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T H E I N T E R - A L L Y DEBTS T H E INTER-ALLY DEBTS An Analysis of War and Post-War Public Finance 1914-1923 By HARVEY BANKERS NEW E. TRUST FISK COMPANY YORK-PARIS 1924 Copyright 1924 by B A N K E R S T R U S T COMPANY NEW YORK All rights reserved Foreword T HIS book has been prepared in response to many requests for information regarding the cost of the World War, how this cost was met, and more particularly for information about the debts between the allies, which are going to be of great international importance for many years to come. We have analysed the accounts of some twenty nations, using for the purpose, wherever possible, their official statistical publications. In some cases official statements were especially prepared for us. As all statements were in national currencies—pounds, francs, lire, drachmae, dollars and so on, it became evident early in our study of the problem that to make the figures comparable they must be expressed in one currency. We decided to state them all in dollars, converting each foreign currency at the rate of exchange current before the war, i.e. practically at exchange parities. However, in view of the fact that prices in each country were inflated by war financing, but in varying degrees, it also seemed desirable, in order to make them comparable^as to purchasing power, to adjust the figures to the price level of 1913, that is, to put the statistics all on a pre-war gold basis. Thus the reader will find most of the statements given at their face or currency value just as published by the several governments, only expressed in dollars at par of exchange instead of in national currencies, and he will also find them expressed in "1913", or gold, dollars. We hope the book may fulfill the purpose for which it was created, and be of value to our friends. We also wish here to express to the officials of the various governments who have furnished us with the necessary statistics, our appreciation of their helpful co-operation. BANKERS T R U S T COMPANY April, 1924 New York and Paris Contents CHAPTER I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI XVII XVIII XIX XX XXI XXII PAGE Eighty Billion Dollars The Cost of the War The War Expenditures of Each Great Power How the War Was Paid For The Revenue Receipts of Each Power Borrowing in Home and Foreign Markets Market Borrowing of Each Belligerent The Inter-Ally Loans, 1914-1917 The United States Becomes Financier for the Allies, 1917-1920 Great Britain as Borrower and Lender, 19171920 French Loans From and To Foreign Nations, 1917-1920 Financing Belgium, 1914-1923 Loans for Relief, 1918-1923 Payments Under the Treaty of Versailles The Status of National Debts in 1923 The Wealth and Income of the Belligerents The Wealth and Income of the British Empire National Wealth and Income of France National Wealth and Income of Italy The Wealth, Income and Foreign Indebtedness of Russia The Wealth and Income of the United States The Wealth, Income and Foreign Investments of Germany 1 11 21 40 45 7i 79 120 150 189 208 217 237 242 2 54 261 271 283 289 293 305 313 Statistical Tables PAGE 322 Expenditures of Each Belligerent 323 Receipts of Each Belligerent Pre-War Status Debts of Each Belligerent 324 325 For the Six Years, "Currency" dollars 13 For the Six Years, " i<m" dollars 19 Year by Year, " 1913" dollars 16 Expenses Classified, " 1913 " dollars Cost of the War First Part 'Tiirrptirv flnllars 326 First Part, "1913" dollars 328 Second Part, ''Currency" dollars 329 Second Part, " 1913" dollars Six Years, "Currency" dollars 330 Six Years, " 1913" dollars 33* Year by Year Receipts, "1913" dollars 43 How the War First Part, "Currency" dollars 332 Was Paid For First Part, " 1913" dollars 333 Second Part, "Currency" dollars 334 Second Part, "1913" dollars 335 M " Currency dollars 336 "1913" dollars 1917 337 Basis New York Exchange 338 "Currency" dollars 339 National Debts "1913" dollars [1920 34° Basis New York Exchange 341 "Currency" dollars 342 "1913" dollars 1923 343 Basis New York Exchange 344 April, 1917 121 November, 1918 Inter-Nation 345 In 1920 Debts 346 In 1923 348 Wholesale Price Index Numbers, 1914 to 1923 350 Payments Due Annually by Great Britain Account of Debt to the 35» United States 352 Estimated Wealth of the States of the United States All money statistics are expressed in dollars. Unless otherwise noted, foreign currencies have been converted at exchange parities. Such figure* are stated as "currency " dollars, or simply as dollars. Where the expression "1913" dollars is used, it means that the actual or currency figures have been re-stated in terms of the purchasing power of money in 19*3For detailed explanation, see pages 14 and 319. THE INTER-NATION I N D E B T E D N E S S IN 1923 THE INTER-NATION INDEBTEDNESS IN 1923 In dollars at par of exchange—00,000 omitted THE H BORROWERS | Great CanUnited Britain ada France Italy Russia States THE LEADERS British Empire Gieat Britain 69.7 67,3 . . . . 143.5 57.S 0.7 1.9 3.7 Total British Empire . 733.6 South Africa British South Africa Co. . Crown Colonies Armenia Austria Belgium Belgian Congo . . . . . Czpcho-Slovakia Esthonia Finland France . . . . . . . . Franco Polish Germany . . . . . . . Greece Hungary . Italy Latvia Liberia Lithuania . Nicaragua Poland Portugal Roumania . . . . . . . Russia Serbs, Croats and Slovenia Ukraina United States Grand Total 1.9 69.7 63..1 . 43,8 17.3 6.7 6,3 1.3 . 3,927,6 5.7 IO9.0 0.6 3,568,6 o.t 7.5 . . a 20,7 99.6 . 135.9 4.323.0 , 137.9 359,8 133,8 t.365.3 4.661.0 7.313,1 0,1 711,0 62,6 110.8 2.0 34.8 166,2 0.2 163.9 3.2 96,6 3.4 c d 18,8 14.3 153.4 38.4 454.5 1.315,6 17.3 363.3 110.9 30,0 16,8 9.0 9.0 3,990.7 7,020,6 2,4 c 299.3 16,5 2.8 2,0 2,015,0 4.747.5 6,0 / g , / 1,3 30,5 6 203,8 13.7 327.9 1.165,7 348,9 33.6 7,3 0,3 420,6 09.6 450.7 43.8 241 9 S.736.8 55t,8 61.6 e 6,0 0,3 182.4 7.3 3.4 e 3,8 3.8 TL.171,4 109.8 3463.7 390,0 1.265.3 II.86I.O aJ82,ooo. 6J55.000. cSs.ooo. /J31.O00.—These are whole figures. 359.8 133.8 1.365,3 4,661,0 6,489,5 439.8 67.3 143.5 57.8 9.7 3.7 4.5 , Grand Total d$2 7,000. <58,000, 28,261,1 The Inter-Ally Debts CHAPTER I Eighty Billion Dollars HE war cost $80,680,000,000 gold. The purchasing power of the currencies of every combatant nation was affected in varying degrees by inflation caused by the use of paper money and bank credits in financing the war. Taking the figures of each nation as reported from year to year and reducing them to dollars at par of exchange, the expenditures for war totalled $208,600,000,000 in currency. To arrive at a uniform basis of statement, we have divided the figures for each nation for each year of the war by the wholesale price index number of that nation. Thus we have obtained a statement for each nation in terms of 1913 prices. The sum of these figures, $80,680,000,000, may be called the gold cost of the war. How can we realize the magnitude of such a sum ? Eighty billion dollars would reproduce all of the railway mileage of the world and there would still be over twenty billion dollars to spare for some other use—enough to build and equip a railway system as great as that of the United States. In 1914 English economists estimated the wealth of the people of Great Britain to be about seventy billion dollars. All of the property of every kind in England, Wales, Scotland and Ireland, the railways, the docks, the shipping trav- [1 IO] BANKERS TRUST COMPANY ersing every sea, the entire navy, the great factories, the coal, tin and iron mines, in short all tangible property of every sort and kind, is represented by this seventy billion dollars, and yet the war cost ten billion dollars more than this, and ten billion dollars is equivalent to the entire tangible wealth of Australia and New Zealand. Another comparison—the pre-war combined wealth of France and Italy was just under eighty billion dollars. The war caused the unprofitable consumption of goods of a value in gold equivalent to all of the property of every kind of these two great nations of nearly eighty million people; an amount equivalent to the accumulations of centuries, wasted in four and one-half years of insensate strife. It is hard to realize, but it is a fact, that eighty billion dollars is fifty per cent, more than the total cost of government in Great Britain for the two and a quarter centuries which elapsed from the Revolution of 1688 to the beginning of the Great War. It cost, to meet the expenses of Great Britain for two and a quarter centuries, in round figures, fifty-three billion dollars. During this long period of 226 years there were eight major wars, fought at great expense—expense so great that the thinking people of the times were appalled thereby. There were the wars of William III costing around $150,000,000; the wars of Anne costing over $250,000,000. The Spanish Right of Search War and the war of the Austrian Succession piled up another $200,000,000 or more. The Seven Years War cost over $350,000,000. Then came the American war costing over half a billion dollars, and finally the Great French Wars lasting from 1792 to 1815, costing around six billion dollars. Later on, in the '50s, the Crimean War cost some $350,000,000; and finally the Boer War which lasted from THE INTER-ALLY DEBTS [3 1899 to 1903 cost nearly a billion and a half of dollars. Beside these major wars there were many costly military expeditions, the growing cost of civil government and the ever present burden of the public debt, and yet the total expenditure of this long period was only about five-eighths of the gold cost of the Great Wan Coming home for a final comparison, we find that the expenses of the United States government from its foundation in 1791 through the year 1913, a period of a century and a quarter, were twenty-four and a half billion dollars—less than one-third of the gold cost of the Great War and yet, during this long period, we fought England in 1812, Mexico in the '40s, the very destructive Civil War in the '6os, also at various times many Indian campaigns, to say nothing of the Spanish War in the '90s. The expenses of civil government were steadily growing. Our pension roll called for heavy expenditures. To the current expenses of government we could add the Louisiana purchase, the acquisition of Alaska, the purchase of the Virgin Islands, wThat we paid Spain for the Philippines, and the cost of constructing the Panama Canal, and even then, the figure would be far under a third of the total gold cost of the Great War. How JFar is Paid For Economists tell us that the wTar was paid for as it was being fought. This is unquestionably true, taking the world as a whole. You cannot today feed, clothe, and equip a soldier with things to be produced in the future. The generation which fought the war furnished the men who fought the war and produced food and clothing for them, and the ships, aeroplanes, guns and explosives with which they fought. IO] BANKERS TRUST COMPANY However, within a nation as between individuals, and in the world at large as between nations, it is true that the financial burden of the war may continue for generations. The man whose father or whose grandfather helped to pay for the war by buying government bonds may be for many years in receipt of an income raised from taxation in part paid by himself, but largely paid by other citizens. In like manner, a nation which in part fought the war by obtaining munitions from another nation, in exchange for its bonds payable in the future, did not itself pay for this part of the cost of the war and will only feel the burden when it redeems its bonds and as it pays interest on them. While such payments are in progress, the citizens of the borrowing nation will feel the burden in their tax payments. They actually will be paying for the war for long years after it ended; not, of course, paying the original cost, but repaying to their ally the equivalent in value of the goods originally obtained on credit. The Inter-Ally Loans On the side of the Allies the inter-nation credit operations due to the financing of the Great War and its aftermath amount to more than twenty-eight billion dollars. Of this amount twenty-six billion dollars represents the loans from ally to ally with unpaid accrued interest added. The remaining two billion dollars represents post-war loans made by the Allied Powers to various nations, some of them former enemies, for relief and reconstruction. There were three important stages in the development of these loaning operations. The first stage was from the latter part of 1914 to April 7, 1917. That is the period prior to the entrance of the United States into the conflict. During this THE INTER-ALLY DEBTS [5 period the loans between the Allies totalled over eight billion dollars. Then followed the two and one-half years until the armistice. During this period the loans increased by nearly fifteen and a half billion dollars, reaching $21,599,000,000. Then came the post-armistice loans which with unpaid accrued interest brought the total up to $28,261,000,000. The burden of the loans devolved about equally upon the United States and Great Britain, amounting as the books stood in 1923 to $11,861,000,000 by the former and to $11,171,000,000 by the latter. Loans by France totalled in 1923, $3,464,000,000. This is the gross status. However, both Great Britain and France were borrowers as well as lenders. Therefore, on balance, the figures stand as follows: the United States in 1923 was a net creditor for $11,858,000,000, while Great Britain was a net creditor for $4,682,000,000. All of the other nations, some thirty in number, were net debtors. It is difficult to reduce the figures to a gold basis, but careful computations as of the close of 1919 when the currency total of the loans stood just under twenty-five billion dollars, indicate that, valued in " 1 9 1 3 " dollars, the loans represented an outlay of thirteen billion dollars, ao amount only two billion dollars less than the pre-war national wealth of Canada. Adding this amount to our estimate of the net gold cost of the war, approximately eighty-one billion dollars, we arrive at a gross cost of ninety-four billion dollars. On this gross basis about 3 per cent, of the receipts of the belligerents for war purposes came from taxation, 8 3 ^ per cent, came from borrowing at home, and about 1 3 ^ per cent, came from borrowing abroad. This latter borrowing was chiefly by the Allies from each other. Of course, these latter loans, if and when paid, will cancel out, leaving the real net cost of the war at the eighty-one billion figure. IO] BANKERS TRUST COMPANY The Loans Not Made in Mo?iey It should be borne in mind that these loans were merely measured in terms of money. In fact they were loans pf indispensable commodities which the combatants could not obtain at home. Actually the loans were made in clothing, in food, in cotton, in nitrates and chemicals, in steel and copper, in engines of war, in ships and other munitions. From the beginning a very important source of most of these munitions was found in the United States and in other countries of North and South America. Japan was another important purveyor of war goods, while nearly every other nation of the world, large or small, ally or neutral, was combed for needed supplies. Great Britain as Bankerfor the Allies During the first part of the war Great Britain was the banker for the Allied Powers. She financed her dominions first, then France. Then she joined with France in financing Russia, and, later on, when Italy came out on the side of the Allies, she helped Italy to obtain needed commodities. Her net advances during this period aggregated $3,824,000,000. As it was necessary to go to America for many of the goods required, and as America insisted on being paid in real values, or if she gave credit, in being well secured for her advances, it was necessary to obtain gold and good convertible assets for the purpose. Therefore, Great Britain, in consideration for the use of her good offices and banking and trade facilities to obtain goods from America, insisted that Russia, France and Italy should send to the Bank of England all the gold that they could spare from their banking reserves. This gold was successfully used to stabilize the New York ex THE INTER-ALLY DEBTS [ 7 changes, which indirectly resulted in the stabilization, or part stabilization, of other aljied and neutral exchanges. In 1915 France and England joined their credit to place a great loan for five hundered million dollars in the United States. When England and France asked for further loans, American bankers required collateral. The borrowers appealed to their peoples for loans of negotiable securities. These were furnished in great amounts, largely in the form of American railroad stocks and bonds. Many other corporate securities suitable for the purpose also came to light, as well as municipal bonds and the bonds of neutral states. Some of these stocks and bonds were sold in American markets. These were bought outright from their British and French owners. Other securities were deposited in New York with the Bankers Trust Company or the Guaranty Trust Company to protect issues of English and French notes, $120 of collateral being deposited for every $100 lent. The securities forming this collateral were borrowed from their owners by the French and English governments. Their owners received interest bearing receipts which entitled them to receive the interest as collected and an additional percentage for their use. Before the war English people are thought to have owned foreign investments valued at twenty billion dollars. The French people had similar investments aggregating over eight billion dollars. It is calculated that for war purposes the English people sold securities to the value of five billion dollars and that the French people parted with securities valued at one billion dollars. The United States Becomes Allied Banker On April 6, 1917, the United States joined forces with the Allied Powers. Almost the first act of the American Congress IO] BANKERS TRUST COMPANY was to authorize loans to powers at war with the enemies of the United States to the extent of three billion dollars. From time to time this authorization was increased until a maximum of ten billion dollars was reached. This money, or rather the munitions of war which it would buy, was poured out freely. By their own admission, at the time we came into the situation, the Allies were at their wits end to know which way to turn in order to obtain needed supplies. When the United States opened her pocketbook all was changed. The outcome we know. Our help ended the war. We supplied in almost unlimited volume the munitions required to enable the Allies to go on fighting while we were enrolling and training men. When the armistice was signed, we had all but two million men in France. Within six months we would have had twice that number there. T o conserve shipping to get these men across we bought great quantities of munitions in Europe* We paid higher prices for these goods than we would have needed to pay at home, even with the cost of ocean transportation added, but it was better to do this and save shipping for the men. The Post-Armistice Loans The war ended suddenly. Up to that time we had furnished our allies with goods valued at $7,077,000,000. In addition we had the vast supplies of goods accumulated abroad and even greater supplies in warehouses at home. T o have thrown these goods on the market might have ruined farmers, manufacturers and other business men at home, and perhaps broken some banks. European nations, especially our late enemies, needed these supplies badly. Under the acts of congress authorizing the loans to our THE INTER-ALLY DEBTS [ 9 allies such loans could only be made to nations at war with our enemies and on no account could such loans be made to an enemy. What was to be done? Should we withhold the loans and let our home people " g o broke" and Europe starve; or should we make the loans and stretch the law; for congress could not be made to appreciate the difficulty and would not amend the loan acts so as to legalize loans for reconstruction and for relief to neutral or former enemy nations. The administration decided to act as if war were still in process. Technically this was so, for the loan acts provided that the legal ending of the war was to be determined by proclamation of the President. Such proclamation was not made until the Harding administration came into power. The loans were made to Belgium for her own needs and to Great Britain, France and Italy. By the latter nations the pork and corn and wheat not needed by themselves were passed on to Austria and other impoverished countries. Thus it was that after the armistice loans were continued for two years. Such loans amounted to over two billion dollars. In all the United States lent to the Allies just under ten billion dollars. We also sold surplus war materials to foreign nations taking in payment $595,000,000 of their obligations. Through the American Relief Administration we furnished relief supplies valued at over $84,000,000, for which we took bonds. We also sold foreign nations large quantities of grain on credit through the Grain Corporation, to a value of nearly $57,000,000. These latter arrangements were sanctioned by special legislation supplementary to the legislation authorizing loans of ten billion dollars to prosecute the war. With the exception of Cuba's debt to the United States and of some settlements of book accounts connected with the IO] BANKERS TRUST COMPANY interchange of army supplies, and some settlements for surplus war materials, none of these loans has been paid and little interest has been paid upon them. The only large loans which have been put in the way of payment are the loans made by England to her dominions, and England's and Finland's debts to the United States. England and Canada had large reciprocal loans whifch have been fully settled. The other dominions have put their war debts to England into serial bonds, while England and Finland have made a similar arrangement with the United States. This leaves unsettled the debts of the continental nations to England, France and the United States and some moderate amounts due to Italy, and then there is the great debt of Russia to England and France and her smaller debt to the United States. In the following pages we have first taken up the consideration of what the war cost. We have then endeavored to show how it was financed, giving attention in turn to taxation, internal borrowing, external market borrowing, and finally to the inter-nation borrowing. In concluding chapters we consider the resources of the nations upon which reliance must be placed, in part at least, to find the ways and means of paying their debts. Other things being equal, nations with large foreign investments are in a better position to pay foreign debts than those not so fortunately situated. However, when budgets are balanced and the world once more is at work in a normal way, even nations not now blessed with large savings invested abroad may be expected gradually to save and to accumulate savings with which to liquidate their debts to other countries. Time will be the essence of all inter-nation settlements. CHAPTER II The Cost of the War I N this book we are dealing with the direct tangible cost of the war to the national treasury of each belligerent. However, it must be kept in mind that this is only part of the real cost. The economic