Message of December 19, 1932
To the Senate and House of Representatives:
I indicated in my message on the state of the Union of December 6 that I should communicate further information to the Congress. Accordingly, I wish now to communicate certain questions which have arisen during the past few days in connection with the war debts. These questions, however, can not be considered apart from the grave world economic situation as it affects the United States and the broader policies we should pursue in dealing with them. While it is difficult in any analysis of world economic forces to separate the cause from the effect or the symptom from the disease, or to separate one segment of a vicious cycle from another, we must begin somewhere by determination of our objectives.
It is certain that the most urgent economic effort still before the world is the restoration of price levels. The undue and continued fall in prices and trade obviously have many origins. One dangerous consequence, however, is visible enough in the increased difficulties which are arising between many debtors and creditors. The values behind a multitude of securities are lessened, the income of debtors is insufficient to meet their obligations, creditors are unable to undertake new commitments for fear of the safety of present undertakings.
It is not enough to say that the fall in prices is due to decreased consumption and thus the sole remedy is the adjustment by reduced production. That is in part true but decreased consumption is brought about by certain economic forces which, if overcome, would result in a great measure of recovery of consumption and thus recovery from the depression. Any competent study of the causes of continued abnormal levels of prices would at once establish the fact that the general price movement is world-wide in character and international influences therefore have a part in them. Further exploration in this field brings us at once to the fact that price levels have been seriously affected by abandonment of the gold standard by many countries and the consequent instability and depreciation of foreign currencies. These fluctuations in themselves, through the uncertainties they create, stifle trade, cause invasions of unnatural marketing territory, result in arbitrary trade restrictions and ultimate diminished consumption of goods, followed by a further fall in prices.
The origins of currency instability and depreciation reach back again to economic weaknesses rooted in the World War which [Page XXI]have culminated in many countries in anxieties in regard to their financial institutions, the flight of capital, denudation of gold reserves with its consequent jeopardy to currencies. These events have been followed by restrictions on the movement of gold and exchange in frantic attempts to protect their currencies and credit structures. Restrictions have not alone been put upon the movement of gold and exchange but they have been imposed upon imports of goods in endeavor to prevent the spending of undue sums abroad by their nationals as a further precaution to prevent the outflow of gold reserves and thus undermining of currency. These steps have again reduced consumption and diminished prices and are but parts of the vicious cycles which must be broken at some point if we are to assure economic recovery.
We have abundant proof of the effect of these forces within our own borders. The depreciation of foreign currencies lowers the cost of production abroad compared to our costs of production, thus undermining the effect of our protective tariffs. Prices of agricultural and other commodities in the United States are being seriously affected and thousands of our workers are to-day being thrown out of employment through the invasion of such goods.
I concur in the conclusions of many thoughtful persons that one of the first and most fundamental points of attack is to reestablish stability of currencies and foreign exchange, and thereby release an infinite number of barriers against the movement of commodities, the general effect of which would be to raise the price of commodities throughout the world. It must be realized, however, that many countries have been forced to permit their currencies to depreciate; it has not been a matter of choice.
I am well aware that many factors which bear upon the problem are purely domestic in many countries, but the time has come when concerted action between nations should be taken in an endeavor to meet these primary questions. While the gold standard has worked badly since the war, due to the huge economic dislocations of the war, yet it is still the only practicable basis of international settlements and monetary stability so far as the more advanced industrial nations are concerned. The larger use of silver as a supplementary currency would aid stability in many quarters of the world. In any event it is a certainty that trade and prices must be disorganized until some method of monetary and exchange stability is attained. It seems impossible to secure such result by the individual and separate action of different countries each striving for separate defense.
It is for the purpose of discussing these and other matters most vital to us and the rest of the world that we have joined in the [Page XXII]World Economic Conference where the means and measures for the turning of the tide of business and price levels through remedy to some of these destructive forces can be fully and effectively considered and if possible undertaken simultaneously between nations.
The reduction of world armament also has a bearing upon these questions. The stupendous increase in military expenditures since before the war is a large factor in world-wide unbalanced national budgets, with that consequent contribution to instable credit and currencies and to the loss of world confidence in political stability. While these questions are not a part of the work proposed for the Economic Conference, cognizance of its progress and possibilities must be ever in the minds of those dealing with the other questions.
The problem of the war debts to the United States has entered into this world situation. It is my belief that their importance, relative to the other world economic forces in action, is exaggerated. Nevertheless in times of deep depression some nations are unable to pay and in some cases payments do weigh heavily upon foreign exchange and currency stability. In dealing with an economically sick world many factors become distorted in their relative importance and the emotions of peoples must be taken into account.
As Congress is aware the principal debtor nations recently requested that the December payments on these debts should be postponed and that we should undertake an exchange of views upon possible revision in the light of altered world conditions.
We have declined to postpone this payment as we considered that such action (a) would amount to practical breakdown of the integrity of these agreements, (b) would impose an abandonment of the national policies of dealing with these obligations separately with each nation, (c) would create a situation where debts would have been regarded as being a counterpart of German reparations and indemnities and thus not only destroy their individual character and obligation but become an effective transfer of German reparations to the American taxpayer, (d) would be no real relief to the world situation without consideration of the destructive forces militating against economic recovery, (e) would not be a proper call upon the American people to further sacrifices unless there were definite compensations. It is essential in our national interest that we accept none of these implications and undertake no commitments before these economic and other problems are canvassed and so far as possible are solved.
