not related to debt payments. The main fault in the distribution of gold supplies seems to us to have occurred as between the different countries of Europe as the gold supplies of Europe increased from about $3,018,000,000, on January 1st, 1924, to about [Page 774] $6,963,000,000 at present; the distribution of which as between the countries of Europe cannot be attributed to forces originating in the United States.

I feel I must also call attention to the misunderstanding which might arise from the following statement in your note:

“The initiative in devising settlement of reparations was taken by the creditor governments of Germany, at Lausanne with the cognizance and approval of the United States Government.”

The facts in this connection were more accurately set out in a statement issued by the British Treasury on July 14th last:

“Misunderstanding has arisen regarding Mr. Chamberlain’s reference in his speech to the House of Commons on Monday, referring to conversations with representatives of the United States. He did not suggest, and of course had no intention of suggesting that representatives of the United States had approved, either tacitly or explicitly, what was done at Lausanne. The proceedings there were throughout on the basis that the course was to seek European solution of reparations without involving the United States in the discussion.”5

In 1923 when the British Government sent a mission to settle the debt of Great Britain to the United States, the United States Treasury held demand obligations of Great Britain calling for interest at the rate of 5 per cent. As a result of the negotiations these obligations were refunded on an interest basis of 3⅜ths per cent, which was a lower rate of interest than the credit of either country at that time commanded. The policy adopted by the United States in its settlement was stated by the Debt Funding Commission:

“The Commission in its settlement with Great Britain, made on June 19, 1923, and in subsequent negotiations or settlements has adhered to the principle that the adjustments made with each government must be measured by the ability of the particular government to put aside and transfer to the United States the payments called for under the funding agreement. Nor does the principle of capacity to pay require the foreign debtor to pay to the full limit of its present or future capacity. It must be permitted to preserve and improve its economic position, to bring its budget into balance, and to place its finances and currency on a sound basis, and to maintain, and if possible, to improve the standard of living of its citizens. No settlement which is oppressive and retards the recovery and development of the foreign debtor is to the best interests of the United States or of Europe.”6

The representatives of no country have set their hands to any agreement which they believed at the time did not fulfill this policy.

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While it seems desirable to state these facts from the standpoint of historical accuracy and as necessary to explain the point of view of the American people towards these obligations, the real question raised by the British note is how can the problems which arise from the existence of these obligations best be dealt with under the conditions in the world today.

As to the payment due on December 15th, I appreciate the cogency of the difficulties which you present as to the transfer of these monies in the present state of foreign exchanges. In an endeavor to meet this situation, it already has been suggested to you that the President might be willing to recommend to the Congress the acceptance of deposits in sterling in England, to be guaranteed as to dollar value and transferred at such time as would not interfere with the stability of exchange. This I understand your Government has declined in the belief that the existence of a large sum of sterling awaiting transfer would affect the exchange markets almost as seriously as the actual purchase of exchange. Accordingly further informal suggestions have been made to your government of methods of minimizing these difficulties which it has not been able to find acceptable.

Recognizing these difficulties of effecting transfer I am confident that the Congress will be willing to consider any reasonable suggestion made by your government which will facilitate payment of the sum due on December 15th.

Accept [etc.]

Henry L. Stimson
  1. [Bertil Gotthard Ohlin,] The Course and Phases of the World Economic Depression: Report presented to the Assembly of the League of Nations (Geneva, Secretariat of the League of Nations, 1931).
  2. Statement telegraphed to the Department by the Ambassador in Great Britain in his telegram No. 225, July 14, 5 p.m., p. 690.
  3. See Combined Annual Reports of the World War Foreign Debt Commission, 1922–1926, pp. 37–38.