value of lives prematurely snuffed out on the field of battle, or as the result of wounds, from contagion, or from massacres; the reduction of vitality due to wounds and malnutrition; the stunting of the lives of children and of children yet unborn; the destruction of priceless relics of the past, of books and of works of art; the demolition of buildings, railroads and highways; the sabotage of agricultural lands, mines and factories; all enter into the economic cost of the war. The recurring annual burden of the interest upon the public debt and of pension payments to soldiers and their dependents will continue for generations yet unborn. But this does not by any means complete the inventory of the economic cost of the war. We must also take into consideration what the accountants call the accrued renewals— the neglected upkeep—during the war years, of public works, public utility plants, transportation and communication plants, highways, and buildings of all kinds. The disorganization of the currencies of many countries has brought ruin to holders of government bonds and to those living on the income from other pre-war and even war time investments, and to all living on fixed incomes, whether from annuities, pensions, or salaries. Then there is the world-wide dislocation of business. [» IO] BANKERS TRUST COMPANY It is not necessary to go further. Enough has been taken into the account to show that the cost of the war has been unbelievably large—in fact an amount beyond the power of computation by anyone however much of a statistical wizard he may be. The Direct Cost of the War This book deals with the direct cost of the war to the national treasuries of the belligerent powers, exclusive of all indirect expenditures or losses, such as those just enumerated. Our estimate of this cost is $80,681,000,000 "1913" dollars; divided $56,184,000,000 or 69.64 per cent to the Allied and Associated Powers, and $24,497,000,000 or 30.36 per cent to the Central Powers. These are the expenditures of nations which took a more or less active part in fighting the war. We have not included in our studies the other nations of the world, either those nominally but not actively at war, or the neutral nations. Counting as separate nations the group of governments composing the British Empire, there were at one time or another during the progress of the war sixteen active belligerents on the side of the Allied and Associated Powers and four on the side of the Central Powers. What the war cost each of these nations in " 1 9 1 3 " dollars is shown in the table on the following page. Analyzing the Data A study of the table raises important questions which must be answered before we can intelligently consider matters of detail. What did the war cost? It would seem to be a perfectly simple matter to answer this question. Assuming the account THE INTER-ALLY DEBTS[22 OTHE C O S T OF T H E WAR COVERING THE SIX FISCAL YEARS 1914 (OR 1 9 1 4 - 1 5 ) TO 1919 (OR 1919-20) INCLUSIVE (In " 1 9 1 3 " dollars—000,000 I II III Total 6 NorExpendi- mal Exture Direct Cols. II. pendi- Cost Ill & IV ture Nations omitted) V IV VI Gross Loans Cost Deduct Loans Cols. Ill from to & Allies Allies IV VII Net Cost A L L I E D A>TD ASSOCIATED P O W E R S British Empire Great Britain . . . . Canada India New Zealand . . . . Union South Africa. . cCrown Colonies, Protectorates, etc. . . Total British Empire.. c Belgium . . . . . . . cGreece . . . . . . . Italy . . . . . . . . Portugal . . . . . . . Rumania . . . . . . Russia cSerbia United States . . . . dated Powers . . . CENTRAL POWERS 38.83s 586 576 19,257 864 952 20 213 26 580 6S4 -104 36.851 10,578 4.693 548 Z.ISO 1.413 3,291 2.333 799 60 3 3.312 61S 5,020 324 2,942 1,476 468 411 S.903 145 2.777 1,380 16,228 IS5 7,431 1.390 643 310 I3.56T 366 20,114 98.238 30.563 21,228 662 10,104 -69 4,489 -86 4.886 159 3.909 113 61 76 66 5.045 1,104 26,273 3.335 662 11,208 - 6 9 4,489 663 -86 292 12,296 A 56,184 1,936 74 X.27S 174 40 5.041 7,658 221 17,337 2.389 227 198 An,482 67,666 -201 21,234 751 1,050 20 137 -40 -104 -104 174 -201 7,366 221 24,143 864 1,111 20 213 26 23,048 9,282 -143 3,211 - 5 6 134 -201 5,369 -6 17,139 £9.919 £57,747 . . . . Z0,S4S 246 33.176 1.613 5.410 473 3.382 933 5,438 — 227 18,605 681 Total Central Powers. 35.883 10,097 £24,497 hi, 289 25,786 H I , 106 £ 2 4 , 6 8 0 40,659 /»80,681 £ 1 2 , 7 7 1 93,452 £11,035 £82,427 tf Austria-Hungary cBulgaria . . . . Germany . . . cTurkey . . . . . . . . . . . . Grand Total. . . . TX34.III 5,438 1,289 -227 19,894 681 7 " 47 348 4,727 -274 19,894 333 For notes see Statistical Tables. books of the various belligerents to have been properly kept, apparently all one would need to do would be to turn the statistics into dollars, add them up and find the answer to the question. IO] BANKERS TRUST COMPANY Unfortunately, the problem is not so easily solved. Aside from the fact that the statistical records are imperfect, there are several other matters which must be settled before we can arrive at a final figure which will be of any value. One of the most difficult questions to determine is that of a common denominator. We are dealing with several different currencies,—francs, pounds sterling, dollars, marks, crowns and others. These currencies all depreciated from the prewar status. Even the purchasing power of the dollar declined in a marked manner, to 84 cents in July, 1916, to 54 cents in July, 1917, and to as low as 37 cents in April, 1920. The franc dropped to 70 per cent, in July, 1915; to 54 per cent, in July, 1916; to 37 per cent, in July, 1917, and to 17 per cent, in April, 1920. The other currencies suffered in like manner. As shown by Statistical Table X X V I I , it will be seen that the depreciation was quite uneven, but on the whole, for the war period, not dissimilar. Even the mark did not break badly until 1920. Manifestly, the first step in obtaining figures which are really comparable is to reduce these varying currencies to a common basis. This we have done, first by dividing the figures for each year by the average wholesale price index number for the year, thus putting the statistics for each country on the 1913 price basis. We then have turned the adjusted cost figures into dollars at par of exchange—the pound at $4,866, the franc at 19.3 cents, and so on. The dollar figures used in this chapter and throughout the book, wherever designated as " 1 9 1 3 " dollars, were arrived at in this manner; they are dollars of 1913 purchasing power. Having expressed the figures in " 1 9 1 3 " dollars, we are still faced with the problem of analysing them in such a way THE INTER-ALLY DEBTS [ 24 as to arrive at the real cost of the war and not at some misleading result. In this book we have assumed the cost of the war for any year to be the annual expenditure over and above the pre-war rate of expenditure. Our statistics are arrived at on this basis. In the case of a nation lending to an ally, the cost of the war is the total expenditure for the prosecution of the war, inclusive of any loan or loans made to allies which is outstanding and unpaid. But, on the other hand, the cost to a nation borrowing from an ally is the total expenditure of that nation for war less any such outstanding and unpaid loans. Manifestly, when considering the expenses as a whole, these interally loans cancel one another and the total cost of the war is the direct expenditure, exclusive of loans to allies. Allocation of the Costs As shown by the table on page 16 military expenses and other special war expenditures, including the interest on the war debts, accounted for substantially all of the direct cost of the war, that is the cost exclusive of loans to allies. Out of the total direct expenditures of $80,681,000,000, $68,990,000,000 or 85.5 per cent, went into military expenses, $5,144,000,000 or 6.37 per cent, into other special expenses due to the war, and $6,242,000,000, or 7.74 per cent, was used in paying interest on the war debts. The war caused only a slight increase in civil expenditures. It should be borne in mind that we are dealing with " 1 9 1 3 " dollars. It is noticeable that the military expenses of the Central Powers were nearly 25 percent. less in the second part of the war than in the first, while this class of expenses for the Allied Powers was about 25 percent, heavier in the second part of T H E COST OF THE WAR EXPENSES CLASSIFIED (In "1913" dollars—000,000 omitted) FIRST P A R T EXPENSES Allies Central Powers Public Debt Charge . . . Military, including Pensions Other Special War Expenses Civil Government . . . . 07O 30,518 9SO 345 Direct Cost Loans to Allies 33.713 4.357 12,060 Gross Cost Expenditures. Pre-war Basis 27.070 16.345 Total Expenditures 43.315 . . . . Percentage of Period . . . Percentage Each Part to Total 548 SECOND P A R T Alt Allies 1,518 33.335 1,344 3.131 25.838 2.682 Central Powers w > =5 ENTIRE PERIOD n All Allies Central Powers 4.734 35.66s 3.900 3,I4T 22,634 L.4«3 6,24a 68,990 5.144 All I,6io 4.T01 46.JS6 3,662 3,065 34.783 5.3IO 33.47 r 7.125 12,428 45.899 7.461 56.184 11483 34.497 80.681 13.033 5.571 40,092 3I,3I6 40,596 14.317 12.764 4.526 53.360 IM43 67.666 30.562 35.786 93.453 10,097 40.659 18.593 61,90S 54.913 17.290 72,303 98,328 35.883 134.1" 13.807 364 -rjjo 953 -/.JOJ 1,820 69.06 30.04 100.00 76.0s 44.09 jr.81 46.J6 S3-9* 1.503 9.837 I.21S — JJO 336 33.9s 4S.19 200.00 S3S4 73-34 i 00.00 —1,760 1.289 305 13.771 26.76 100.00 100.00 100.00 *M w aG n o v > 2! THE INTER-ALLY DEBTS [ 17 the war than in the first. This shows the tremendous effort put forth by the Allies to win the war, and a weakening in the effort of the enemy. The increase in special expenses due to the war is attributable largely to heavy expenses incurred in obtaining food for the civilian population. Cereals, meats, sugar, and other food supplies were bought by the various governments and then in many cases resold to their citizens at a loss. Other special expenses were due to the beginning of reconstruction and to aid extended to those who had suffered losses of property, while war pensions to disabled soldiers began to figure in the accounts. Loans to Allied Governments In addition to their direct expenditures for war the belligerents lent to their allies $5,310,000,000 in the first part of the war and $7,461,000,000 in the second part; a total of $12,771,000,000. These are " 1913" dollars. The loans at face value, that is in "currency" dollars, amounted to $7,906,000,000 in the first part of the war, and $15,754,000,000 in the second part, or $23,660,000,000 in all. This latter amount is the sum "nominated in the bond" but the money which the borrowers received had a purchasing power of only $12,771,000,000. Perhaps this fact fairly may be taken into account when settlements are made. The burden of the lending for the Allied Powers in the first three years fell on Great Britain and in the second three years on the United States, although in that period Great Britain was also a heavy lender, while France made substantial loans in both periods. Germany was the banker of the Central Powers. For the figures for the entire six years and the effect of loans made and of loans received upon the exchequers of the IO] BANKERS TRUST COMPANY several nations which were at war, reference may again be made to the table printed on page 13. It will be noted that the " N e t Cost," that is the cost, plus loans made and less loans received, in the case of the Allied and Associated Powers, fell first upon Great Britain for $21,234,000,000, 36.77 per cent, of the total Allied figures; secondly upon the United States for $17,139,000,000, 29.67 per cent, of the total; thirdly upon France for $9,282,000,000, 16.07 P e r c e n t * of the total; and fourthly upon Russia for $5»369,000,000, 9.29 per cent. Then came Italy for the sum of $3,211,000,000; Canada for $1,050,000,000, and Australia for $751,000,000. On the side of the Central Powers, Germany expended $19,894,000,000 and Austria-Hungary $4,727,000,000, out of a total of $24,680,000,000. The inter-ally loans are more fully discussed in a later chapter. Year by Year Cost of the War The annual distribution of the war expenses for each group of belligerents which we have just been considering is set forth in " 1 9 1 3 " dollars in the table on page 19. Where the War Burden Fell the Heaviest It requires only a glance at Statistical Table V I to see that during the first part of the war the burden of the Allies was borne by four nations. These were, in order of their disbursements, expressed in " 1 9 1 3 " dollars: Great Britain, with total expenditures for war of $11,884,000,000; Russia, with disbursements for war of $5,822,000,000; France, with disbursements for war of $5,233,000,000; and Italy with disbursements for war of $2,076,000,000. THE YEAR BY YEAR COST OF T H E WAR (In "1913" dollars—000,000 omitted) TOTAL EXPENDITURE NORMAL E X PENDITURE & Per Cap- tional ita Income First Year Allied and Associated Powers Central Powers All Belligerents Second Year 9,263 21.11 4,308 20.01 13,571 23.07 26.43 23.36 24.07 DIRECT COST OF TIIE W A R % In- Loans to Per crease Cap- tional over Allies ita InNorcome mal 11-33 12.89 7.000 11.73 3,856 O.iS 2,236 15.33 6,092 10.78 Allied and Associated Powers Central Powers 1 5 , 5 3 0 35.66 39.28 7 , 0 3 7 48.8? 43.17 5.143 1.857 12J0 9,082 21.43 4,801 33.34 All Belligerents 13,883 24.44 11.17 10.00 74.07 13.72 120.41 364 87.03 479 11,11 2 2 , 5 6 7 30.00 40.44 7.000 it.6a 1 8 , 5 2 2 38.Q4 7 , 2 4 8 50.33 43.21 44-47 5.959 1.857 11.27 12.89 All Belligerents 2 5 , 7 7 0 41.78 43.58 7.816 11.67 14,807 23.66 26.77 Fourth Year 9 , 7 7 5 22.58 5,032 34.94 Year Allied and Associated Powers Central Powers 2 2 , 3 5 1 40.50 29.43 8,926 61.98 54-76 AH Belligerents 31,277 189.44 3 . 1 4 7 6,571 11.63 11.98 10,387 24.49 26.98 5 , 1 8 0 33.97 31.78 1 5 , 5 6 7 27.39 28,40 222,38 210.82 290.31 1 7 , 9 5 4 30.11 229,71 31.40 0.54 23.63 I7.J7 234.88 47.80 42.23 370.63 3.939 16,850 30.96 22.50 186 7 , 0 6 9 49.09 43.37 7.358 19,804 28.75 21.71 269.13 4."5 38.83 21.23 317.40 3,563 ISO 30.39 26J84 231.04 3t.t7 30-39 4.408 ii.ii I.S94 13.15 13,992 4,376 All Belligerents 2 7 , 3 8 2 53-40 32.7 9 6,303 11.69 18,368 3644 93-87 201.92 278.94 1 2 , 5 6 3 27.67 30.71 5,391 37.44 33.07 10.23 45-05 Year 1.684 9.78 10.69 80,11 17.02 15.04 131.99 1.857 12.89 20,962 57.04 6,420 44.58 Sixth IQ8.33 4,120 2,451 S.50I Allied and Associated Powers Central Powers Year 23.34 25.05 164,04 3,788 30.87 270.97 359 % InPer crease Cap- tional over ita In- Norcome mal 12,921 6,883 34.02 Fifth 215 23.61 176.59 1.305 29.45 258.53 3 7 9 Allied and Associated Powers Central Powers Third & & Per Capita S.I43 1.857 GROSS COST OF THE W A R 23,919 34.80 26,28 325.07 1 6 , 5 5 4 45-02 4,526 3t.43 22,34 291.45 2,712 21,080 306.31 380.67 25.09 27.77 41.80 25.62 375.52 238.96 334.48 Allied and Associated Powers Central Powers . . . . . 11,600 1,944 J/.JO 16.99 20.68 16.47 4408 775 ti.li 8.24 6,558 1,169 18.23 12.43 0.06 9-9J 148.77 634 7,192 1,169 19.98 10.92 163.16 12.44 9-01 150.84 All Belligerents 13,544 28.95 16.91 5.183 10.32 7,727 17.04 0.00 14Q.08 634 8,361 18.43 150.84 10.77 161.28 IO] BANKERS TRUST COMPANY In these years Germany spent for war $8,727,000,000, a little more than two-thirds of the expenses of the Central Powers, while Austria-Hungary spent $3,963,000,000. In the second part of the war as shown by Statistical Table VIII, the burden bearers for the Allied and Associated Powers were the United States, Great Britain, and France, providing respectively $16,671,000,000, $12,259,000,000, and $5>975*°oo,ooo. Italy followed next with $2,413,000,000 and Russia next, for eight months only, with $1,836,000,000. Germany carried practically the entire burden for the Central Powers for these years. We have included the loans in giving the foregoing figures. Although the fighting ended in a little over four years, the expenses due to war conditions, as always happens in the case of large w*ars, continued at a high scale during the first peace year and really did not settle down to a peace basis for still another year. CHAPTER III The War Expenditures of Each Great Power A S we have seen, the burden of the war financing fell upon a few nations. Therefore it will be of interest to learn the nature of the expenses which each of these burden bearers had to meet. From what sources the money came with which to pay the bills, whether from taxation, from home or foreign market borrowing, or from assistance given by Allied or Associated Powers, we shall learn later on. T h e relative cost of the war to the leading combatants is shown by the table printed below. It will be observed that apparently the direct money burden of the war to the Allies fell heaviest upon the British people, then, in order, upon the French, the people of the United States, the Italians and THE RELATIVE COST OF THE WAR TO THE GREAT POWERS (In "191dollars) Per Capita; Per Cent Pre-War National Wealth; also Average Annual Expenditure for War per cent. Pre-War National Income, and Cost in Men per cent. Pre-War Population. Gross Cost of War Per Capita ALLIES Gross Cost of War, % National Wealth Average Annual Cost Battle of War, % Deaths, % National Population Income Great Britain. . . . France Italy Russia United States. . . . 524-85 280.20 124-59 44-01 176.91 34-49 1936 20.59 13.11 8.67 36.92 25.59 I9.I8 24. IO 15 SO I.44 2.3I .92 .98 •OS Austria Hungary . . Germany 108.76 292.57 18.13 24.71 24.18 3J-58 I.60 2*35 CENTRAL POWERS [21 IO] BANKERS TRUST COMPANY the Russians. In relation to national wealth and national income the burden was lightest for America. T H E BRITISH EMPIRE'S WAR EXPENDITURE T h e direct cost of the war to the national and colonial groups composing the British Empire, in " 1 9 1 3 " dollars, was $21,228,000,000, exclusive of loans to Allies. Including such loans the cost was $26,273,000,000, say about 38 per cent, of the total expenditures for war of all the Allied and Associated Powers. Deducting loans from Allies the cost was $23,048,000,000. T h e expenses were distributed as in the following table: W A R T I M E E X P E N D I T U R E OF T H E BRITISH S i x FISCAL YEARS: 1915 TO 1920 INCLUSIVE (In dollars—000,000 omitted) EMPIRE . In "CurIn Per Cent, Expenses Per Cent, rency" "I9L3T' of of Pre-War Dollars Dollars Total Total Basis Purpose Public Debt Charge . . . 6,218 3.207 Military' 38,177 20,985 4,690 2,520 Other Special War Expenses 5,094 Civil Government . . . . 8,018 8.70 1,242 5^95 2,868 6.84 13-82 ' 6,468 Direct Expenditure Loans to Allies . . . . 57,103 U.74 27.ll 61.15 31,806 8,981 5,045 86.31 10,578 100.00 13-69 Total Expenditure . . . . 66,084 Deduct Expenses Pre-war Basis . 10,578 36,851 100.00 10,578 100,00 GROSS COST OF THE WAR Deduct Loans from Allies . . . . . NET COST OF THE WAR . . 10,5/8 55.506 26,273 5,742 3,225 49,764 23,048 Direct Expenditure as above . . 57,103 31,806 Deduct Expenses, Pre-war basis . 10.578 10.57S Gro«3 Cost of the War, exclusive of Loans 46,535 31.338 For the expenditures of each nation composing the British Empire, see Statistical Table*. THE INTER-ALLY DEBTS [ 23 GREAT BRITAIN'S EXPENDITURE FOR THE WAR Following the outbreak of the war, the British parliament from time to time voted blanket appropriations, technically known as "Votes of Credit." These were to be expended by the government in the manner best calculated to win the war. How these sums were expended was a state secret until the close of hostilities, when the disposition to which they were put was made public. The total payments charged to votes of credit from August, 1914, to March 31, 1919, amounted to HOW GREAT BRITAIN SPENT MONEY TO WIN THE WAR S i x FISCAL YEARS, 1915 TO 1920 INCLUSIVE (In dollars—000,000 omitted) In "CurPer Cent, Expenses Per Cent, In rency" "1913" of of Pre-war Dollars Dollars Total Total Basis Purpose Public Debt Charge . . . 4,870 2.313 32,465 17.577 Military 849 Military Pensions . . . . 349 Other Special War Expenses 4.172 2,173 Civil Government . . . . 2,782 1,537 8.02 6O.Q6 1.21 7*54 5*33 575 2,143 12.26 45-67 1,974 43-07 . . . 45.138 23.949 8,770 4,886 83.06 4,692 16.94 100.00 Total Expenditures . . . . 53.908 28,835 Deduct Expenses Pre-war Basis . 4,692 4,692 100.00 4,692 100.00 Direct Expenditures Loans to Allies GROSS COST OF THE WAR . Deduct Loans from Allies . . . . NET COST OF THE WAR . . Direct Expenditures as above . . Deduct Expenses. Pre-war Basis . Gross Cost of the War. exclusive of Loans 49,216 24,M3 5,403 2,909 43,813 21,234 45.138 4.69a • 40,446 33.949 4.693 19.257 IO] BANKERS TRUST COMPANY GREAT BRITAIN GOVERNMENT EXPENDITURES (In "Currency" dollars—ooo.ooo omitted) Years Ending March 31 1914 191 s 1916 1917 1918 1919 >930 Debt, Interest and Management 619 924 I.3I3 1,615 93 i°5 294 Military . . . . . . . 376 1,677 4,657 6,488 7,96o 8,320 3,362 119 Military' Pensions . . . 484 246 flOther Special Expenses due to the War . . . 199 616 466 M39 770 982 Advances to Allies and Dominions 669 252 1,537 2,650 2,373 1,288 Civil Government . . 346 362 353 759 485 344 479 6TotaI Expenditures . Debt Reduction—Net . Balance in Exchequer . 815 2,595 7.457 10,567 12,994 12,422 7.871 9 62 128 102 46 51 406 125 875 3,001 7,582 10,695 13,096 12,484 7,917 GREAT BRITAIN GOVERNMENT EXPENDITURES (In "1913" dollars—000,000 omitted) Years Ending March 31 Debt, Interest and Management Militarv Military Pensions . . . . uOtherSpecial Expenscsdue to the War Advances to Allies and Dominions Civil Government . . . . 1914 191$ 1916 1917 1918 T9»9 1930 93 100 219 364 435 579 617 3/6 1,582 3,476 3,816 3.755 3.665 1,283 56 108 I84 188 346 238 341 537 339 375 1,147 1.559 1,120 226 202 263 567 255 460 274 214 290 & Total Expenditures . . . 815 2.449 5,565 6,215 6,129 5,472 3,004 cSec comments in text. iOnly the net result of government services is taken into our tables. If these services show a loss, such losses are treated as a deduction from government receipts. See Government Receipts, page 47* INTER-ALLY DEBTS $40,958,000,000 "currency" dollars out of a total net expenditure for the six years of war financing of $53,908,000,000 "currency" basis. This evidences the amount of discretion and the vast responsibility vested in the government, or shall we say, imposed upon the government by parliament. The table on page 23 gives in "currency" dollars and in "1913" dollars in parallel columns the war expenditures and their distribution. Direct expenditures accounted for 83.06 per cent of the total while loans to Allies amounted to 16.94 P e r c e n t * WHAT THE W A R COST FRANCE The direct money cost of the war to the national treasury of France plus loans to Allies was not less than $33,557,000,000 in currency; $11,208,000,000 in " 1 9 1 3 " dollars. For two reasons it is possible that the cost may have been higher. One reason is that the expenditures of independent commissions handling the purchases of supplies for the army and navy, also of commissions entrusted with the duty of regulating the markets for food, apparently have not been brought into the accounts. The other reason is that for the fiscal years 1914 to 1919, inclusive, the French government has published only the figures of appropriations made for the expenses, but has not published any statement of actual expenditures. The appropriations exceed the total published receipts from all sources, including borrowing, by $3,934,000,000 currency dollars. It seems Improbable that the actual expenditure could have been greater than the total receipts, therefore in our statements we have gone on thia assumption and adjusted the appropriation figures by deducting the apparent surplus appropriation from the item of military expenses. BANKERS TRUST COMPANY IO] A s thus adjusted the war expenditures of France were as follows: T H E W A R T I M E E X P E N D I T U R E S OF FRANCE S i x FISCAL YEARS; 1914 TO 1919 INCLUSIVE (In dollars—000,000 omitted) Per Cent J Expenses Per Cent, In "CurIn of rency" of fl Pre-war "1913" Total Dollars Dollars Total j Basis Purpose Public Debt Charge . . . 