Of the total of about $125,500,000 due, Czechoslovakia, Finland, Great Britain, Italy, Latvia, and Lithuania have met payments amounting to $98,685,910, despite the difficulties inherent in the times. [Page XXIII]Austria, Belgium, Estonia, France, Greece, Hungary, and Poland have not made their payments. In the case of some of these countries such failure was unquestionably due to inability in the present situation to make the payments contemplated by the agreements.
Certain nations have specifically stated that they do not see their way clear to make payments under these agreements for the future. Thus our Government and our people are confronted with the realities of a situation in connection with the debts not heretofore contemplated.
It is not necessary for me at this time to enter upon the subject of the origins of these debts, the sacrifices already made by the American people, the respective capacities of other governments to pay, or to answer the arguments put forward which look toward cancellation of these obligations. I may, however, point out that except in one country the taxation required for the payments upon the debts owing to our Government does not exceed one-quarter of the amounts now being imposed to support their military establishments. As their maintained armaments call for a large increase in expenditures on our defensive forces beyond those before the war, the American people naturally feel that cancellation of these debts would give us no relief from arms but only free large sums for further military preparations abroad. Further, it is not amiss to note that the contention that payment of these debts is confined to direct shipment of goods or payment in gold is not a proper representation since in normal times triangular trade is a very large factor in world exchanges, nor is any presentation of the trade balance situation complete without taking into account services as for instance American tourist expenditure and emigrant remittances alone to most of the debtor countries exceed the amount of payments. I may also mention that our country made double the total sacrifice of any other nation in bringing about the moratorium which served to prevent the collapse of many nations of Europe with its reactions upon the world. This act of good will on our part must not now be made either the excuse or opportunity for demanding still larger sacrifices.
My views are well known; I will not entertain the thought of cancellation. I believe that whatever further sacrifices the American people might make by way of adjustment of cash payments must be compensated by definite benefits in markets and otherwise.
In any event in protection to our own vital interests, as good neighbors and in accord with our traditional duty as wise and fair creditors whether to individuals or nations, we must honor the [Page XXIV]request for discussion of these questions by nations who have sought to maintain their obligations to us.
The decision heretofore reached to exclude debt questions from the coming World Economic Conference or from any collective conference with our debtors is wise as these are obligations subject only to discussion with individual nations and should not form part of a collective discussion or of discussion among many nations not affected, yet it seems clear that the successful outcome of the Economic Conference would be greatly furthered if the debt problem were explored in advance, even though final agreement might well be contingent on the satisfactory solution of economic and armament questions in which our country has direct interest.
Thus from this present complex situation certain definite conclusions are unavoidable:
- A number of the most serious problems have now arisen and we are bound to recognize and deal with them.
- It is of great importance that preparatory action should be taken at once, otherwise time will be lost while destructive forces are continuing against our agriculture, employment, and business.
- Adequate and proper machinery for dealing with them must be created. It is clear that ordinary diplomatic agencies and facilities are not suitable for the conduct of negotiations which can best be carried on across the table by specially qualified representatives.
- As I have pointed out, the discussion of debts is necessarily connected with the solution of major problems at the World Economic Conference and the Arms Conference. The ideal way would therefore seem to be that some of our representatives in these matters should be selected at once who can perform both these functions of preparing for the World Economic Conference, and should exchange views upon the debt questions with certain nations at once and to advise upon the course to be pursued as to others. It would be an advantage for some of them to be associated with the Arms Conference. Some part of the delegates appointed for this purpose could well be selected from the members of the Congress. On the side of the Executive this is no derogation of either Executive authority or independence; on the side of the Congress it is no commitment, but provides for the subsequent presentation to the Congress of the deliberations, intricacies, reasoning, and facts upon which recommendations have been based, and is of first importance in enabling the Congress to give adequate consideration to such conclusions.
- Discussions in respect to both debt questions and the World Economic Conference can not be concluded during my administration, yet the economic situation in the world necessitates the preliminary work essential to its success. The undertaking of these preliminary questions should not be delayed until after March 4.
I propose, therefore, to seek the cooperation of President-elect Roosevelt in the organization of machinery for advancement of consideration of these problems.
A year ago I requested that the Congress should authorize the creation of a debt commission to deal with situations which were bound to arise. The Congress did not consider this wise. In the situation as it has developed it appears necessary for the executive to proceed. Obviously any conclusions would be subject to approval by the Congress.
On the other hand, should the Congress prefer to authorize by legislative enactment a commission set up along the lines above indicated it would meet my hearty approval.
I had occasion recently in connection with these grave problems to lay down certain basic principles:
If our civilization is to be perpetuated, the great causes of world peace, world disarmament, and world recovery must prevail. They can not prevail until a path to their attainment is built upon honest friendship, mutual confidence, and proper cooperation among the nations.
These immense objectives upon which the future and welfare of all mankind depend must be ever in our thought in dealing with immediate and difficult problems. The solution of each of these, upon the basis of an understanding reached after frank and fair discussion, in and of itself strengthens the foundation of the edifice of world progress we seek to erect; whereas our failure to approach difficulties and differences among nations in such a spirit serves but to undermine constructive effort.
Peace and honest friendship with all nations have been the cardinal principles by which we have ever guided our foreign relations. They are the stars by which the world must to-day guide its course—a world in which our country must assume its share of leadership and responsibility.
The situation is one of such urgency that we require national solidarity and national cooperation if we are to serve the welfare of the American people and, indeed, if we are to conquer the forces which to-day threaten the very foundations of civilization.