5,186 23,841 Military 6 Military Pensions . . . . Civil Government . . . . 4,575 Reconstruction 2,152 2,076 10,502 2 1,906 12.79 II 1.498 64.72 1,866 .01 1,656 n-75 3-93 29.84 37-17 Direct Expenditure . . . . 35,760 Loans to Allies 2,817 15,124 93-20 5,020 6.80 100.00 1,104 Total Expenditure . . . . 38,577 Deduct Expenses Pre-war basis . 5,020 16,228 100.00 5,020 100.00 GROSS COST OF THE WAR 33,557 II,208 . . . . 5,397 1,926 Deduct Loans from Allies NET COST OF THE WAR . . . 28,160 Direct Expenditure as above . . Deduct Expenses, Pre-war Basis . Gross Cost of the War, exclusive of Loans 638 32-99 5,020 9,282 35.760 5.020 15.134 5,020 30,740 10,104 Even before the war France had a relatively high debt charge and heavy military expenses. T h e average per capita burden for the interest and management of the public debt of France for the three pre-war years was #6.25 as against $4.87 for Belgium, $3.60 for Austria-Hungary, $2.86 for Italy, $2.09 for Great Britain, and only 87 cents for Germany- INTER-ALLY DEBTS [27 The military burden of the French people pre-war was was $7.77 each, of the British people $7.76, of the German people $5.19 each, and of the Italian people $4.92 each. The people of the United States had a burden of only 23 cents each for the interest charge on their public debt, but they were taxed on the average $4.49 each for their military establishment and pensions to soldiers who participated in former wars and their dependents. The pre-war debt charge of France absorbed 3.42 per cent of her national income, while her military expenses required another 4.26 per cent of her people's earnings. Great Britain's debt charge required only 0.88 per cent of the national income, but her military expenses called for 3.27 per cent of that income. Germany's debt charge before the war was only 0.56 per cent of her national income, but her military expenses absorbed 3.36 per cent of that income. Italy's debt charge burdened her.national income to the extent of 2.64 per cent, while her military expenses required an additional 4.54 per cent. It is evident that France entered the lists heavily handicapped as compared with Germany and much more heavily burdened than either of her greater allies; unless we except Russia whose combined debt charge and military expenses pre-war absorbed 8.38 per cent of her national income, although her combined debt charge and military expenses were only $3.61 per head of her population of 174 million souls. Next to Great Britain the war cost France, per capita, more than any other ally and was a greater drain upon her annual national income. She about tied with Italy as to the cost in proportion to national wealth, say about 20 per cent as compared with 34.50 per cent in the case of Great Britain. IO] BANKERS TRUST COMPANY In addition to her direct cost, France suffered very heavy losses in the destruction of property in the territory where the fighting occurred, also in wear and tear upon her roads and railroads and in many other ways. FRANCE GOVERNMENT EXPENDITURES A (In "Currency" dollars—000,000 omitted) Years Ending December 31 X0i3 ipi4 ipiS 1916 19*7 1918 1919 Debt, Interest and Management Military Reconstruction . . . . Advances to Allies . . . Civil Government . . . 252 263 354 663 958 1,388 1,561 350 1.330 3,203 5,085 6,156 7.984 4 022 95 1,854 I 66 133 3 394 1,068 174 676 487 19 906 1,646 289 298 447 5*8 760 fcTotal Expenditures . . 891 1,911 4.181 7,008 8,494 10,767 10,151 FRANCE GOVERNMENT EXPENDITURES a (In "1913" dollars—000,000 omitted) Years Ending December 31 Debt, Interest and Management Military . ^ Reconstruction Advances to Allies . . . . Civil Government . . . . dTotal Expenditures . . . 1913 1914 1915 1916 19*7 1918 1919 257 253 353 366 410 438 1,305 2,288 2,705 2.349 2,355 1,130 5» 2 28 521 1 35 35o 19 124 359 186 116 300 291 319 276 290 267 462 289 891 1.873 2,986 3,728 3,242 3,176 2,851 252 0These figures arc the appropriations made for each year and not the actual expenditures. In our summary tables, as explained in the text on page 35. we have adjusted these figures to balance with the total receipts from all sources. fcThat is expenditures exclusive of those for public services. If these show a toss they are treated as a deduction from income. See Government Reccipu, page so. THE INTER-ALLY DEBTS [ 29 ITALY'S WAR EXPENSES T h e war cost Italy in " c u r r e n c y " dollars $18,632,000,000. This amount, adjusted for inflation, comes down to $4,489,000,000 in " 1 9 1 3 " dollars. The distribution of the expenses was as follows: WHAT T H E WAR COST ITALY FISCAL YEARS 1915-1920 INCLUSIVE (In dollars—000,000 omitted) Per Cent, | Expense Per Cent, In In "Curof Pre-war "1913" rency" of Total [ Basis Dollars Dollars Total Purpose Public Debt Charge . . . 2,378 Military 15,349 Military Pensions . . . . 436 a Other Special War Expenses Civil Government . . . . 3,213 Liberated Territories . . . 198 777 5,407 116 IO.46 72.76 1.56 1,083 48 ' ' 14-57 65 Total Expenditures . . . . 21,574 Deduct Expenses Pre-war Basis . 2,942 7,431 GROSS COST OF THE WAR Deduct Loans from Allies a . 18,632 4,489 3,9 11 1,278 14,721 3,2 H . . 618 21.01 3&-10 1,262 42.89 100.00 2,942 100.00 2,942 . . . . NET COST OF TOE WAR 1,062 a See text. The effect of price inflation in swelling the apparent cost of the war is noticeable here as elsewhere. Expenses Not Included in Table In a report on the finances of Italy made to the League of Nations under date of April 30, 1922, Professor Riccardo Bachi, the distinguished Italian economist, states that, " F o r certain administrative and techical budgetary reasons, the IO] BANKERS TRUST COMPANY figures for actual expenditure prior to 192021 do not comprise the total amounts expended in those years, as certain large items did not appear in the budget—for example, important items such as food subsidies, fuel and maritime transport." ITALY GOVERNMENT EXPENDITURES (In "Currency" dollars—000,000 omitted) Years Ending June 30 t9M *9IS Public Debt—Interest . . Military Military* Pensions . . . . izOther Special Expenses due to the War . . . . Civil Government . . . . Liberated Territories . . . 6Total Expenditures . . . 1916 1917 tptft 19*9 1930 102 1/7 176 280 424 593 791 "4 622 1,595 2,825 3,984 4,669 1,654 93 343 211 269 246 257 33<*> 478 1,627 94 103 49c 1,005 2,017 3,362 4,837 6,186 4,166 ITALY GOVERNMENT EXPENDITURES (In " i Q i y dollars—000,000 omitted) Years Ending June 30 19*4 1915 Public Debt—Interest . . . I02 Military 177 Military Pensions aOther Special Expenses due to the War Civil Government 211 Liberated Territories . . . . fcTotal Expenditures . . . . 490 106 576 1916 103 932 1917 101S 19*9 1930 120 116 157 176 1,207 1,088 1,235 368 25 9* 92 126 361 27 21 93 1 1,179 I,437 *,32I 1,636 926 249 144 no a During the war there were very large expense® of special commissions operating trading accounts, especially in wheat and other food stuffs. Such supplies were sold to the public much below cost. However, as the figures have not beta published, they cannot be included in the table. frExclusive of expenditures for government services which are taken net. If they show a loss, such loss is treated as a deduction from income. See Government Receipts, page 54. THE INTER-ALLY DEBTS[40 RUSSIA'S WAR EXPENDITURES The end of the war so far as Russia was concerned, came on October 8, 1917. Then it was that the provisional government, the legal successor of the Russian Imperial Government, fell, and with it disappeared the juridical party engaged in the war. Three years and three months of war had cost Russia, according to the careful estimates made by Doctor Boris EliachefF, the best authority on this subject, $19,954,000,000, currency values, or say $7,658,000,000 in " 1 9 1 3 " dollars. These expenses were pro-rated as follows: T H E W A R T I M E E X P E N D I T U R E S OF RUSSIA FISCAL YEARS 1914 TO SEPTEMBER 15, 1917 (In dollars—000,000 omitted) In "CurIn Per Cent, Expense Per Cent, rency" of Pre-war of "1913" Dollars Dollars Total Basis Total Purpose Public Debt Charge . . . 2,432 Military 15,55* Civil Government . . . . 7,582 1,515 6,381 5,373 II. 17 799 47.06 1,504 39-62 3,600 13-53 25-48 60.99 13,269 292 97-85 5,903 2.15 100.00 Total Expenditures . . . . 25,857 *3,56i 100.00 5.903 Deduct Expenses Pre-war Basis . 5,903 5,903 100.00 Direct Expenditures Loans to Allies . . . 25,565 GROSS COST OF THE WAR 292 . Deduct Loans from Allies . . . . NET COST OF THE WAR . . 19,954 7,658 3,625 2,289 16,329 5,369 Before the war the debt service required 13.7 per cent, of the total expenditure, 25.8 per cent, went to meet the expense IO] BANKERS TRUST COMPANY of national defense, and the civil expenses accounted for the remainder of the budget, about one-half being required for the conduct of the state monopolies. T h e cost of the war, in currency dollars, may be apportioned as follows: say $14,000,000,000 to increased expenses of the army and navy, about $1,600,000,000 paid to the families of soldiers, and $430,000,000 given to refugees. About $1,000,000,000 were expended on the railways, of which amount around $180,000,000 went for new construction and RUSSIA GOVERNMENT EXPENDITURES (In "Currency" dollars—000,000 omitted) Years Ending December 31 1914 1915 1916 Public Debt—Interest . . . . Military Civil Government Loans to Allies (Gold to Great Britain) 226 891 M43 499 3,876 1,357 6,020 2,271 Total Expenditures. 2,260 . . . . . 5,732 653 1017 (8M mos.) 1,054 4,764 2,812 195 97 9,139 8,727 RUSSIA GOVERNMENT EXPENDITURES (In "1913" dollars—000,000 omitted) Years Ending Deccmtx-r 31 Public Debt—Interest Military Civil Government Total Expenditures . . . . 1914 1915 226 891 406 2,185 435 1,143 1,231 2,509 1,626 2,260 3,822 4,570 For the receipt* for these yean see tables on page 56. 1916 tpI7 v (8 H mos.) 448 I,o88 1,373 2,909 THE INTER-ALLY DEBTS [ 33 around $300,000,000 for new rolling stock. Nearly $100,000,000 were expended in the improvement of rivers and harbors, while the sum of over $50,000,000 was expended in improving the postal and telegraph systems. The interest on the public debt amounted for the war period to $1,633,000,000 more than on the pre-war basis, and gold lent to Great Britain to aid in keeping the American exchanges stable called for an outlay of $292,000,000. It should be kept in mind by the reader that all of these Russian figures are estimates made by competent investigators who had open to their observation many sources of information now closed and possibly destroyed. While the figures are not taken from audited accounts, it is believed that they closely reflect the true state of affairs. WAR BURDEN OF THE U N I T E D STATES From the beginning of hostilities, the United States was the leading source of supply for many raw materials required by the combatants. Large supplies of manufactured goods also were obtained by them in our country. While our markets were open to all nations alike, it is probable that the bulk of these munitions of war went to the Allies, for the blockade of North Sea ports made it difficult for Germany to obtain goods from abroad even through the channel of the neutral Dutch and Scandinavia states. After our entry into the conflict, all of our vast material, as well as human resources, were of course used to win the war for the Allied cause. From the facts given in the closing paragraphs of the preceding chapter, some idea may be formed of what our co-operation meant to our associates in terms of goods and services. IO] BANKERS TRUST COMPANY Let us now observe what our effort meant when expressed in terms of money. The figures are as follows: W A R T I M E EXPENDITURES OF T H E U N I T E D STATES FISCAL YEARS 1 9 1 6 - 1 7 TO 1919-20 INCLUSIVE (In dollars—000,000 omitted) j! In In "Cur. Per Cent. Expense PerofCent, rency" "1913" of || Pre-war Total Dollars Dollars Total j. Basis Purpose Public Debt Charge . Military Military Pensions . . Special Expenses due to War Civil Government . . 88l 1,863 20,944 10,133 . . I,o62 546 the 458 927 . . 6,189 3,056 . . Dircct Expenditure . . . . 30,935 15,074 Loans to Allies . . . . 9,523 5,041 4-38 \ 92 50.38$ 1,060 2.71 1 708 3.21 37-01 24.72 2.28 1 4 1S.I9 | 1,000 0.14 34-92 74.94 j 2,864 IOO.OO Total Expenditure . . . . 40,508 20,115 IOO.OO | 2,864 Deduct Expenses, Pre-war Basis . 2,864 2,778 COST OF THE WAR . . . . 37,644 Direct Expenditure as above . . 30,085 Deduct Expenses, Pre-war Basis . 3.864 Coat of the War, exclusive of Loans a8,iai uAverage of the years 1915 to 1916 x 4. IOO.OO 17,337 15.074 3.778 12,396 T h e decrease in the purchasing power of the dollar is noticeable and yet, nominally at least, our currency was on a gold basis. W h a t effect the liberal use of bank credits in financing the war might have had upon our price conditions, and therefore in swelling the nominal cost of the war, had the fighting continued a year or two longer, is an interesting speculation. T H E I N T E R - A L L Y DEBTS [ 35 UNITED STATES GOVERNMENT EXPENDITURES (In "Currency" dollars—000,000 omitted) Years Ending June 30 1914 Public Debt—Interest and Management . . 23 Military 256 Military Pensions . . . 184 Other Special Expenses due to the War . . . Civil Government . . . "238 Direct Expenses Loans to Allies 191s 1916 1918 191? 1919 1920 23 260 176 23 279 198 616 1,024 25 660 7,026 ",239 2,019 235 171 324 332 3 266 171 16 191 469 251 3 " 1,382 2,213 2,283 . . . . . . . . 701 728 720 1,183 9.032 14,861 5,909 247 885 4,739 3,478 421 aTotal Expenditures . . Balance in Treasury . . 701 162 728 104 720 2,068 13,771 18,339 6,330 179 967 £624 1,226 360 863 832 899 3.035 14,395 19,565 6,690 oGovernment services taken net; losses, if any, show as a deduction from income. See Government Receipts, page 61. 60n account of change in method of accounting, the amount of cash brought forward on July 1, 1919 was $1,685 million or 5t,o6i million in excess of the amount shown here as carried forward. UNITED STATES GOVERNMENT EXPENDITURES (In "1913" dollars—000,000 omitted) Years Ending June 30 1914 Public Debt—Interest and Management 23 Military 256 Military Pensions . . . . 184 Other Special Expenses due to the War Civil Government . . . . "238 Direct Expenses Loans to Allies oTotal Expenditures . . . 19 ts 23 260 176 1916 21 1917 16 1918 106 1919 308 45I 234 III 5,620 162 254 155 434 3,190 126 "3 266 224 204 701 728 654 778 4,263 7,431 582 2,534 1,739 701 728 3 654 11 102 739 1920 889 146 1,107 1,006 2,603 185 1,360 6,797 9,170 2,788 oGovernment services taken net; losses, if any, ihow as a deduction from income. See Government Receipts, page 61. BANKERS TRUST COMPANY IO] GERMANY'S WAR EXPENDITURES The war cost Germany $47,048,000,000 currency dollars; $19,895,000,000 " 1 9 1 3 " dollars. For the six years of war financing the purchasing power of the German government's mark averaged 42.28 per cent, of its pre-war value. This compares with 42.96 per cent, for the British government's pound and 33.40 per cent, for the French government's franc. Italy's lira, as used in government purchases, bought on the average only 24.09 per cent, as much as it would have bought in 1913, while the average buying power of our dollar as used in meeting government expenses was 47.39 of its purchasing power in 1913. In considering war time financing, it is well to bear these percentages in mind. The debacle of the mark is absolutely a post-armistice phenomenon. It was not until the last part of the last fiscal year of the period of war financing that the purchasing power of the mark was seriously reduced. Prices in July, 1919, were lower in Germany than they were in France or Italy. In October they were much higher than in any of the Allied countries, although their prices were all rising. By April of 1920, when prices reached their maximum in these countries; 664 for Italy, 588 for France, 313 for Great Britain, and 265 for the United States; Germany's prices had jumped to 1,567, about five times what they were in April, 1919. However, the average of prices for the fiscal year 1919-20 was only 736. The war time expenditures of Germany are shown by the following table. For purpose of comparison we have added a column giving the pre-war expenses. It will be noted that in " 1 9 1 3 " dollars the direct war expenditures were nearly seven times the pre-war rate of expenditure. THE INTER-ALLY DEBTS [ 37 GERMANY'S WAR TIME EXPENDITURES FISCAL YEARS 1914-15 TO 1919-20 INCLUSIVE (In dollars—000,000 omitted) Purpose In In "CurPer Cent.! Expense Per Cent, of | Pre-war rency" of "1913" Total | Basis Dollars Dollars Total a Public Debt Charge . . . 6,213 Military 31,412 Military Pensions . . . . 540 Other Special War Expenses 4.500 Civil Government . . . . 5.618 Direct Expenditures Loans to Allies 2,512 16,248 139 1,482 1,506 . . . 48,283 21,887 2,04/ 1,290 Total Expenditures . . . . 50,330 23.177 Deduct Expenses, Pre-war Basis . 3*282 3.282 COST OF THE WAR . . . 47,048 JO-84 J 354 TO.10 1 2,118 .60 I TF-JP O.5O J 8IO 10.79 ^4-53 24.68 94-43 S 3,282 100.00 5.57 | 100.00 j 3,282 100.00 19,895 Direct Expenditures . . . . . . 48,283 31,887 UtdHtl Expenses. Pre-war basis . 3.382 3.38a Gross Cost of the War, exclusive of Loans 45,001 18,605 olndudes some payments for amortization. T h e growth in the debt charge was progressive but, stated in " c u r r e n c y " dollars, was especially great in the second half of the war. However, the purchasing power of these payments when received by the bondholders fell off very badly in the last year of the period under review. T h e military expenses do not require special comment. Germany loaned to her allies over $2,000,000,000 currency values; $1,290,000,000 in " 1 9 1 3 " values. T h e other special expenses due to the war, in the case of Germany, were chiefly for the loss incurred in providing foodstuffs for the consumption of the people at prices below cost to the government. IO] B A N K E R S T R U S T COMPANY GERMANY GOVERNMENT EXPENDITURES (In "Currency" dollars—ooo.ooo omitted) Years Ending March 31 aPublic Debt—Interest and Management . . ^Military Military Pensions . . . Other Special Expenses due to the War . . . Civil Government . . cfTotal Expenditures. . 1916 tgts 1914 n o 320 58 440 1,802 5.585 29 25 164 622 1,552 9,000 5,599 24 23 I9»9 1920 I,6ll 1,998 4,286 408 7.187 31 282 1,028 86 785 116 84 147 1918 1917 864 2,210 795 3.721 662 2,088 6,130 6,613 12,388 10,488 12,623 GERMANY GOVERNMENT EXPENDITURES (In "1913" dollars—000,000 omitted) Years Ending March 31 aPublic Debt—Interest and Management ^Military . Military Pensions . . . . Other Special Expenses due to the War Civil Government . . . . rfTotal Expenditures . . . 1914 58 440 164 1915 96 1,569 25 128 662 1,818 1916 1917 1918 19*9 221 3,860 1930 406 826 692 3,652 4,790 3,084 16 12 13 17 271 80 184 300 58 56 547 418 371 341 56 505 4,236 4,314 6,593 4,501 1,7*4 a Include some payments for amortisation. ^Assumed to include loans made to her allies which totaled for period of the war $1,290 million. cAssumed to include loans made to her allies which totaled for the period of the war, $2,047 million. rf Government receipts taken net, losses, if any, show as a deduction from Income* See Government Receipts, page 70. Civil expenditures did not develop any unusual features until the fiscal year 1919-20 when the first effect was felt of the change in governmental methods due to the transfer by the state governments to the imperial government of certain THE INTER-ALLY DEBTS [ 39 functions formerly exercised by the states. Under the old regime the states reserved to themselves the privilege of levying direct taxes, contributing each year a small amount to the imperial treasury. The states also operated the railways within their borders as state monopolies. After the republican form of government was adopted, but under the old term of Reich, that is Empire, the states were divested, in favor of the imperial government, of many of their former sources of revenue. In taking these over, the imperial government also became liable for the cost of collecting the taxes. This change also involved the provision of office accommodations and fittings. Heavy expenditures were made in this year for the newly created Ministiy of Labor, while the progress of post-war inflation made necessary provision for advances in salaries of government employees and in payments to pensioners to offset the high cost of living. Thus started the effort to match incomes paid in paper money of increasing volume and decreasing purchasing power with increasing living costs which has been a predominant phase of German government finances ever since. Expenses due to fulfilling the peace treaty appear in the accounts for the first time in the fiscal year 1919-20. CHAPTER IV How the War Was Paid For A R seems to be almost as inevitable as death. Yet when it comes, like death, it comes as a surprise. The nations engaged never really are ready for the conflict, in particular they are never financially ready. Therefore some quick method must be used to mobolize the financial resources and through them the industries upon the immediate and proper functioning of which the success of the conflict frequently depends. . Armies must be fed and clothed, the dependents of the soldiers likewise must be provided for. Industrial establishments must convert their plants from making articles used in times of peace to manufacturing munitions of war. If the war is across seas, shipping must be requisitioned and converted as carriers of troops and supplies. In short, over night, the whole nation must turn from its accustomed methods of living to others calculated " t o win the war." In such circumstances it is almost compulsory, in the first instance, at any rate, that resort be had to some form of borrowing. Later on, when there is time to make or to develop financial plans, steps can be taken to lay on heavier taxes. When this time arrives the nation which has an established taxing system capable of quick expansion has a great advantage over a nation which, in order to meet the emergency, must install new methods of taxation. Financial Methods Used On the "1913" dollar basis the total receipts for the period of war financing were derived 31.23 per cent from revenue 40] THE INTER-ALLY DEBTS [ 50 in its various forms and 68.77 per cent from borrowing. However, if we deduct from the revenue receipts, an amount equivalent to that which was being raised before the war, we find that, as shown by Statistical Table X , the receipts to meet the increased, or war, expenditures were derived 96.8 per cent from borrowing and only 3.2 per cent from increased revenue receipts. Treasury Bills: The method of procedure simultaneously evolved in all the countries engaged in the Great War first was to print interest bearing treasury bills maturing within a year of the date of issue. Sometimes they matured in thirty days, again in sixty or ninety days, six,nine or twelve months. By the continental countries these treasury bills were offered for discount to their respective state banks, which banks in turn handed over to the national treasuries their own noninterest bearing circulating notes, that is to say what we popularly call bank notes—money. Thus the banks took interestbearing paper for non-interest bearing paper which latter paper their respective national treasuries passed out to soldiers and civil servants for their pay, to contractors for supplies and to creditors of all kinds in payment of debts due to them. In England the procedure was different but the result was substantially the same. There the currency notes were issued by the Bank of England as agent for the national treasury against the direct deposit in trust of treasury bills and other collateral securities. In Italy there is no national bank, but the three leading banks of issue accepted treasury bills from the government, to which they issued their currency notes. The government also made a direct issue of paper money. In the United States the banks bought treasury bills, or as we call them "certificates of indebtedness/' jThese they IO] BANKERS TRUST COMPANY had discounted by the federal reserve banks, obtaining their circulating notes or an open credit as they preferred. In addition to this method of liquifying their resources for war exigencies, the various governments also offered their treasury bills directly to the public. These bills not only proved to be a popular form of investment for the banks and other financial institutions, but they also werelargely purchased by individuals. This was especially true in France where, under the name of "national defense bills," they obtained a great vogue—a popularity in fact which they still enjoy. Permanent Loans: The next step in war financing was to keep the market from becoming congested with this short term paper by funding such paper at intervals into bonds having a term of years to run before maturity. Therefore, again with substantial unanimity, the nations about once a year offered for sale great funding loans, agreeing to accept in payment the short treasury bills. However, the long loans were not wholly paid for in short government paper but also yielded in each case a substantial sum in cash. Taxation: No governments except those of Great Britain and the United States, had the courage to ask their nationals to pay markedly heavier taxes. It was comparatively easy for Great Britain to increase the incidence of the income tax and in this way to swell her income. The continental nations, except Italy, did not have this flexible tax. In France a general income tax was adopted by Parliament in 1914, but it was practically impossible to inaugurate it under the early war conditions, so that the national treasury derived but little benefit from its imposition until late in the war period. When the United States came into the war in 1917, congress immediately increased the rates for the recently inau THE YEAR BY YEAR RECEIPTS FOR WAR (In "1913" dollars—000,000 omitted) BORROWING Deduct InReceipts Pre- creased War Basis Receipts or % NaReceipts C c* % % e % Per tional Per for War Amt. Re- Amt. Re- Amt. Re- Amt. ReAmt. Re- Amt. Capita InAmt. Capita ceipts Amount ceipts ceipts ceipts ceipts come £NUE First Year oAllles . . . . Central Powers Ml Belligerents Second Year oAllies Central Powers All Belligerents Third Year Allies Central Powers All Belligerents Fourth Year aAliics Central Powers All Belligerents Fifth Year a Allies Central Powers All Belligerents Sixth Year aAllies Central Powers All Belligerents . . . 6,175 . . 5,131 , . 4,585 1,590 4,021 1,110 4,761 1,271 6,032 Home Foreign Market 28.00 13.047 56.65 4 1 1 . 2,216 24.83 6.SS0 73.73 69 . 8 , 8 7 1 27.76 480 19.627 61.42 . . 6,170 1,504 7,674 7,658 547 8,205 Total Borrowing 48,20 4.354 4$.76162 1,7e> 4,929 J7oj 2,418 36.33 69 i.6t 42 *1 35 4-34 S.ot 2 , 7 0 2 331 44-73 6 . 7 7 3 40-03 1.67 628 4-557 , 6 3 1 1,627 10.40 1 1 , 4 8 1 23*04 9.383 60.33 471 3-04 13-77S.471 77-73 78 1,11 3 7 9 3.3Q 5 , 9 2 8 22.76 14.854 63.90 5 4 9 2.44 8.90 17,409 3,006 24.60 11,102 37.35 1,302 6.21 3,393 11.84 14,596 76.56 6Q 17.545.549 O.qs 3 5 9 4.05 5,977 22.67 1 6 , 6 5 1 62.50 O.96 20,573 4.78 1.271 2,6S I 6,655 . . From Allies 1.78 3.919 1.50 2,979 o.77 60 12.67 0.6 7 16,377 6,709 9.32 23,086 Total sr.So 9 , 5 1 4 21.73 23.74 5.245 62.95 4,292 2Q.Si 26.33 1.870 13,806 35-27 23.70 24-517 . U 5 74.06 1 5 , 5 0 2 35-57 30.10 5.245 84.23 7.038 4X.87 43-181,870 22,540 77-24 3S.93 40.37 7,II5 19,357 75.40 39.63 43-90 6.045 82.46 7 , 2 4 8 50.33 44-46 1.870 26,605 42.31 44-13 77-33 7,915 71.10 23,032 S.636 41.7530.34 75.178,925 61.98 34-751,870 72.24 31,957 46.03 34767,506 o.n 2,170 10.38 1 4 , 7 2 6 70.47 20,896 20-53 1 3 . 5 3 3 S0.9S33 j.08 65 l.OI4 , 9 1 4 76.57 23.43 4 . 7 8 0 74.4869 6,418 1 7 . 3 1 3 63.3892 0.34 2,335 8.18 19,640 71.90 2 7 , 3 1 4 65.16 3 . 6 5 9 3I.I3-64 — -344 9 9 4.25 4,094 34.84 11,752 28.1s 1.299 66,866 9 3-55 28 1.441 , 3 9 6 71.85 1,943 5 0.04 527 3.83 5,490 40.09 1 3 , 6 9 5 59-914.958 36.20 28.10 RECEIPTS 56 Jo 44.57 53.32 31.32 20.67 29.28 31.04 4.491 30.371,906 32.68 6,397 17.224.474 16.47 788 17.115.362 11.60 12.00 4,269 2,422 11.95 6,691 11.441 0 , 2 5 7 12.905 , 1 6 8 II.83 15,425 13331 3 , 3 1 2 12.095 , 3 7 8 13.0718,690 9.82 17,396 10.40 24,451 11.38 13.24 11.91 20,917 12.007 , 0 5 5 n.33 8.38 10.72 16,405 4,512 7,278 1,155 8,433 oln figuring percentages and per capitas, Indian statistics eliminated, as the large population of India would give a misleading result t i n figuring percentages and per capitas United States statistics eliminated in this year, as they only cover a period of three months. cThe pre-war receipts were almost wholly from revenue. IO] BANKERS TRUST COMPANY gurated income tax. Other direct and indirect taxes also were imposed, so that the pressure of war costs was immediately felt by the people, many of whom for the first time were called upon directly to pay taxes to the federal government. The table printed on page 43 shows the year by year financing of the war by each group of belligerents, while the Statistical Tables give similar statistics for the entire period of war financing for each of the active belligerents. CHAPTER V The Revenue Receipts of Each Power 1914-1920 T T may now be of interest briefly to review the sources of the revenue receipts of the chief powers during the war period. Let us see first of all how the nations composing the British Empire raised their revenues. We will begin with the Mother Country. GREAT BRITAIN'S T A X - P A Y I N G RECORD Early in the war period those charged with the management of England's government finances decided to adopt for their guidance the principle that the revenue receipts at least should provide for the ordinary peace budget, also for the interest upon the debt and for an annual sum to be applied to its reduction. This ideal was fully realized and in addition there was a good surplus of revenue receipts for use toward meeting the military and other special war expenses. As we have remarked in another connection, "the provision of a sinking fund, while the debt wras a growing one, may be criticised as chimerical, but doubtless it served a useful purpose as a fund to regulate the market for the war bonds; also the fact that, at the time of incurring the debt, provision was made for its ultimate payment, probably had a real value m establishing confidence in the obligations of the nation." The main dependence of the English exchequer for revenue during the war was the income tax and its running mate, the "excess profits" tax. These two taxes yielded 57.22 per cent, of the total revenue receipts. The income tax demon- Us IO] BANKERS TRUST COMPANY strated its flexibility and its quality by the quick manner in which it responded to the needs of the hour. The machinery of collection was functioning and therefore an increase in rates was almost immediately reflected in larger receipts. Not only were the rates of taxation increased, but at the same time the exemptions were lowered. The war profits tax, or as it was technically called "excess profits duty,"was the principal new tax imposed. It was contended by the government, and in this contention they were upheld by a growing body of public opinion, that unusually large profits due to scarcity conditions created by government demand for munitions of war, and other unusual profits brought about by war conditions, should to a great degree be turned over to the government to assist it in meeting the war bills. This tax, originally placed in 1915 at 50 per cent, was increased in 1916 to 60 per cent and in 1917 to 80 per cent. It stood at this point until 1919 when it was reduced for a short time to 40 per cent. It was raised again in 1920 to 60 per cent, and finally removed in 1921. This tax has been characterized as "well intentioned" but unsound. Notwithstanding the fact that it produced about 25 per cent of the total war revenue, it is claimed that the tax brought many evils in its trail. It is said to have been passed on to the consumer and so to have become an indirect tax on commodities. It is said to have led to demands for increased wages and salaries, to have aided in inflation of credit and currency and to have materially increased the cost of necessary war materials. As an illustration of the spirit which pervaded Great Britain at about the time this tax was first laid and the income and other taxes were increased, it may be of interest to call to mind that increases of taxation were demanded of the government by the people themselves—at least one deputa THE INTER-ALLY DEBTS [ 47 GREAT BRITAIN GOVERNMENT RECEIPTS (In "Currency" dollars—000,000 omitted) 1918 »9U 1915 1916 Yearn Ended March 31 Exchequer Balance Tax Revenue Customs . . . Excise . . . . Estate Duties . . . Property and Income Excess Profits . Other ^ Total Tax . . Post Office . . . . Sundry 31 51 406 173 193 133 230 188 206 138 338 65 51 290 298 151 624 1 48 129 344 274 347 152 997 681 53 189 154 1,165 1,072 56 921 1,412 2,501 2,983 17 47 35 37 62 286 123 38 794 30 21 Total Revenue . Borrowing—Net . . 124 976 1,509 2,661 3.316 5.667 7 , 9 1 0 9,652 845 1.975 Total Net Receipts Total Resources . 845 2.951 7,176 10,571 12,968 876 3,002 7.582 10,695 13,097 GREAT BRITAIN GOVERNMENT RECEIPTS (In "1913" dollars—000,000 omitted) 1914 191 s 1916 1917 1918 Years Ended March 31 Tax Revenue Customs Excisc . . . Estate Duties Property and Income Excess Profits Other. . . . . Total Tax 0 Post Office . . . Sundry . 230 . . 178 194 130 3R9 65 48 794 30 869 16 21 Total Revenue. . . . Borrowing—Net __ Total Net Receipts 173 193 133 36 217 202 222 162 89 112 466 587 1 400 35 32 1919 164 89 220 127 72 550 505 27 624 611 65 34 1920 277 24» 76 667 539 48 1,053 1,472 1,407 1,681 1,855 22 29 -7 22 26 72 135 139 550 47 «45 921 1,126 1,566 1,863 4,291 4,885 845 2,784 1.564 1,849 2,398 601 4.769 3,649 5,417 6,451 6,333 5,498 2,999 BANKERS TRUST COMPANY IO] tion of business men, and probably others, waited upon the prime minister and the chancellor of the exchequer and demanded "an immediate increase in taxation/' The tables printed on page 47 give in detail in "currency" dollars and in " 1913 " dollars the revenue collections of Great Britain for each year of the war. It may be well to note here that in the case of Great Britain, as well as of all other nations, the receipts from government services and from government monopolies are net figures, that is, receipts less expenses of conducting the services or monopolies. If, unfortunately, these government business operations resulted in losses, instead of profits, the losses are treated as a deduction from income. This is done because in this book we are endeavoring to show the costs of government and the resources from which these costs are met. A loss on a government business can hardly be considered an expense of governing a country, therefore it becomes a direct charge on the taxpayers and adds the amount of this business loss to the taxpayer's burden of providing the funds for conducting the government. If, fortunately, the government monopoly or service results in a profit, the burden of the taxpayer is correspondingly lightened, although less efficient service than would come from private operation of the monopoly may indirectly prove disadvantageous to the taxpayer. REVENUE COLLECTIONS IN FRANCE T h e war period brought about some radical changes in the methods of taxation in use in France. Just before the war, there was put upon the statute books the first general income tax law ever passed by parliament. This happened in July of 1914. The breaking out of the war THE INTER-ALLY DEBTS [ 49 before the machinery for the operation of the law could be properly devised and set in motion deferred the time of its effective application. It was not until the post-war period that it yielded any worth while return. Besides this general income tax, there were in use not less than three other forms of taxing incomes. The old direct taxes on real estate were converted into taxes on the income from real estate. The old taxes on doors and windows, trades and professions were succeeded by taxes on the income from industrial, commercial and agricultural profits and the income from salaries, wages, pensions, annuities and professional activities. The old tax upon transferable securities was made a straight tax upon the income from such securities. The war profits tax, now repealed, yielded relatively large returns. Another new tax was the "special tax on payments" which was first enforced in 1918 and in 1920 was superseded by the tax on "business turnover." These were the principal new taxes which the war brought into being. For the rest of the added income from taxation recourse was had to increasing the ratesof taxation under certain of the old forms of imposts with which the people were familiar, namely, the registration and stamp taxes, customs duties, excise and consumption taxes. These were supplemented by the profits from the state monopolies, the chief of which are tobacco and matches. The post office, telephone and telegraph are also state monopolies. The foregoing facts in regard to the revenue receipts for the war period have been deduced from the table in "currency" dollars printed at the end of this section. It will be noted that, actually and proportionately, revenue receipts IO] BANKERS TRUST COMPANY gained in importance, while the receipts from borrowing diminished. When we consider the purchasing power of the war time revenue receipts of France, the story is a different one. The increase in prices more than overcame the increase in revenue so that, as shown by the table in " 1 9 1 3 " dollars, all classes of revenue receipts when calculated on this basis diminished, with the exception only of the tax on stocks and bonds and the new tax on payments. The detailed figures follow, statistics for the last pre-war year being given for comparative purposes. FRANCE GOVERNMENT RECEIPTS (In "Currency" dollars—00,000 omitted) Y e a r s E n d e d D e c e m b e r 31 1913 1914 Tax Receipts Customs 146 112 Excise 176 M 7 Succession . . . . . . 161 118 Income and Profits . . a 122 ai 18 Other . ; 69 75 Total Tax . . . . . Government Services and Monopolies—Net Post Office—Tel. & Tel. Monopolies. . . . . . Total Services and Monopolies—Net . . . . Miscellaneous 680 Total Revenue . . . . Borrowing—Net . . . . 860 Total Receipts . . . . 564 191 s 1916 147 141 90 106 1917 138 292 196 101 139 270 58 106 66 542 681 1918 229 219 178 246 181 81 113 889 985 285 416 362 336 170 1,569 - J J * 21 92 " 3 67 4 87 91 64 719 -8 84 76 91 709 -13 94 80 88 -45 90 89 102 57 102 141 5 350 849 1,068 1,144 1 , 9 2 4 6,600 7 , 5 0 3 8,782 1,081 3.634 4,562 896 i,8oo 4,343 5,411 36 103 7,668 8,647 10,706 cOld direct taxes—changed to tax on Income after January I, 1915. 1919 INTER-ALLY DEBTS FRANCE GOVERNMENT RECEIPTS (In "1913" Y e a r * E n d e d D e c e m b e r 31 Tax Receipts Customs Excise Succession Income and Profits Other . . Total Tax . . . . . Government Services and Monopolies—Net Post Office—Tel. & Tel. Monopolies Total Services and Monopolies—Net . . . . . . Miscellaneous Total Revenue Borrowing—Net . . . . Total Receipts . . . . dollars—00,000 omitted) 1914 1916 1917 144 in 1913 1915 146 no 176 144 105 101 161 1x6 64 75 67 75 42 680 553 387 4 -6 GI22 ail6 21 92 86 113 67 63 860 36 90 706 1,061 73 54 56 -35 362 60 50 54 42 65 47 68 65 53 72 33 75 53 69 31 339 291 1919 80 117 102 94 48 441 - 5 -13 -38 40 30 39 17 30 34 34 506 451 4 0 7 2,596 2,427 2,519 896 1,767 3»I02| 2 , 8 7 8 X91S 2,926 338 2 98 541 2,213 2,467 2,551 3,008 «01d dircct taxes—changed to tax on Income after January I, 19*5. THE WAR REVENUES OF ITALY Although Italy did not definitely become an active participant in the war until M a y , 1915, the preceding months had been a time of preparation for war, so that we have included the fiscal year ended June 30, 1915, as a war year for Italy so far as her finances were concerned. A s early as November, 1914, war financing was being actively discussed in Italian governmental circles and Finance Minister Rubini then resigned his portfolio because he was op- IO] BANKERS TRUST COMPANY posed to his colleagues' policy of meeting the expenses for military preparations by loans instead of by taxation. Although the revenue receipts in currency for the fiscal year ended June 30, 1915, were identical with those for the previous fiscal year, this result was made possible only by an increase in miscellaneous revenues, including improved net returns from the state monopolies and services. Tax revenues declined about eight per cent. However in October, 1915, a decree was issued creating new taxes and increasing other taxes for the duration of the war. From 1916 on, tax collections steadily increased. For the first three years of the war period they exceeded the pre-war collections by about 25 per cent., for the second three years by over 170 per cent. The principal gains were in receipts from the income and excess profits taxes. Professor Riccardo Bachi, the distinguished Italian economist, in a formal paper on Italy's war financing prepared for the League of Nations, says that "during the war and the period immediately following the policy adopted in respect of increased taxation was necessarily somewhat confused and hasty, and often resulted in rough and ready measures intended solely to obtain more money, irrespective of whether the nature of the tax itself were reasonable and the incidence equitable. An increase of revenue had to be obtained with the least possible delay, and a well considered and rational transformation of the system of taxation was not possible." Professor Bachi explains that for various reasons it was not found to be possible until quite recently "to work out a scheme for a more reasoned and general reform of taxation." Italy for years monopolized for the benefit of the government the manufacture and sale of tobacco and of salt. In 1916-17 she added a monopoly of matches and in 1917-18 of INTER-ALLY DEBTS [S3 playing cards. The yield from these monopolized commodities was remarkable. This was especially true of tobacco, the sale price of which was raised several times. The success of these so-called "industrial monopolies" led to the active discussion of a scheme whereby the government was to take over the trade in certain commodities in common use, such as coal, coffee, mineral oils, and the like. However, this program was strongly opposed in commercial and industrial circles, with the result that the only "commercial monopolies" arranged for were for the sale of coffee and its substitutes and of electric lamps. These commodities did not figure in the accounts until the last year of the period of war financing. Subsequently they were superseded by taxes on consumption and manufacture. Italy also maintains a state lottery from which a considerable revenue is derived. The Italian government owns and operates the railways the telegraph and telephone systems, and of course conducts the postal service of the kingdom. These government services yielded little net profit at any time during the war period and in the later years were distinctly unprofitable. There are other apparent sources of income shown in the Italian financial statements which run into large figures. In pre-war statements they formed a negligible percentage of the revenues, but in each war year they figured more heavily, and for the second three years almost equalled the receipts from taxation. These would appear to be adventitious receipts but in the absence of any official explanation we can only guess at their nature. Probably a part of these receipts in 1919-20 may have come from the sale of surplus munitions of war. In part they may represent the profit obtained from the realization on foreign loans between the face value ioo] BANKERS TRUST COMPANY of the loans and the proceeds in lire. Possibly they may represent the profit side of government purchases and sales of food for the populace, although most such operations, as we have already seen in the chapter on the cost of the war, resulted in heavy losses. T h e figures are so large that it would be of interest to know just what they represent. Notwithstanding the substantial nominal increase in Italy's revenues for the war years over the pre-war basis of receipts, their purchasing power was only about the same as that of the pre-war revenue receipts. Tables giving detailed figures for each year, both in "currency" dollars and in "1913** dollars, follow. T h e statistics for 1914 are given for comparative purposes. ITALY GOVERNMENT RECEIPTS (In " C u r r e n c y " dollars—000,000 omitted) Years Ended June 30 Revenue Receipts Customs and Corn Duty Excise Successions Income and Profits . . Other 1914 1915 1916 1917 66 40 54 49 60 64 67 91 74 95 84 118 87 16 IIO 182 Total Tax Revenue . Government Monopolies . Government Services—Net State Domain Sundry 289 106 10 269 HI -3 340 135 486 164 Total Revenue Borrowing—Net 458 32 Total Receipts . . . . ti 3 50 u 3 78 14 10 3 199 9i 34 3 311 1918 103 84 18 182 229 1919 102 97 26 269 283 1930 99 134 32 341 345 777 951 305 488 -18 -224 3 3 4 556 724 1,426 616 224 8 998 1,408 1,791 2,644 458 547 1,33° 2,364 3.429 4,395 1,522 687 490 1,005 2,017 3,362 4,837 6,186 4,166 THE INTER-ALLY DEBTS[64 ITALY GOVERNMENT RECEIPTS (In "I913" dollars—000,000 omitted) Years Ended June 30 Revenue Receipts Customs and Corn Duty. Excise Successions Income and Profits . . Other Total Tax Revenue . Government Monopolies . Government Services—Net State Domain Sundry Total Revenue Borrowing—Net Total Receipts 1914 66 54 11 37 45 10 1917 1916 35 37 8 67 91 69 49 69 289 106 10 249 103 198 3 50 458 32 . . . . 1915 490 88 —3 3 72 79 6 2 " 7 424 402 507 778 931 1,180 1918 39 37 7 47 78 208 70 14 1 133 426 1,010 28 23 5 50 62 168 61 2 1 152 1919 1920 27 26 22 7 7i 75 7 76 76 206 80 211 108 1 192 30 So 1 317 384 474 937 1,163 587 338 1.637 925 1,436 1,321 RUSSIA'S WAR FINANCING T h e Russian pre-war budget was sometimes called a "drunken b u d g e t " because the alcohol monopoly produced such a large portion of the government's revenue. Only about a month after the declaration of war this revenue was swept away by an ukase prohibiting the sale of alcoholic drinks. T o offset this loss by increased taxation, an income tax was created in 1915 and increased by the provisional government in 1917, while a war-profits tax was introduced in 1916 and increased in 1917. Other new taxation was mainly indirect, and when productive, affected chiefly articles of large and general consumption, rather than ioo] BANKERS TRUST COMPANY articles o f l u x u r y . T h e yield from increased taxation a little more than offset the losses from the discontinuance of the income from the alcohol monopoly. Russia met 26.40 per cent, of her war time expenses from revenue receipts, but the cost of the war, that is the expenses of the war period in excess of the pre-war basis, was met almost wholly from the proceeds of loans, as shown by the following tables. For comparison statistics for the last prewar year are also given. RUSSIA GOVERNMENT RECEIPTS (In "Currency" dollars—000,000 omitted) 1917 1913 1914 1915 1916 1.135 624 592 799 756 613 359 2,570 35« Total Revenue. . . Borrowing 1.759 1,391 1,369 4,363 1,139 2,928 868 8,000 5,799 Total Receipts. . . 1,759 2,259 5,732 9,139 8,727 Years Ended December 31 Tax Receipts . . . . Other R e c e i p t s . . . . 780 ( 8 H rnos.) RUSSIA GOVERNMENT RECEIPTS (In " 1 9 1 3 " dollars—000,000 omitted) 1913 1914 1,135 624 592 799 504 281 390 -5J 856 33 Total Revenue. . . Borrowing „ i,759 1,391 868 785 3,037 339 4,231 889 2,020 Total Receipts. . . 1,759 2,259 3,822 4,570 2,909 Y e a n Ended December 3 1 Tax Receipts . •. . . Other Receipts . . . 1915 19X6 THE INTER-ALLY DEBTS UNITED STATES W A R [ 64 TAXES As we have noted when considering the cost of the war, the shadow of the war coming to the United States began to be cast as early as the fiscal year 1915-16, in which year military expenses were noticeably larger than they had been theretofore. In the following year the expenses of the nine months which preceded the declaration of war by the United States increased 31 per cent over the expenses for the corresponding nine months of 1915-16. The tax receipts were one hundred million dollars higher in the 1915-16 year than they had been m the year previous, while in the pre-war nine months of the 1916-17 year they increased another fifty million dollars. An important share of the increases in tax revenues in these two periods came from the newly instituted income tax which only began to function in 1913—14. The income tax with its associated tax, the excess profits tax, was destined to be the main support of the government, so far as revenue collections were concerned, during the coming war. Of the total tax receipts of the government for the years of war financing, 66.55 P e r c e n t c a m e fr°m this source. As would have been expected, customs receipts were not as large on the average as in the pre-war years, but excise taxes heavily increased. These two groups of taxes accounted respectively for 6.25 per cent and 17.77 per cent of the tax receipts of the war period. Then there was another classification of taxes which, with the excise taxes, the government reports group together under the comprehensive heading of "miscellaneous internal revenue." Exclusive of the excise taxes, these taxes accounted for the remaining 9.43 per cent of war tax receipts. ioo] BANKERS TRUST COMPANY An analysis of the excise taxes and other miscellaneous internal revenue receipts may be of interest. Prior to the fiscal year 1919-20 the government derived a large and growing revenue from taxes on spirits and on fermented liquors. For the three years before 1917 these taxes yielded on the average $232,500,000 a year. In 1916-17 the yield was £284,000,000, in 1917-18 $443,839,000, and in 1918-19 $483,051,000. In 1919-20, the last year of the period of war financing, returns from these sources dropped to $139,871,000. This was due, of course, to the adoption of the prohibition amendment to the constitution, the law giving effect to which was signed by the President on January 16, 1920. The yield from taxes on tobacco in its various forms rose from a pre-war average of $83,000,000 to $156,000,000 in 1918, $206,000,000 in 1919, and $296,000,000 in 1920. A new form of taxation introduced in 1916-17 was the taxation on the transfer of estates, death duties or succession duties as they say in Europe. Beginning with a yield of $6,077,000 in 1917, these taxes so increased in value to the government that in 1920 the income derived therefrom was over $103,600,000. Stamp duties of various kinds were a new, or shall we say revived, source of revenue, for they had been tried [before. An entirely new group of taxes was tiiat dealing with transportation and communication receipts and admissions to places of amusement. Railroad fares and freight receipts, telegraph and telephone receipts, express companies' receipts, and the receipts from admissions to all kinds of entertainments were affected. The income produced was quite worth while, jumping from $101,711,000 in 1917-18 to over $379,000,000 in 1919-20. Manufacturers' licenses on sales of automobiles and ac THE INTER-ALLY DEBTS [ 64 cessories brought in a good revenue, "soft drinks" and other articles of food dispensed at "soda fountains"—or soda bars, shall we say—also proved to be productive. The former group brought in over $216,000,000 in 1920, jumping from $51,000,000, in 1918, and the latter group yielded over $110,000,000 in 1920, the first year in which collections were worth while, the yield in 1918 having been under a million dollars and in 1919 only a little more than six million dollars. So much for the war taxes. The other revenue receipts were not important. The postal service yielded a small surplus, but this was due solely to a temporary increase of rates. The Panama Canal was operated at a slight loss. Sales of disused government property aggregated $368,000,000, but as this property had cost far beyond the amount realized, the receipts from this source could hardly be classed as revenue. Revolving funds used by the Grain Corporation and the Housing Corporation returned to the treasury $353,000,000, but again this sum was not properly a revenue receipt, although classed as such. All the various adventitious receipts aggregated $1,043,000,000 for the war period. All forms of revenue receipts, exclusive of borrowing, yielded $16,556,000,000 for the four years of war financing, or 41.78 per cent of the total war time receipts of $39,628,000,000; the'remaining 58.22 per cent being borrowed. The form taken by the borrowing will be discussed in a later chapter. The revenue receipts were $13,719,000,000 in excess of the pre-war basis of income from this source, which for the same period of four years would have been $2,837,000,000; thus the revenue receipts for the wTar period were nearly five times what the yield would have been on the prewar basis. ioo] BANKERS TRUST COMPANY The foregoing statistics are all in "currency" dollars. The purchasing power of the dollar shrank during the war not quite as much as that of the pound sterling, the franc, the lira and the mark, but still very perceptibly. Therefore, we must not be surprised to find that the $39,628,000,000 receipts in "currency" dollars for the war period, 1917 to 1920 inclusive, had a purchasing power measured by 1913 prices of only $20,928,000,000. Before leaving the subject of the revenue collections of the United States during the war, it may be of interest to note that with us very much the same thing happened as in Italy. Taxes were laid hurriedly and the mistake was made of multiplying the forms of taxation and thus complicating collections. On the other hand, it is evident that we were fortunate in having already adopted into our fiscal system the principle of taxing incomes. The comparative ease with which taxes on incomes can be increased, once the machinery for their collection has been set in operation, commends this form of taxation as one of the most convenient and desirable from the standpoint of the state. During the war the mistake was made of adopting schedules which were extremely confusing and unnecessarily complicated. This largely was due to the fact of our lack of experience with this form of taxation. The excess profits tax which was done away with in 1918 came in for much adverse criticism. Secretary of the Treasury Glass, in an official statement characterized it in 1917 as so complex that it had proved to be impossible to keep up the administrative work of audit and assessment. He also criticised it because of the unevenness of its incidence. The tax also came in for criticisms similar to those which were applied to the like tax in England, that it tended to extravagance and to an effort to pass it on the consumer. THE INTER-ALLY DEBTS [ 64 UNITED STATES GOVERNMENT RECEIPTS (In "Currency" dollars—ooo.ooo omitted) Years Ended June 30 1916 Treasury Balance„at beginning of year Tax Receipts Customs Excise Successions Income and Profits . . Other Total Tax Miscellaneous Revenue . . Government Services—Net Post Office Panama Canal . . . . Total Services—Net . Sundry Total Revenue Borrowing—Net • Total Receipts . . . . Total Resources . . . . . 1918 1917 104 179 213 336 226 125 52 360 48 2,839 1,035 157 3,879 726 29 415 6 28 48 1919 Z930 967 "1,685 1,226 i83 652 183 776 324 763 104 82 2,601 382 4,024 430 206 3,957 575 5,723 168 45 —11 88 -45 7 30 34 41 84 104 -42 761 1,106 34 795 1,750 4,160 9,268 4,642 13,238 6,648 -1,184 2,856 13,428 17,880 899 3,035 14,395 19,565 6,690 ~~7 — 12 -I$ 25 3 —10 3 799 5,464 UNITED^STATES GOVERNMENT RECEIPTS (In "1913" dollars—000,000 omitted) Years Ended June 30 Tax Receipts Customs Excise Successions Income and^Profits . . . Other . . . . . . . . . Total Tax Miscellaneous Revenue . . Government Services—Net Sundry Total Revenue Borrowing—Net Total Receipts 1916 194 305 114 47 660 26 1917 149 273 4 2 37 18 681 32 —5 1918 98 349 26 1,518 84 2,075 110 1919 91 388 41 1,301 191 2,012 215 42 52 23 692 20 728 18 22 2,225 2,321 3i 1,151 1,879 4,956 7,I8I 6,619 8,940 -17 723 1920 143 336 46 1,743 253 2,521 74 -19 352 2,928 2,928 ioo] BANKERS TRUST COMPANY GERMANY'S W A R - T I M E REVENUES The remarks and statistics which follow are based upon a Memorandum on the Financial Position of the Reich presented to the Reichstag on July 29, 1920, by the Minister of Finance, Dr. Wirth. The war found the Germans by their own admission badly prepared financially, because so far as the imperial government wras concerned no direct sources of taxation existed which could be expanded to yield the necessary increased receipts. In fact the whole financial policy of the empire was influenced by the absence of elastic direct taxes, and was founded on the principle of providing by loan all costs of the war, thus putting the burden of war expenditure upon the future. Dr. Wirth says: " T h e financial difficulties of the empire were not quite so apparent during the first two years of the war. The national household continued to live on the stores accumulated in time of peace. Similarly, there may have been at that time an even level between production and consumption at home, and the material and physical resources of the nation had not been as sharply strained as necessity required in the later years of the war. Further, during the first few years of the war it was possible to provide the money for carrying on the war by the issue of funded loans and to convert the floating debt into funded debt, at least to a large extent; therefore the volume of floating debt only expanded slowly. Stocks of commodities of all kinds which existed at the beginning of the war could be liquidated and the proceeds converted into war loans, thus preventing inflation, caused by increased floating debt, for a considerable time. In addition, the government fixed a maximum of prices for things in short supply and kept the general level of prices within bounds, and the budget re THE INTER-ALLY DEBTS [ 64 quirements were consequently still bearable during that period. Temporary advances on account of the high cost of living granted during the first half of wartime were moderate and the existence of these conditions had a wholesome influence on the prices of war material, and yet the internal condition of the empire's finances grew worse." I t will be seen that Dr. Wirth admits that even during the first two years of the war the financial position of the empire had become difficult. The development of the finances of the empire from the last year of peace onwards is shown in the following recapitulation, stating revenue without the amounts derived from loans and floating debt and outgoings of the ordinary and extraordinary budgets combined. The figures are " n e t , " that is less cost of collecting the revenues, and are in currency except for the supplementary columns in " 1 9 1 3 " dollars in the first table. The figures for 1919-1920 were given by Dr. Wirth subject to final audit. TABLE I—GERMAN EMPIRE TOTAL REVENUE AND EXPENDITURE 1914-1920 (IN dollars—00,000 omitted) T O T A L R E V E N U E IN** CLUDING P R O F I T & Loss FROM THE S E R V I C E S OF IMPERIAL W O R K S Fiscal Year Ended March 31 "Currency" Dollars 527,8 1 9 14 1915 191 6 . . . . . . 559.4 412,9 191 7 482,8 191 8 1,863,5 191 9 1920 Total for War years 1915-20 . 1,617,0 2,102,4 7,038,0 "1913" Dollars 527,8 487.2 285.3 315,0 991,8 694,0 TOTAL EXPENDITURE "Currency" Dollars "1913" Dollars Per Cent. Revenue to Expenditure 604,0 604,0 97-38 2,059,6 6,118,5 6,602,3 1,794,0 4.228.4 12,379,6 6,588,3 27.16 6-75 7-3i 15-05 15-43 285.4 10.479.3 17.708.4 3-058,7 5 5 >347,7 4,306,7 4.497.5 2404.3 11.87 23,819,2 12.72 ioo] BANKERS TRUST COMPANY Dr. Wirth lists the net revenue in five principal groups as follows: TABLE II—GERMAN EMPIRE PRINCIPAL GROUPS OF REVENUE 1914-1920 (In "Currency" dollars—00,000 omitted) Cost of Administration Revenue Profit or from Loss of the Customs. AdminisFiscal Year Taxes Ending March 31 trations of and Imperial Fees Works X9M 191 5 191 6 191 7 191 8 IQIQ 'V? 1920 33,5 -12,7 —10,0 — 12,0 -33*2 -1419 -218,7 Total for War Years 1915-20 -428,5 Deducted NonRecurring Revenue Surplus from Previous Years Other Revenue Total per Table I 402,9 0,2 64,8 26,3 527,8 381.0 265.1 342,6 545.2 838,9 1,533,9 15*,7 73,2 15,5 i,i55,o 573.6 279.7 12,8 5.0 52,3 26,6 79,6 84,4 196,5 346.4 507.5 559,4 412,9 482,8 1,863,5 1,617,0 2,102,4 3,906,7 2,248,7 70,1 1,241,0 7,038,0 Imperial Works Revenues: A s shown by Table III, after 1914, imperial works, which included the post and telegraph services, imperial railways, and the imperial printing office were operated at a loss for the six fiscal years 1915 to 1920 inclusive, equivalent to about $429,000,000. The principal loss was in the postal and telegraph services. This amounted to $408,000,000. The loss in operating the imperial railways was about $23,000,000, while the imperial printing office showed a profit of $2,500,000. These losses did not really become serious until 1919 when they reached nearly $142,000,000. In 1920 the loss was not quite $219,000,000. T h e reasons given for these losses are that it was impossible to adjust tariffs quickly enough to keep pace with growing costs, especially of wages and salaries. THE INTER-ALLY DEBTS TABLE III—GERMAN [ 64 EMPIRE NET REVENUE FROM THE ADMINISTRATIONS OF IMPERIAL WORKS 1914-20 (In "Currency" dollars—00,000 omitted) Fiscal Year Ending March 31 1914 191 5 191 6 191 7 191 8 191 9 1 9 20 Total for War Years 1915-20 Post and Telegraph Office Including Compensating Amounts from Bavaria and WUrtcmbcrg 25.0 -10,3 -10,4 -IS,2 -27,1 -131,4 -213,8 —408,2 Imperial Railways 7,3 -3,8 2,3 -7,o -12,7 -0,3 -22,8 Imperial Printing Office Total per Col. 1 Table II 1,2 33,5 1,4 1,7 -12,7 — 10,0 —12,0 -33,2 -141,9 -218,7 0,9 o,9 2,2 -4,6 2,5 -428,5 Tax Revenues: Analysing the revenue from customs, taxes and fees as per Table IV, attention is drawn by Doctor Wirth to the great variations in the curve of each particular item. He states that this is partly due to the fact that the yield of the various sources of revenue had not been in accordance with the estimates upon which rates were based, and partly because the shrinkage of consuming ability had not affected every group of taxable values in the same ratio. The table gives the return from revenue collections for the fiscal years 1914 to 1920 inclusive. Customs:—The customs provided the most remunerative source of revenue before the war: about 40 per cent, of the entire revenue receipts of the imperial government. After the war began, this was the most vulnerable source of revenue. Some important duties had to be suspended for the duration ioo] BANKERS TRUST COMPANY of the war, others withered from year to year under the influence of the constantly tightening blockade of Germany's foreign trade. T h e total revenue from customs in 1919 was less than one-fifth of their yield in 1914. Excise Taxes: A f t e r a temporary large increase in the alcohol and beer taxes in 1915, these imposts yielded a steadily diminishing revenue until 1919, when they picked up slightly and then largely increased in 1920. This improvement in 1919 and 1920 was due to a higher tax on alcohol, but the higher tax also reduced consumption. On the other hand, the tax on tobacco yielded a larger revenue each year, the yield in 1920 being over 13 times the yield of 1914. This is attributed partly to an increase in the rate of tax, but especially to an extraordinary demand for cigarettes. Another commodity, the tax on which assisted in swelling the excise taxes, was coal. This tax which was TABLE IV—GERMAN EMPIRE NET REVENUE FROM CUSTOMS, TAXES AND FEES 1 9 1 4 - 1 9 2 0 (In "Currency" dollars—00,000 omitted) Fiscal Year Ending March 31 Customs 1914 . . . . 161,7 Excise 157,4 Total Stamp Taxes on per Duties Traffic Tax on Dircct Other Including Including Turn- Taxa- Taxes Col. 1 Table 1! Bill over tion Statistic Stamps Fees 60,6 - 133-4 185.1 43.1 . 85,6 123,3 39.3 59.5 • 82,9 159,7 . 554 286.2 110,9 • 31,6 483.7 121,6 1 9 2 0 . . . . 255,1 730,1 185,1 Total for War Years 1915-20 644,0 1,968,1 559,5 1915 • • 1916 . . 1917 • • 1918 . . 1919 • . • . • . • o,5 0,3 0,2 21,5 50,4 125,6 ' 353 161,2 163,4 359,2 14,7 8,0 11,0 8,1 4.9 3,4 1,3 0,8 11,8 15,6 41.0 39.8 38.1 199,2 157,3 402,9 381.0 265.1 342,6 545.2 838,9 0,9 1,533,9 19,4 3.906,7 THE INTER-ALLY DEBTS [ 64 first introduced in 1917, yielded nearly half of the total excise receipts in 1920. Coal Tax: The coal tax, as imposed up to March 31, 1920, was assessed at the rate of 20 per cent, of the value of coal at the mines. The only coal exempt from the tax was that necessary for the consumption of the mines for maintenance of the works and under certain conditions for the production of oil and similar products and the coal supply for domestic use of the miners and other employees. The increased income from the coal tax is attributed by German authorities, not to a larger output—it is stated that the output as compared with the time of peace had decreased—but to the continual rise in the price of coal at the mines. The tax is one that can be passed on to some one else and, therefore, affects practically all industries, the railways, shipping, electric and gas works and the entire population requiring coal for any use. Therefore, this tax burdens very sensibly the entire economic life of the country and is felt in every home. Since 1920 this tax has continued to be the tax bringing the largest return to the imperial treasury, and with the exception of the income and turnover taxes the most productive of all taxes levied. For the year ended March 31, 1923, it was expected to be more productive of income even than the two taxes last mentioned. Stamp Duties: The return from stamp taxes, which form of taxes had been in use pre-war, fell off in the fiscal years ending March 31,1915 and 1916 but increased again in 1917 and became of importance thereafter, being levied to cover some additional lines of business, while the rates were increased also. These taxes are levied on partnership agreements, on securities, on insurance documents, on real estate purchases, on passenger and freight traffic of the railways ioo] BANKERS TRUST COMPANY and on entertainments; even on the fees of directors in corporations. To the increase in new corporations and in the general broadening of insurance, together with a revision in rates, is attributed the increases in stamp duties. The yield was progressive. In 1917 the net return was £S9>57i>°oo; was $110,955,000 in 1918 and $185,140,000 in 1920. The yield of the other taxes was so small that they do not call for detailed comment. Non-Recurring Revenue In addition to the usual sources of taxation, there were several new methods of taxation tried out in Germany during the war and immediately thereafter. These Dr. Wirth calls non-recurring direct taxes. As shown in Table II, column three, these taxes produced $2,248,700,000 in the six war years. Of this amount, $232,000,000 was obtained from the tax on capital, or "defence t a x " as it was also called. This we have already noted was inaugurated in 1913 in connection with the non-recurring expenses of increasing the military establishment. The extraordinary war levy of 1916 was the outcome of a recommendation made by Finance Minister Helferrich in connection with the request for the December, 1915, vote of credit. It was a war profits tax levied as part of a general impost upon all gains from January, 1914, to January, 1917* Persons whose profits had been augmented by the war were instructed to hold 50 per cent of such profits in reserve for the payment of the tax. The law imposing the tax was enacted in June, 1916. Similar war profits taxes were levied in 1918 and 1919. There was also levied in 1919 a war tax on the increment of wealth. THE INTER-ALLY DEBTS [ 64 These taxes are referred to by Dr. Wirth as " T h e chief success of tax legislation during the war." The extraordinary war levy under the law of 1916, plus surcharge, brought in $1,375,000,000; that under the law of 1918 brought in $639,000,000. Not much had been realized on the special taxes of 1919 up to the close of the fiscal year, March 31, 1920. Concluding Remarks The "other revenue," listed in the next to the last column of Table II, was chiefly derived from banking, coming from the Reichsbank and the Darlehnskassen. It will be noted that the total net revenue receipts for the six years of war financing amounted to only 12.72 per cent of the total expenditure. The figures used all through this discussion are for " n e t " revenue, presumably revenue less cost of collection. We have used the figures as given by Dr. Wirth, simply turning marks into dollars at par of exchange. In tables printed below may be found the statistics as published in the statistical year books of the German Empire. These figures are done into dollars at par of exchange; also, adjusted to the 1913 purchasing power basis, that is in " 1913 " dollars. The figures differ considerably from Dr. Wirth's presumably because the revenues are given gross while the expenses include the cost of collection of revenues. This is the method of reporting financial statistics followed by other nations; therefore these latter figures are the proper ones to use in making comparison with the receipts and expenses of other nations and for this reason they have been used in our comparative tables. However, the year book figures lack ioo] BANKERS TRUST COMPANY details and therefore Dr. Wirth's statistics as given above are especially valuable for the purposes of this chapter. GERMANY GOVERNMENT RECEIPTS (In "Currency" dollars—000,000 omitted) Years Ended March 31 1914 Revenue Ordinary . . . Extraordinary . 611 Total . . . Government Services—Net . 1915 588 19 23 Total Receipts 675 M*3 662 2,088 1919 1920 1.760 2,607 89 681 505 1,906 22 545 461 527 2.451 1,849 — 11 —12 -34 -86 450 515 1.763 676 — / Total Revenue 653 Borrowing. . . . 9 1918 434 27 88 630 1917 1916 3,288 -7 5,680 6,098 2,417 9.971 8,725 9.342 6,130 6.613 12,388 10,488 12,623 3,281 GERMANY GOVERNMENT RECEIPTS (In "1913" dollars—000,000 omitted) Years Ended March 31 19x4 Revenue Ordinary . . . . Extraordinary . . 611 Total . . ; . Government Services 19 630 23 Total Revenue. 653 Borrowing . . . . 9 Total Receipts. 662 1919 1920 755 38 354 92 793 446 1,230 756 336 1,286 3ii 3.925 3.978 5.307 3.745 1,269 1,818 4.236 4.314 6,593 4.50* 1,714 19*5 512 77 589 —7 588 1916 300 19 i'S 1917 329 15 1918 1,014 290 ^ -37 —1 445 CHAPTER VI Borrowing in Home and Foreign Markets 1914-1920 5 shown by Statistical Table X , on the "1913" dollar basis, 97 per cent of the receipts of the belligerent governments for war came from borrowing. The German group borrowed all of their requirements, while the Allied group borrowed around 94. per cent. The difference is not as great as is generally believed to have been the case. The fact is that the war was financed by inflation of the currency, or through bank credits, to a greater or less degree in every country which was engaged in the struggle. Home borrowing provided 83^3 per cent of the sinews of war for all the nations involved; say 77.2 per cent in the case of the Allies and 100 per cent in the case of their opponents. The internal borrowing, proceeding along the lines of least resistance was aided first of all from the State banks by utilizing their note issuing powers against discounted treasury bills as already explained beginning at page 40; then it took the form of borrowing from the business banks and the general public on short time paper and, finally, of the sale of bonds payable in the future. Borrowing in foreign markets which yielded only a little over one per cent of the receipts for war while quite unimportant as to amount, was very important when the fact is borne in mind that it was through the medium of such loans that certain absolutely essential raw materials of warfare, such as cotton, rubber, copper, steel, chemicals and other munitions were obtained in the early years of the war. [71 ioo] BANKERS TRUST COMPANY The inter-ally loans, what our French friends call the "political loans," provided the remaining 11.7 per cent of the receipts. These loans we will discuss in subsequent chapters. In this chapter we will consider the home and foreign market borrowings. Public Debts vs. Currency It is a difficult matter to present a statement of the public debts of a nation when the purchasing power of its money is constantly changing. If there is no stipulation to the contrary, a government debt is payable in the currency of the country. If this currency depreciates in purchasing power at the time a debt matures, as compared with its purchasing power when the debt was contracted, the government is the gainer. On the contrary, if the currency has a greater purchasing power when a debt falls due than it had when it was contracted, the bond-holder has the advantage. Of course, if it is stipulated in the bond that the debt is payable in "gold coin" of a particular weight and fineness, then gains or losses due to depreciation or appreciation in the purchasing power of the currency are to a great extent eliminated. Such a stipulation is usually made in the case of debts contracted in foreign markets, but internal government debts are usually payable simply in the currency of the country. Thus the purchasing power of money obtained from borrowing is one thing, but the purchasing power of the money required to pay a debt off may be quite different. For example, suppose a debt of $10,000,000 to have been contracted when the currency was " a s good as gold," but that when it matures the currency is worth in gold only 50 per cent of its face value; obviously the government gains $5,000,000 when THE INTER-ALLY DEBTS[64 paying the obligation and the lenders lose this amount. This is what has been happening all over the world, notably in the case of Germany and of German corporations where currency debts contracted pre-war have been paid off at par in marks which would hardly pay for a good dinner or perhaps even a carfare. On the other hand, this works out just the other way around in the case of a solvent state such as France, Italy, England or the United States. For example, take our Civil War debt, some of which was contracted in currency dollars with a buying power of only forty or fifty cents in gold, but was paid off in a dollar worth one hundred cents in gold. The Interest Burden Every solvent nation is facing today the same situation, which may in time involve a very serious loss. However,the problem for a national treasury is not so much one of paying off principal as it is one of the annual interest charge. It is in this connection, doubtless, as time goes on, that adjustments can be made which will appreciably lighten the burden of the war debts and this possibility will encourage the adoption of measures calculated to improve the credit of the nations. As credit improves, debt can be refunded at lower rates of interest and the day of final payment of the principal need not concern the present generation or even later generations. Growing Up to the Debt Meanwhile, increasing wealth due to the adaptation to the uses of trade and commerce of scientific discoveries may bring national fortunes and national debts into much better rela ioo] BANKERS TRUST COMPANY tion than is the case today. It was because of the utilization of the work of scientists in developing steam, electricity and mechanics that the world recovered quite quickly from the ravages of the hundred years of almost continuous warfare which ended with the battle of Waterloo in 1815 and that nations "grew u p " to debts contracted in those years of fighting. The Debts Stated For the reasons just given, it seems necessary in stating national debts to deal primarily with par values, although the burden of interest charge may properly be measured in " 1913 " dollars. However, it is desirable to sec just what the debts would amount to if they were repayable now or at some other given date and it were possible to refund them into currencies of, say " 1 9 1 3 " purchasing power; or into dollars at rates of exchange current for the dates for which statements are made. The following table compares the debts of the opposing groups of belligerents as they stood just before the war, with their status about the time the United States came into the fray and at the close of the war, say at the end of 1919 (or for the close of the fiscal year 1919-20). The figures are given at face value; also on t h e " 1913"dollar basis and at the rate of exchange on New York current at the time. The tables do not require extended comment. The disadvantage which solvent nations will face if compelled to pay off their debts when money has appreciated in value is obvious. Tables setting forth the debts of each nation at the same dates, classified as to their character, may be found among the Statistical Tables. THE INTER-ALLY DEBTS[64 NATIONAL DEBTS (In "Currency" dollars—000,000 omitted) ALLIED POWERS Total Pre-war 1913-14 . . 25.727 ^ (I-CS9 India) 24.231 Mid-War 1916-17 . - 77.536 (Less India) 75.990 Post-war . . 1919-20 , . 166,425 (Less India) 1 6 4 , 1 5 9 CENTRAL POWERS Per Per Cap- Cent. Total ita Wealth A L L BELLIGERENTS Per Per Cap- Cent. Total ita Wealth Per Per Cap- Cent. ita Wealth 33 45 5.08 3.08 6.258 43 5.07 31.9S5 30,489 35 45 5.07 3.08 99 142 is. 31 15-94 29,994 208 24.28 107,530 105.984 116 156 17.06 17.66 213 30.61 32.28 71,112 494 94-10 237.537 235.371 257 346 38.30 40.28 306 (In 11 1913" dollars—000,000 omitted) Pre-war 1913-14 • . (Less India) Mid-war 1916-17 . . (Less India) Post-war 1919-20 . . (Less India) 25,727 24,231 33 45 3.08 3.08 6,258 43 5.07 31.985 30,489 35 45 3.07 j.o3 35.I4I 33.933 45 63 6.94 7.12 19.459 135 1.37 54,600 53.392 59 78 8.66 8.90 53,084 5M67 68 96 9-77 10.44 14.974 104 19.83 68,058 66,441 74 98 TO. 99 11.37 (In dollars at Exchange Rate on New York—000,000 omitted) Pre-war 33 1913-14 . . 25.737 45 (Less India) 34.231 Mid-war 1916-17 . . 65,631 84 (Less India) 64,100 119 Post-war . . 1919-20 . . 118,664 152 (Less India) x 16,389 217 3.08 3.08 6,258 43 3.07 31.985 30,489 35 45 3.07 3.08 12.03 13-4S 21,065 146 17.06 86,698 85.167 94 125 I3.f6 14.19 H.83 22.88 6.096 43 8.07 124,760 122,485 135 180 20.13 20.97 Per capita statistic* in whole figures. ioo] BANKERS TRUST COMPANY Internal Funded Debts A t the close of the period of war financing as shown by Statistical Table X V I I I , the domestic debts were divided between floating and funded debts in the proportions of 39.01 per cent floating and 60.99 P e r c e n t funded. Very much the same methods were used in each country to sell the permanent loans. Purchasing was made easy by allowing payments to be made in several instalments and by arranging to have the business and state banks make temporary loans secured by the new bonds so as to encourage the public to buy to the limit of their resources. Permanent loans were not offered oftener than twice a year and in several cases at wider intervals. This gave time for the purchasers to pay off their bank loans and fully to complete the payment for one issue before another was bought out. Great spectacular campaigns were carried on to stimulate interest in the loans. Brass bands, picture posters pasted everywhere, even on the walls of public buildings, mass meetings, appeals in churches, schools and places of amusement, were all employed to secure a maximum subscription. "Lend your money while your boys are giving their lives" was one of many effective slogans. Speeches by wounded men and by men temporarily brought in from the battle-front were especially useful in winning subscribers. Partial payment plans by which employees in factory, store and office could pay for bonds out of their weekly or monthly pay envelope proved to be very helpful, while the War Savings Stamps and Certificates made it possible for the school children's pennies and the widows* mites to swell the funds put at the disposal of the various governments. Much of the money for the conduct of the war was lent INTER-ALLY DEBTS to the governments at a great sacrifice by those whose incomes were steadily shrinking in purchasing power, because of the abnormal war demand for goods and the policies of inflation everywhere in use. Borrowing in Foreign Markets Early in the war the necessity of creating credits abroad against which could be obtained absolutely essential raw materials and other munitions of war, as well as food for the civilian population, led to arrangements being made to place loans in the markets of allied and neutral governments. Germany succeeded in placing a small loan, around #10,000,000, in the United States and she also established credits in the Netherlands, in the Scandinavian countries, in Switzerland and probably early in the war in Italy. She was assisted in arranging these credits by the fact that she had considerable foreign investments which could be utilized for the purpose. She probably was able to obtain certain much needed supplies in the Balkan countries against trade credits. However, not much is known as to these financial operations. The London market was open to the Allies and trade credits wTere arranged with the British dominions, with the neutral powers of Europe and South America and especially in the United States. Thus in exchange for direct or indirect credits the Allies obtained nitrates from Chile, wool from Australia and New Zealand, hides and grain from Argentina, coffee from Brazil, grain from Canada, cotton from India, gold from South Africa and vast quantities of munitions of all kinds from the United States. England and France were greatly aided in establishing these credits by their ability to utilize their investments in foreign countries accumulated over a long period of years of ioo] BANKERS TRUST COMPANY prosperity and saving. Russia had no important foreign investments and but little gold so she had to do her financing vicariously through London and Paris, although she seems to have been able to establish a few direct credits. Italy was in much the same position and therefore to a great extent had to look to her allies for the financing of her needs in neutral markets. Measured in "currency" dollars, the purchases by the Allies in foreign markets financed by loans placed in such markets aggregated about three billion dollars, practically all of them prior to the entrance of the United States into the arena. England borrowed $1,444,000,000; the English dominions about $105,000,000; France, $1,084,000,000 and Russia $338,000,000—in all $2,971,000,000. However, making allowances for repayments by some countries, the net amount owing in 1920,3s shown by Statistical Table IX, was $2,528,000,000. In the next chapter we discuss in greater detail the borrowing methods and the income realized therefrom of each of the larger belligerents. CHAPTER VII Market Borrowing of Each Belligerent 1914-1920 A T this point the reader may profitably turn to the chapters on wealth and income. A perusal of these chapters will give one a good idea of the relative economic strength of the belligerent nations at the beginning of the war and today. The sections of these chapters dealing with the question of foreign investments and foreign indebtedness have a direct bearing upon the reasons why certain of the powers at war could freely obtain foreign goods. This was because they could pay for them either in gold of which they had a limited supply, or especially that they could pay foreign farmers, manufacturers or merchants for their goods in the money of their own country. This money was obtained either by the direct sale on their stock exchanges of the national, state, municipal or corporation stocks and bonds of the nations from which the munitions were being bought, or by arranging loans secured by such collateral through the bankers of these nations. These stocks or bonds were borrowed or bought by their governments from citizens of the buying nations who had acquired them in former years by investment of their savings. In cases where securities were bought, the seller was paid in home currencies; where the securities were borrowed the owners received interest-bearing receipts and usually a bonus "for use" of the collateral. Nations with small foreign investments, like Russia for example, could arrange direct purchases only to a limited degree and therefore could obtain any important amount of foreign goods only by availing of the good offices of allies 179 ioo] BANKERS TRUST COMPANY who could command credit in the seller's market, or at any rate in some market which was in a position to export to the nation whose nationals were supplying munitions, goods which could be marketed within its borders. The exchange of credits between governments—the inter-ally borrowing— which these three-cornered arrangements involved will be discussed in the chapters on the inter-ally loans. This chapter deals with the direct domestic and foreign market borrowing on the part of the larger powers. For general statistics of such borrowing by all belligerents, reference may be made to Statistical Tables I X to X I V inclusive. The status of national debts at the close of the fiscal years 1916-17, 1919-20 and 1922-23 is given in Statistical Tables X V to X X I I I . G R E A T B R I T A I N ' S M A R K E T B O R R O W I N G FOR W A R We have already seen that the heaviest burden of war financing of the Allies fell on the national group composing the British Empire. Great Britain was the banker for this group and, until the United States came into the situation, to a great extent for her other allies. It will be of interest, therefore, to learn what were some of the problems which her leaders had to face and how they solved them. We have already discussed how the people were taxed and what the national treasury realized from revenue collections. But, after all, while revenue provided the very creditable sum of about nine and a half thousand million pre-war dollars, this was less than a third of the total receipts for the six years of war financing—the rest of the receipts of the exchequer had to come from borrowing. Of the money borrowed, about eighty per cent was obtained right in the United Kingdom; about five per cent THE INTER-ALLY DEBTS [ 64 came from foreign markets, chiefly from the United States and about fifteen per cent came from allied and associated governments, again chiefly from the United States. Britain's Borrowing At Home The Currency Notes: In Great Britain, at the very beginning of the war, rather than authorize fiduciary note issues by the Bank of England, the government provided for a direct government currency, technically known as "currency notes," but popularly called "Bradbury's," because the earlier issues were signed by an official of this name. The act of parliament under which the currency notes are issued was passed on August 6, 1914. It provides for the issuance of notes of the denomination of one pound and of ten shillings which "shall be current in the United Kingdom in the same manner and to the same extent and as fully as sovereigns and half-sovereigns are current and shall be legal tender in the United Kingdom for the payment of any amount." An important provision of the act which does not appear to be generally known is that the holder of a currency note is "entitled to obtain on demand, during office hours at the Bank of England, payment for the note at its face value in gold coin which is for the time being legal tender in the United Kingdom." The government has the right to call in any currency notes "on paying for those notes at their face value in gold." Under the terms of this same act, known as The Currency and Bank Notes Act, 1914, postal orders were temporarily made legal tender and redeemable in coin at the Bank of England. The Bank of England and the Scotch and Irish banks, so far as temporarily authorized by the treasury, were permitted to "issue notes in excess of any limit fixed by l a w " ioo] BANKERS TRUST COMPANY and Scotch and Irish bank notes were made a legal tender in Scotland or Ireland, respectively, and redeemable in currency notes. A very important further provision applying to the Scotch and Irish banks was that currency notes or certificates might be used as cover for their notes instead of gold or silver. On December 15, 1919, the chancellor of the exchequer announced in the House of Commons that he proposed to give immediate effect to certain recommendations contained in a report made to parliament by the Committee on Currency and Foreign Exchanges. In pursuance of these recommendations the legal tender character of the Scotch and Irish bank notes was withdrawn, also the loan of currency notes to the banks and, of greatest importance in its effect upon the currency conditions, it was provided that " t h e actual maximum fiduciary circulation of currency notes in any one calendar year should be fixed as the legal maximum for the next. In accordance with this last regulation, the maximum uncovered issue for 1920 was placed at $1,560,039,000; for 1921, $1,545,223,000; for 1922,$1,508,406,000and for 1923, $1,314,715,000. The maximum for 1924 will be $1,207,697,000. The table on page 83 shows the amount of currency notes outstanding at the close of each year, from 1914, and the cover for same held in the redemption account. The currency notes are always covered by securities or cash in one or more of the following ways, viz.:—by gold coin and bullion; silver coin; Bank of England notes; government securities; advances to bankers—or by balance at the Bank of England. A word of explanation in regard to the Investments Reserve Account may be of interest. In this account is shown the income from the advances to bankers and from the gov T H E I N T E R - A L L Y DEBTS GREAT [ 64 BRITAIN CURRENCY NOTES ACCOUNT (In dollars—000 omitted) ££ 2 £ 05 5 & 0 >S4< IS Si* c c .si •OQ *OTJ Aug. Dcc. Dec. Dec. Dcc. Dec. Dec. 26, 30, 29, 27, 26, 31, 31, 1914 104,789 1914 187.234 1915 SOI,£06 1916 730,601 1 9 1 " 1,035.397 1918 1.572,891 1919 1,742.768 3.546 16,690 41,624 75.564 83,608 18.539 2,920 774 1,212 311 195 1 9 0 3,285 2,774 1,216 1.192 30,665 822 1,788,868 82,537 Silver Coin 14.598 1.584.292 71.326 Dec. 29, 1920 Dec. 28, 1 9 2 1 Dcc. 2 7 , 1 9 2 2 1 , 4 6 6 , 3 0 6 6 2 , 6 3 5 Dec. 26, 1923 1.455.275 61,170 34.062 34.062 J-sl I' IP O g £ 0 | < 0 Ail vance 9 to Savings Banka Date m REDEMPTION ACCOUNT ffl M a rt=5 U J t A K C5 90.021 138,681 138,681 138,681 138,681 138,681 48,190 365.786 lO.O 574.684 IJ.4 908,176 8.0 1,484.777 19,464 O.i 1,642,455 138,681 94.644 I3S.68I 94.644 1 3 1 . 3 8 2 102,916 IO9.242 131.382 48.I 27.6 I3>0 1,637.428 14.7 1,406,911 IJ.Q 1,258,914 16.S 1.340,986 a 55.584 45.186 99.938 33.320 26,695 23,318 13.634 652 783 667 774 ernment securities held as collateral, presumably less the expenses of issue, although this is not specifically stated to be the case. Under a Treasury Minute dated M a y 3, 1915, the net income accruing to the account is payable to the exchequer, but an amount equivalent to not less than five per cent of the total securities held must be reserved b y the Bank of England to cover losses. It will be observed that the gold and Bank of England notes reserved against the outstanding currency notes amounted on December 26,1923, to 16.5 per cent of the fiduciary circulation. This is the largest reserve held since the close of 1918 when it stood at the low point of 8.9 per cent, having fallen each year before then from a maximum of 48.1 per cent at the close of 1914. The Floating Debt:—Ways and Means Advances: Prior to the war it had been customary for the Bank of England to ioo] BANKERS TRUST COMPANY provide the government with credit for temporary use while awaiting the receipts from taxation. Such loans were known as Ways and Means Advances. During the war the government frequently called upon the Bank of England for very large advances of this character to tide over periods when tax collections and returns from market borrowings fell short of expenditures. For a time these advances seemed to have crystallized into a permanent loan from the bank. This caused the directors of the bank several times to represent to the government that loans of a continuous character should be obtained from the public and "advances from the bank once more confined to the temporary requirements of the treasury." It is anticipating our story a little, but it may be noted that advances of this character since the close of the period of war financing have partaken more and more of the temporary pre-war character. However, indirectly, the government continues to borrow quite heavily from the bank by causing government departments having credit balances at the bank to loan such balances to the treasury. The Floating Debt:—Treasury Bills: The most potent source of temporary borrowing during the war was found in the treasury bills, a form of borrowing dating back to 1696 in the reign of William III. As originally issued they were a form of government currency. Their subsequent use has been to bridge over the period between expenditure and the receipt of income from taxation and from long time loans. Before 1877 they were called exchequer bills. They have served as the shuttle which wove into the fabric of government resources the floating capital of the realm. They were issued during the war to mature at various short dates ranging from two months to twelve months. Sometimes they were issued below par, to be repaid at par; that is as discounted THE INTER-ALLY DEBTS [ 64 paper. Again they were issued at par bearing fixed rates of interest. Sometimes the treasury offered them on definite terms, but again the treasury asked for tenders from the public. A t times the denominations were made low so as to attract floating capital in small as well as in large sums; again they were offered only in bills of large denominations, say of the equivalent of $25,000 or $50,000. Of course these latter offerings were attractive only to the banks and others commanding money in large sums. In short, they were used by the treasury to direct the flow of capital from the public into channels which best suited the requirements of the government. If a large permanent loan was about to be issued, offerings of treasury bills could be discontinued and those outstanding allowed to run off, thus creating a vacuum to be filled by the new permanent issue. In the interval, if necessary, the treasury financed its requirements through increased advances from the Bank of England. The floating debt was a very potent source of inflation during the war and after. The amount of this character of debt outstanding at the close of each fiscal year, that is on March 31, is shown by the table on page 86. Technically the amounts listed in the column headed "other bonds maturing within a y e a r " are not part of the floating debt as set up in English treasury publications, but actually they do come into this category, because provision must be made within a year to refund them or they must be paid off in cash. If the supposition is correct that the "government securities" held as collateral to the currency notes are in fact treasury bills, then the amount of the floating debt as stated ioo] BANKERS TRUST COMPANY FLOATING DEBT OF GREAT BRITAIN (In "Currency" dollars—ooo.ooo omitted) W A Y S AND M E . S X S A D V A N C E S cTreasury 5By Bank 6By Public Bills Departof England ments March 31 1914 • • • - 63 1915 • • • • 460 1916 . . . . Total Other Debt Maturing Within a Year Total Floating Debt 63 7 460 2,862 • 2,256 97 1,059 477 3,792 1918 . . . . 4,737 1,048 670 6,455 1919 • 4,307 2,214 1,187 1920 . . . . 1921 . . . . 1922 . . . . 5,152 997 997 752 752 1,467 2,058 7,708 7,616 8,108 4,244 717 717 1923 2,997 944 944 2,269 6,210 1917 • • . • • . • . . . 2.758 5.298 8,077 oNet, i.e.. Less bills held as collateral to foreign debt. bSo division of Ways and Means Advances into those made by the Bank of England and those made by Public Departments was published prior to 1020. Although no advances are shown from the Bank the column is included in the table to draw attention to the fact that during each year such advances have from time to time been made. Ways and Means advances by Public Departments presumably represent sums past due or due to the spending departments from the Treasury. Part of such advances may also represent loans by Public Departments out of actual balances standing to their credit at the Bank of England. above can be reduced by the amount of these government securities as given in the currency notes tables printed on page 83, but if this is done the corresponding amount of currency notes must be added to the debt statement. The Short Term Funded Debt: In British practice the funded debt, technically, consists only of the perpetual debt, such as the permanent debts due to the Bank of England and the Bank of Ireland and the old consols. T h e unfunded debt is debt of a temporary nature and debt repayable at the end of fixed terms. A s some of the obligations listed under this latter head are not repayable for many years the division based on established usage has become somewhat illogical. In this book all THE INTER-ALLY DEBTS [ 64 forms of debt maturing within a year are classified as unfunded debt, while forms maturing in from one to ten years are classified as short term funded debt; the perpetual debt and all other forms of debt maturing after ten years are classified as long term funded debt. During the war the British government issued various forms of debt obligations maturing in from one year to ten years, the aggregate amount of which outstanding on March 31, 1920, was $8,900,000,000, nearly a quarter of the total debt at that date. The most important issues coming under this category were the Exchequer Bonds as they were first called, a title which in 1917 was changed to National War Bonds, as more likely to attract loans from the people. These bonds were issued in small denominations as well as for large amounts. It would be tiresome to discuss the details of these various issues. Interest rates and other terms were varied from time to time to suit the exigencies of the moment, both in regard to the needs of the treasury and the whims of the lenders. One very interesting feature of the offering of exchequer bonds was the fact that from December 16, 1915, these bonds were put on sale "over the counter" from day to day, instead of waiting for spectacular periodical offerings. The object was to have a steady flow of money into the treasury. Just as in the case of the treasury bills, offerings were occasionally discontinued, especially when it was desired to divert the flow of money into the permanent war loans which were issued periodically. The Permanent War Loans: There were four of these loans. The first was for $1,703,000,000 at 3 T h i s issue was offered in November, 1914, at 95 and was quickly oversubscribed by nearly 100,000 applicants. ioo] BANKERS TRUST COMPANY The second offering, made June 21, 1915, was at per cent. The issue price was par. Subscriptions aggregated $2,774,000,000. T h e third war loan was not issued until January, 1917. The loan was an unqualified success, $4,811,000,000 being sold for cash; $5,511,000,000 being issued in exchange for 4 p e r cent war loan and exchequer bonds—a grand total of $10,322,000,000. The fourth war loan or victory loan was issued June 13, 1919. It was mainly designed to liquidate a large amount of floating debt. It was issued in two forms, both bearing 4 per cent interest, but one issue was offered at 80 per cent not redeemable before i960, while the other was offered at 85 per cent, redeemable by annual drawings at par. The subscriptions aggregated $3,735,000,000 of which $540,000,000 came from the banks. Great Britam as a Borrower Abroad From the very beginning of the war Great Britain found it necessary to finance both her dominions and her allies. In the latter task she was ably seconded by France although, as early as the latter part of 1914, it was found desirable to permit France to offer her treasury bills in the London market, and thereafter, until the United States became a partner of the Allies, France frequently borrowed either in t h e L o n d o n market or of the British government. T h e b u l k of England's market borrowing was arranged in the United States. This was because we were in a position ID supply munitions of every kind required by the allied governments, whether they were foodstuffs, metals, lumber and Other Taw materials, especially cotton; or clothing, boots and shoes, ammunition, motor cars or locomotives. England also THE INTER-ALLY DEBTS [ 64 borrowed to some extent in Canada against shipments of grain and other supplies; in Japan, against purchases of clothing and other munitions; in South America against purchases of meats, coffee, grain and nitrates. She also exchanged credits with Australia and New Zealand against purchases of wool from them in return for. sundry supplies furnished to their troops. She also borrowed gold from the Bank of France, from the Italian banks, and from the Imperial Russian Bank chiefly, however, to finance purchases made for the account of their governments in America and in 1916 she arranged credits with Spanish banks in order to provide the means of paying for purchases which she was making in their country. Bonds and treasury bills sold in foreign markets, as distinguished from loans arranged with foreign governments, provided Great Britain during the six years of war financing with #1,444,000,000 currency dollars. These dollars had a purchasing power on the basis of pre-war values of $1,067,000,000. The greater part of these credits was arranged for during the first three years of the war. After the United States opened her national resources to Great Britain and her associates in exchange for their promises to pay, they had little occasion to borrow abroad except to obtain certain supplies such, for example, as nitrates and certain metals which the United States did not have or wool, clothing and foodstuffs needed to supplement supplies obtainable from us. It should be kept firmly in mind that in no case were the actual loans in money. They were made simply in terms of money. What Great Britain and the other borrowers sought and what they obtained were munitions of war—using the phrase in its broadest sense. The important loans were arranged in the money markets, their proceeds were placed to the credit of the borrowing government with their bankers in ioo] BANKERS TRUST COMPANY G R E A T BRITAIN'S BORROWINGS FOR WAR FOREIGN IN MARKETS STATUS AT CLOSE OF EACH FISCAL YEAR (In "Currency" dollars—000,000 omitted) March 31 Due Each Total Due Lender From Annual Increase 1 or j Decrease 250 350 350 1917 Japan United States 97 1.047 X.X44 894 1918 Japan Sweden United States 146 33 939 X.toS -J* 19x9 Argentina Canada Fi ji. Straits Settlements and Mauritius Holland ts 3X3 45 9 J4I 61 13 33 16 866 1.401 293 19x6 Norway Spain Sweden Switzerland United States ipso Argentina Canada Fiji,Straits SetUmentsand Mauritius Holland Japan Spain Sweden United States 12 4 818 MS4 -34? 1921 Argentina Canada Straits Settlements Japan Sweden United States IS 137 40 39 4 493 708 -446 19 22 Argentina Canada Straits SetUcmcnts Japan United States *5 xo 40 14 313 393 -j/tf 1923 Argentina . . . . . . . . . . . . Straits Settlements United States 15 37 313 37 0 —132 . . . . . . . IS * 76 43 A THE INTER-ALLY DEBTS [ 64 New York or elsewhere and against these credits drafts were drawn to pay producers and manufacturers for the munitions which nearly every ship leaving our ports was carrying to the seat of war. The nations in whose markets loans were arranged by Great Britain and the amount of such loans outstanding at the close of each year is shown by the table printed on the opposite page. Market Loans Arranged in the United States The table on page 92 lists the market loans arranged in the United States, giving the dates of redemption and the amount outstanding at the close of 1923. In addition to the bond issues shown in the table, there was one other form of borrowing which provided a substantial addition to Britain's resources in the United States. This was a weekly offering, beginning August 24, 1917, of $15,000,000 treasury bills. These were quite well received by financial institutions. The maximum amount of such bills outstanding at any one time was $98,000,000 on September 30, 1919. These have all been retired, offerings having been discontinued in November, 1921. From an examination of the table it will be observed that the only issues outstanding at the end of 1923 were $75,000,000 or thereabouts of the $}4 per cent notes of 1929; $143,600,000 of the 5 per cent bonds of 1937 and the obligation to the Central Argentine Railway Company in lieu of the $15,000,000 6s of 1927 borrowed of that company in February, 1917. The Stabilization of the New York Exchanges: In July, 1915, the British treasury took the first step toward stabilizing New York exchange by instructing the Bank of England to purchase American dollar securities in London and to vO OFOREIGN w Calendar Year BORROWINGS Anglo-French 53, 'ao. 3-yr. Secured 5s, *t8 3-yr. Secured 5 3,'IQ " S*yr. Secured 5 s.'ai 1-yr. Secured 5 s,'i8 2-yr. Secured sis." ao-yr. Bonds sis. '37 3*yr. Notes sjs, '23 Jo-yr. Notes s|s. 9 Central AreentmeRy. MARKET IQI4 DEBTS 1015 Dated 10-15 OF G R E A T 1916 Dated 350,0 9-1 i-i 11-1 1 1917 IN T H E 1918 Dated UNITED 1930 1919 Dated STATES 1931 1933 Totals Dated 350.0 150,0 150,0 3-1 3-1 100,0 150.0 3-1 '17 55.0 3-1 '17 11-1 11—1 6%, ra7 Total Borrowed BRITAIN 88,6 101,6 148.4 iS.o 350.0 550.0 365.0 55.0 33S.6 1.458.6 REDEMPTIONS AngUv French 59 . . 3-yr. Secured 59. 'lS 3-yr. Secured 5I3/10 S-yr. Secured sts.'ai l-yr. Secured 5 is,'18 3-yr. Secured J J3,"to 30-yr. Bonds sis,'J7 3-yr. Notes 5 la, *33 10-yr. Notes sjs, '39 Total Redeemed 350,0 350.0 15.0 100,0 63.5 4*7,5 135.0 15.5 3 33.0 Ill.S 6.5 33,5 9.6 87.5 9S.I 41.6 33S.0 303,0 131,1 136.7 1.335.3 703.1 401.1 370,0 333.3 6333.3 Outstanding close 800.0 r.065.0 350.0 aThis table does not include Dollar Treasury Bills—None now outstanding. tMade up as follows: sis. '29 74.7 143.6 Also status of Dec. sfs, '37 3ist, 1933 Cent!. A. Ry, 6s, '27 . is.o 333.3 THE INTER-ALLY DEBTS [ 64 transmit them to New York for sale. Exchange on New York was then $4.77 Tor sterling and 1 7 ^ cents for the franc, comparing with $7.00 to the pound and 2 3 ^ cents to the franc in August, 1914, to which rates it was forced by the necessities of tourists and others just after the declaration of war; and with quotations at exchange parities in January, 1915. The American current indebtedness abroad had been largely liquidated and thousands of American securities from both English, French and other overseas markets had been repatriated. Notwithstanding the efforts to meet the heavy payments due to America for munitions of war by the sales of securities just referred to, also by sales in New York of certain issues of the French government as well as by considerable remittances of gold, the value of the pound and of the franc in that market continued to fall, reaching on September 1 the low levels of $4.50 and \6}4 cents, respectively. It was then that the English government arranged with their American bankers, Messrs. J. P. Morgan & Co., to " p e g " or stabilize the New York-London exchanges by standing ready at all times to furnish, at practically a fixed rate, bills required to settle for purchases made in the American markets. Automatically this arrangement had the effect of stabilizing Canadian-London exchanges, and, as a result of the close working arrangements existing between the Bank of France and the Bank of England, the Paris-New York exchanges and the Paris-London exchanges were likewise brought into line. Because of the falling off in foreign exports to America there were not sufficient commercial credits available to pay for the great quantities of goods being purchased in our country and as the gold available for remittance had about been ioo] BANKERS TRUST COMPANY exhausted, it became necessary to create credits by borrowing in the New York market. The Anglo-French Loan: It was to create the credits just mentioned that in October, 1915, France and England joined hands to place in America an issue of $500,000,000 5 per cent bonds, the Anglo-French 5s which have since matured and been paid. Secured Note Issues: In September, 1916, Great Britain placed in New York $250,000,000 two-year 5 per cent secured notes. In November she placed $300,000,000 secured notes maturing one-half in three years and one-half in five years and in February, 1917, she placed $250,000,000 per cent secured notes maturing $100,000,000 in one year and $150,000,000 in two years. In addition she sold in New York $15,000,000 Central Argentine Railway 6 per cent bonds. Thus, up to the time when the United States nation became a belligerent, Great Britain had borrowed directly $815,000,000 secured by collateral while her share of the Anglo-French loan, $250,000,000, brought up her total direct borrowings to that date to $1,065,000,000. Subsequent bond issues by Great Britain in America were unimportant. They were for $55,000,000 in 1918 and $338,600,000 in 1919 and were used to refund the earlier issues. The funds to meet other maturing issues came from the United States government or were remitted from London. It will be noted that all issues of bonds placed in the United States subsequent to the joint issue with France were secured by collateral. This collateral was obtained by Great Britain by borrowing or buying dollar bonds from her citizens. A t first the treasury undertook to purchase any suitable dollar securities at prices based on current New York Stock Exchange quotations or to borrow the securities for two THE INTER-ALLY DEBTS [ 64 years on the understanding that the interest received on such securities would be paid to the depositor together with an additional payment at the rate of one-half per cent per annum; afterward the terms were somewhat changed. We do not need to go into all of the details. The important fact is that the savings of past years invested in foreign securities were now mobilized to make foreign payments, the owners being compensated in sterling or government securities which would not be taken abroad for outright purchases or by an annual bonus in the case of loans. It is these same savings invested in foreign securities and properties which are now enabling Great Britain to meet her obligations to the United States government and it is largely because of the present lack of such investments that it is quite impossible for France and Italy to pay us or for Germany to make reparation payments except through a surplus of exports. In other words, they can only pay as they can save while Great Britain is paying from the income of past investments, as well as from current savings. MARKET BORROWING OF FRANCE Borrowing at Home The Currency: Since the revolution and the unfortunate experiences of that period with government issued fiduciary currency, the French government has made no direct issues of paper money. It is also true that at no time up to 1914 had the government interfered with the management of the Bank of France, the sole bank of issue, in regard to its affairs, in connection with the currency or otherwise. However, a convention existed between the government and the Bank of France whereby in case of a military emergency the bank was ioo] BANKERS TRUST COMPANY obligated to lend to the nation up to 2,900,000,000 francs, while the Bank of Algeria, the bank of issue in Africa, was obligated to advance 100,000,000 francs. Thus, altogether, 3,000,000,000 francs, say in round figures the equivalent of $600,000,000 was immediately at the disposal of the government in case of an emergency. T o facilitate such advances, the banks were authorized correspondingly to increase their note issues. From time to time since 1914 parliament has authorized the Bank of France to increase its note issues in order that, in turn, the bank might increase its loans to the nation. T h e total advances for the war by the end of 1919 had reached 29,255,000,000 francs or at par of exchange, $5,646,215,000. These advances involved a corresponding increase in the circulating notes of the bank, so that at the close of 1919 they had reached 37,274,000,000 francs or $7,193,882,000 an increase from a circulation of 5,713,000,000 francs or $1,102,609,000 at the close of 1913. The advances to the state were both direct and indirect; that is to say, the bank received treasury bills against which it made direct advances, thus directly increasing its note issues. It also discounted for foreign governments, chiefly Russia, treasury bills lent to them by the French government — t h u s indirectly lending to France herself. These issues led also to increases in the bank's issues of circulating notes. The Bank of France also greatly aided the flotation of government loans and the daily sales of treasury bills by agreeing to lend to holders of government paper 80 per cent, of the par value thereof. The reports of the bank do not segregate these loans secured by government bonds and notes from other loans made to the public but at times they must have been for a substantial amount. However, as commercial loans at the close of each of the war years were less than THE INTER-ALLY DEBTS [ 64 at the close of 1913, large loans on government securities must have been for short periods only. The advances which the bank made to the nation during the war were at the low rate of one per cent a year, but in September, 1914, it was stipulated that one year after the cessation of hostilities this rate should be raised to three per cent. The additional two per cent was not to be counted in the profits of the bank, but to be used to amortize the debt of the nation to the bank. The Bills of National Defence:—One of the most efficient instruments for keeping the war chest filled was found to be the treasury bills, very felicitously re-named by M. Ribot, the Minister of Finance during the early part of the war, "National Defense Bills." The change of name was determined upon in September, 1914. The new bills were at first issued in denominations equivalent to $20, #100 and $200. A t a later date these bills were issued in as small denominations as five francs and twenty francs (one and four dollars) to fit the requirements of the smallest investor, and in various larger denominations to meet the needs of banks and other wholesale investors. A t first they were issued at a discount which, when the note was repaid at par, gave the bearer a return from the earlier issues at the rate of about 5)4 P e r cent a year. The rate was readjusted from time to time as conditions seemed to require. These bills were at first issued to mature in three or six months or a year. Later, bills of one month's maturity also were issued. Three hundred and twelve million dollars worth were absorbed in 1914. In the next year and the year following there were respectively net additions to the amount outstanding of some £839,000,000 in 1915 and $ 1,089,000,000 in 1916, while in 1917 the net increase was $1,345,000,000. In ioo] BANKERS TRUST COMPANY 1918, on November 30, the outstanding issue had increased the equivalent of $2,590,000,000 to $6,357,000,000. This amount was reduced nearly two billion in December from the proceeds of a new permanent loan. The issues steadily increased during the following year reaching about nine and a half billion dollars worth by the close of 1919; an important part of them hidden away in the homes of the people. They provided for nearly 29 per cent of the war expenditures. The popularity of these bills was greatly increased by the fact that the Bank of France agreed to accept them as security for loans at 80 per cent of their nominal value. Thus they were a particularly liquid asset for people in business, either large or small, and for institutions of credit. The Funded Debt: In February, 1915, a new form of short term bonds was placed on sale. These bonds, known as "Bonds of National Defense," had a currency of ten years and were well received, but they never achieved the popularity accorded to the bills of similar name. The first issue, bearing 5 per cent interest, was placed at 9 6 ^ , reimbursable at par upon maturity, in 1925 or in 1920, if the right of redemtion at that time were exercised. The bonds were issued free of taxation. This first issue brought into the treasury the equivalent of over $539,000,000. However, quite a large part of this amount, around $150,000,000 was received in old bond issues taken in payment. Subsequent issues were placed in 1917 and 1919. It was not until November, 1915, that the first great war loan was offered to the public. Everything possible was done to popularize the loan and to make it easy to subscribe. The books opened on November 25, 1915, and closed on December 15. The subscriptions at THE INTER-ALLY DEBTS [ 64 par totalled $2,934,000,000. The money value in cash and securities totalled $2,568,000,000. There were three other great loans placed during the war period aggregating at par $11,136,000,000. They brought into the treasury the equivalent of $8,193,000,000 either in cash or in other national securities. Borrowing in Foreign Markets The external borrowings of France due to the Great War fell into two classes, viz.: market borrowings and loans from other governments. The purposes for which the loans were incurred were: for military supplies of all kinds; for civilian needs—especially for food; for refunding of market debts incurred in the United States for war purposes prior to April, 1917; for interest to the United States upon the money it furnished; to reimburse other nations, especially England, for advances received from them; for needs of other nations, France acting as intermediary. Apart from certain relatively unimportant export credits from neutral countries and loans of about $200,000,000 from Japan, the external indebtedness of France on account of the war is due to or in the United States and the United Kingdom. Market Borrowings in the United States: It was in September of 1914 that the first war loan was placed by France in the United States. The amount was not large, only the sum of $10,000,000 was involved, but the fact is worth recording for this was the first opportunity which had been offered for America to reciprocate, even in a slight degree, the great assistance(which France so generously gave her during the Revolutionary War. This loan was arranged by Mr. Maurice Leon, a French attorney resident in New York, through the ioo] BANKERS TRUST COMPANY National City Bank. It was for one year and secured solely by the good faith of the French nation. It was in this month that the submarine warfare began which, two and a half years later, was to force American intervention on the side of the Allies. This loan was promptly paid at maturity. About six months later, in March, 1915, a syndicate headed by Messrs. J. P. Morgan & Co., placed in New York a loan of $50,000,000 for the French government. In June, 1915, the French government distributed widely to French banks and bankers a circular authorizing them to buy for account of the national treasury United States railway securities held in France. These securities apparently were resold in New York, thus forming the basis for credits there. In October, 1915, the French and English governments united in placing in New Y o r k , through a powerful banking syndicate headed by Messrs. J. P. Morgan & Co., a loan for $500,000,000 at 5 per cent, repayable in five years. Although this loan was unsecured it was readily placed and the bonds always were well regarded in the American financial markets. This is the largest foreign government loan ever placed in the United States. It was paid at maturity, October, 1920, without aid from the United States government. In 1916 M . Ribot, the French minister of finance, in a note issued on M a y 4 appealed to the public to loan to the treasury securities of neutral countries. In July, securities obtained in response to this appeal were used as the basis for a loan of $100,000,000 obtained in New York from the American Foreign Securities Company. This company, having a paid in capital of $10,000,000, obtained the bulk of the money needed to effect the loan through the sale of $94,500,000 5 per cent bonds. THE INTER-ALLY DEBTS[64 The French government continued to appeal for negotiable foreign securities and in April, 1917, arranged through Messrs, J. P. Morgan & Co. another secured loan for $100,000,000. In addition to these bond issues placed with the public there were a number of industrial, or export, credits placed with banks and bankers. Two of these aggregating $45,000,000 were arranged by Messrs. Brown Brothers & Co. and five, aggregating $110,000,000, by Messrs. Bonbright & Co, independently and in connection with the Guaranty Trust Company and the Bankers Trust Company. There were also some smaller credits placed through other bankers or arranged directly with exporting houses and manufacturers and purveyors of munitions. The French government sponsored these credits. They were also in some cases protected by a deposit of securities and in particular by bankers' acceptances of drafts drawn upon French manufacturers and other importers purchasing supplies in the United States. The commercial export credit for $20,000,000 arranged by Messrs. Brown Brothers & Co. in August, 1915, is notable because it was the first dollar commercial export credit in syndicate form ever issued in the United States. Besides being secured by drafts accepted by responsible French importing houses, it was backed by the credit of the French government in the form of treasury bills. In October, 1916, the city of Paris borrowed $50,000,000 in New York and in November of that year the cities of Marseilles, Lyons and Bordeaux each borrowed $12,000,000. These loans, while ostensibly for account of the cities, were actually for the benefit of the French national treasury. They bore 6 per cent interest and were negotiated by Messrs. Kuhn, Loeb & Company. ioo] BANKERS TRUST COMPANY As in April, 1917, the United States government became banker to the Allied Nations, there were no other market loans placed by France in the United States during the period of the war, after the offering of April, 1917, except in November, 1919, when the loans to Bordeaux, Lyons and Marseilles were refunded. However, in August, 1919, the French government began to offer 90 day treasury bills in America through their accredited bankers, Messrs. J. P. Morgan & Co. These bills were chiefly bought by the banks. They were constantly running off and being renewed. The maximum issue outstanding at any one time is understood to have been around $50,000,000. Sales of these bills were discontinued in August, 1921. Market Borrowings in the United Kingdom: Similar data to the foregoing in regard to the borrowing of France in Great Britain do not appear to have been published. We know that in or about October, 1914, an issue of French treasury bills was placed through the Bank of England for the equivalent of $49,000,000 and that on October 15, 1914, Messrs. N. M. Rothschild & Son floated in London similar bills for the equivalent of, say $10,000,000. This was the first borrowing abroad by France in connection with the financing of the Great War and these appear to have been the first loans payable in a foreign currency ever placed by the French government up to that time, although at different times considerable amounts of French rentes had been owned abroad. In particular was this true in connection with the payment of the indemnity to Germany in 1871-1873 when around, $386,000,000 of rentes were sold to foreigners. However, these bonds were not made payable in foreign currencies and they were quickly reabsorbed by the French people. INTER-ALLY DEBTS Large amounts of treasury bills were placed in London during the war years rising from around $57,000,000 at the close of 1914 to $163,000,000 at the close of 1915, to $340,000,000 at the close of 1916 and finally reaching a maximum of nearly $400,000,000 in 1917 at about which amount they stood at the close of 1919. In December, 1915, a "substantial amount" of the first Loan of National Defense was reported to have been taken in England. The proceeds, by arrangement with the English government, were to be devoted to the liquidation of the large debts which had been contracted in England by the French government. In April, 1918, France sold about $23,000,000 of her internal bonds in Argentina and at various times during the war arranged export credits in Argentina, Uruguay, Spain and the Netherlands. She also borrowed from the Bank of Japan, and floated one or more loans in that country. On December 31, 1919, the French government owed to foreign markets exclusive of amounts due to other nations— the political loans as they are sometimes called—the equivalent of $1,084,000,000 currency dollars. Of this large sum $372,000,000 was due in the United States, $414,000,000 in Great Britain, $298,000,000 in Japan, Spain, the Netherlands, Argentina, Uruguay and elsewhere. The status of the debt of France pre-war, at the close of the first three years of war and on December 31,1919, may be seen by reference to Statistical Tables III and X V through X X . THE NATIONAL DEBT OF ITALY The debt of the Italian government on June 30, 1914 was $3,034,000,000, all held at home. On June 30, 1920, the debt was $17,849,000,000 of which amount $13,938,000,000, ioo] BANKERS TRUST COMPANY 78.09 per cent, was internal debt and $3,911,000,000, or 21.91 per cent, was external debt. Of the internal debt the sum of $10,145,000,000 was funded debt, $3,235,000,000 was floating debt and $558,000,000 was government currency. Borrowing at Home and Abroad The Currency: In Italy the government issues a fiduciary currency for a relatively unimportant amount of small notes, but the greater part of the circulating notes is issued by the banks. There are three banks of issue. In July, 1914, these banks had in circulation notes amounting to $437,145,000, while the state notes outstanding totalled $96,307,000, a grand total of $533,452,000. Issues of bank notes were made during the war on account of the state. These issues at the end of June, 1920, had reached the large total of $1,994,269,000. The direct state issue at that time was $438,110,000, while bank notes issued by the banks on their own account had reached $1,444,412,000. A substantial portion of this latter issue probably was made to assist the marketing of the bonds of the government. Thus on June 30, 1920, there were in circulation $3,876,791,000 bank notes and state notes as against $533>452>ooo a t the beginning of the war. We are not advised as to what form of security was given by the government to the banks in exchange for their circulating notes. The method of exchanging treasury bills for notes followed in several other countries does not seem to have been used. Treasury Bills: There were five forms of treasury bills issued by Italy. These were ordinary bills, so called three, five, and seven-year bills or bonds, and special bills for foreign use. On June 30, 1920, there were outstanding $1,778, INTER-ALLY DEBTS 495,000 ordinary bills, $819,285,000 three and five-year bills, and $3,911,338,000 bills for external use, chiefly in connection with loans from the governments of Great Britain and the United States, although there were small amounts, aggregating not quite $17,000,000, due to private lenders in Brazil and the United States. * The Permanent Loans: There were six of these loans for a total of $6,939,508,000 issued during the war. THE PUBLIC DEBT OF RUSSIA The Debt Prior to the Great War The financial history of Russia is characterized by at least two noticeable features; the enormous accumulation of public debt, and the extraordinary growth of the state budget. One of the favorable characteristics of Russia's credit, to quote M. Bark, the Russian Minister of Finance, during the early part of the World War, from January, 1914, until the abdication of the Czar in March, 1917, was that, "in the whole financial history of Russia there has never been a moment's delay in paying creditors." Russia's credit had always depended on two things: first, the importance of her role in foreign politics, and second, the popularity of her wars in the financial markets of the world. If either one of those factors was absent, it was always difficult for her to obtain credit, and she was usually forced t o accept terms somewhat humiliating for a great nation. This was the case in the Turkish Wars of the 70's when Russia, actuated by the most altruistic motives, wanted to free some of the Balkan states from the Turkish yoke. T o do this it was necessary to sacrifice her credit,sinceher jealous neighbors ioo] BANKERS TRUST COMPANY in western Europe saw in Russia's actions the terrible menace of Pan-Slavism. The total direct debt of Russia at the beginning of January, 1914 was $4,541,000,000 of which debt $2,947,000,000 was contracted for the general needs of the state and $1,594,000,000 for railroad construction. Financing the Railroads: Although the Russian public debt was contracted largely for state purposes and to defray the expenses incurred by wars, still it had another characteristic which was peculiarly striking, and that was the role played in its composition by the debts contracted for railroad construction. Previous to the Great War, the debt issue for this purpose as just stated had reached the sum of $1,594,000,000, or 35 per cent of the total. In addition to this debt directly incurred for railway development, the Russian government had guaranteed issues made by the railway companies themselves for $965,816,000. The Guaranteed Debt: In addition to her obligation as guarantor, for $965,816,000 of railroad bonds and stocks, Russia on January 1, 1913, was obligated as guarantor for $423,912,000 bonds of the Nobles Land Bank and for $636,838,000 bonds of the Peasants Land Bank, a grand total of $2,026,566,000. Summary of Pre-War Debt Status: Therefore the total national debt of Russia direct and guaranteed on January 1, 1914, approximated $6,568,000,000. It is not possible to tell exactly the proportions of the Russian debt which were held at home and held abroad before the Great War, but judging by the manner in which interest payments were made, somewhat more than 50 per cent was held at home and somewhat less than 50 per cent abroad. Doctor Eliacheff is inclined to place the foreign holdings at 44 per cent of the total. THE INTER-ALLY DEBTS[64 Before the war Russian government securities were quoted in Paris, London, Geneva, Brussels, Vienna, Rome, Berlin and Amsterdam. What amounts were held in each market are not definitely known. The total interest charge on the foreign debt approximated $199,150,000. Of this amount $125,050,000, say 62.79 per cent, were remitted to France; $15,440,000, 7.75 per cent, were remitted to Great Britain; $500,000, c.25 per cent, were remitted to the United States; $23,160,000, 11.63 P e r c e n t > went to Holland, and $35,000,000, 17.58 per cent, to Germany, Austria-Hungary and elsewhere. These figures confirm other estimates which make France to have been by far the largest external creditor of Russia. The War Debt of Russia Russia's sinews of war consisted mainly of internal loans. These took the forms with which we have now become familiar because of the fact that they were adopted by substantially all of the belligerents; namely, of paper money, treasury bills (otherwise called in Russia "series"), short term loans, and long term loans. Paper Money: A t the outbreak of the war, the Russian fiduciary circulation was almost entirely covered by the specie of the State Bank; $825,418,400 in gold in Russia and $72,044,000 in gold belonging to the State Bank abroad, against $840,341,800 of bank notes in circulation. On October 1, 1917, there were in circulation $8,897,434,000 bank notes. Prior to the war, the Russian law did not allow the issue of more than $154,380,000 in paper not covered by gold. The convertibility of paper money into gold was suppressed by law of July 27 (August 9), 1914, and thereafter there were ioo] BANKERS TRUST COMPANY tea decrees permitting increased issues of bank notes. The n«w issues aggregated $8,057,092,200. A t the beginning of the war, specie formed more than 30 percent of the money in circulation in Russia; in September, 1917, not more than 4 per cent. Knowing the evil consequences of repeated and large issues of paper money, Russian economists and the authorities were none too anxious to inflate the currency, but they had to deal with a population little used to bonds and other securities and which preferred to receive wages and keep savings in paper which they could understand. This, in a way, explains the great increase in bank notes during the war. The bank notes were issued to the government in exchange for treasury bonds. Treasury Bonds: Treasury bonds originally issued—law of July 27 or August 9, 1914—were to be discounted by the State Bank and serve as cover for bank notes advanced by the State Bank to the treasury. They served this purpose, in the main, until the end of the war, but in time they also reached the public. They were for a term not exceeding one year, and were issued at par less the 5 per cent interest deducted in advance by the purchaser. Six weeks before its fall, the provisional government authorized the minister of finance to increase the issue of treasury bonds up to an amount of $12,865,000,000, including obligations discounted by the State Bank. Of this sum, only about $9,634,000,000 had been issued before the fall of Kerensky, of which $6,948,000,000 were discounted by the State Bank, $73,000,000 were issued in Finnish money for expenditures incurred in Finland, and $2,613,000,000 remained in circulation. Some of these treasury bonds were THE INTER-ALLY DEBTS[64 not presented for redemption at maturity, but remained in circulation practically as currency. Treasury Notes: Another type of short term loan, used in Russia since 1830 and familiar to the public, was the treasury note, popularly known as "series," which was intermediate between a bond and currency. As a bond, it bore interest, coupons being attached to the "series." It was not legal tender for payment of debts between individuals, but was accepted by the treasury, by the State Bank in payment for supplies to the government, and in short in all transactions with the fiscal departments. The " s e r i e s " issued during the war brought in a total of $437,000,000. There were three issues: August 22, 1914, $154,000,000; March 22, 1915, $154,000,000; and August 14, 1915, $129,000,000. This type of obligation was discontinued after the third issue, as the public preferred the new " treasury bonds," already described, which bore higher interest and were sometimes issued for less than one year, the term of the old "treasury notes" or "series." Long-term Internal Loans: The nominal amount of internal long term war loans was more than $6,489,000,000. The Imperial government issued six of these loans: 5% 5% 5&5 under ukase of October 30, 1914 for $257,000,000 February 6, 1915 257,000,000 " April 24, 1915 515,000,000 " October 28, 1915; 515,000,000 SX% " " February 26,1916 1,029,000,000 SH% ' ' " October 10, 1916 1,544,000,000 The net proceeds of these loans amounted to $3,879,000,000. The Provisional (Kerensky) government issued at 5 per cent a single " L i b e r t y Loan," by decree of March 27, 1917. T h e amount was not fixed but by September 27, 1917, it had ioo] BANKERS TRUST COMPANY produced subscriptions of $2,080,528,000. Its greater success than that of the imperial loans, both as to amounts subscribed and to the number of subscribers, more than 900,000, was due to the general satisfaction at the fall of the old regime. On all these loans subscriptions were received at the State Bank as well as at the private banks and savings banks, and at other financial houses. A syndicate of private banks guaranteed the placement of a considerable fixed amount. Subscribers enjoyed certain fiscal privileges, such as exemption from the tax on securities and the acceptance of the bonds in payment of certain taxes and in payment of customs duties. From 1916, the bonds could be borrowed upon from the State Bank at 88 per cent less 4 per cent to 5 per cent commission. The price at which the first two loans were issued was 94 per cent to the public and 92 per cent to the banking syndicate. The syndicate took $154,380,000 of each of these loans. The real interest therefore was 5.3 per cent. When the income tax was introduced, income from war loan securities became subject to taxation as part of the general income of the individual. The third Czarist loan was issued at 99 to the public and 9 t o the syndicate, which took $308,760,000. The real interest was 5.6 per cent. The fourth, fifth and sixth loans were issued at 95 to the public and 93 to the syndicate, which took $308,760,000 of the fourth, $617,520,000 of the fifth, and $823,360,000 of the sixth. The real interest on these loans works out at 5.8 per cent. The Kerensky "Liberty L o a n " was issued at a uniform rate of 85, with real interest at 6 per cent. The syndicate of banks guaranteed a minimum sale of $1,543,800,000 of this loan. [ 64 THE INTER-ALLY DEBTS T h e interest on these loans was low, as compared with Russia's previous war loans. The Russo-Turkish war loan of 1877 cost 7.5 per cent real interest and the Russo-Japanese loan 7 percent real interest. The real amount received by the treasury from the seven internal loans in the Great War was, up to September 1, 1917, $5,447,000,000. On all seven loans, the large and medium subscriptions predominated. Even on the " L i b e r t y L o a n " the "democ r a t i c " subscription was negligible. PUBLIC DEBT OF RUSSIA SEPTEMBER I, 1917 (In "Currency" dollars—000,000 omitted) WAR DEBT Internal Funded Debt: Seven War Loans . . . . . Floating Debt Treasury Bills (Series) 437 Treasury Bonds Discounted by State Bank against its notes 6,948 Sold to other banks and to the public 2,249 TOTAL INTERNAL DEBT External To To To To To France England Japan Italy United States TOTAL WAR DEBT PRE-WAR DEBT Internal External 762 2,766 152 10 279 3,969 20,092 2,504 1,968 4,472 24,564 Guaranteed Debt 9»634 16,123 TOTAL DIRECT DEBT TOTAL DIRECT AND GUARANTEED DEBT 6,489 2,027 . . . . 26,591 ioo] BANKERS TRUST COMPANY The Foreign War Debt: The external debt incurred for the conduct of the war amounted to $3,969,000,000, about one-sixth of the total amount borrowed from the beginning of the war to the fall of the Kerensky government. These credits were obtained in Great Britain, France, Italy, Japan, and the United States. As the market transactions and the loans from allied goverments were largely inter-dependent, it will be more satisfactory to consider them together in the next chapter, which deals with the inter-ally loans. The Total IVar Borrowing of Russia The total amount borrowed for the conduct of the war by the Czarist and Kerensky governments up to September 1, 1917 at par values was $20,092,000,000. The status of the debt on that date is shown by the table on page i l l . H o w THE U N I T E D STATES BORROWED When the United States on April 7, 1917, declared war against Germany, our debt was $1,282,000,000. On June 30, 1920, the debt was $24,298,000,000, almost twenty fold what it was three years before. This debt was owed entirely at home. The only foreign debt, if it can be so termed, which the United States had at any time during t(ie war or thereafter, was for unadjusted accounts with associated powers for supplies furnished to our army or navy. Financing the American Expeditionary Forces General Dawes, the General Purchasing Agent, and Chairman of the General Purchasing Board, American Expeditionary Force, in his final report dated February 28, 1919, states that "the advisability of purchases in the United States THE INTER-ALLY DEBTS[64 as distinguished from purchases in Europe was controlled by the continuous tonnage emergency." The thing of supreme importance was to transport soldiers from America to France. Therefore, even if supplies obtained in Europe cost substantially more than they might have been obtained for in the United States plus transportation, it was necessary to assume the greater cost in order that the ships might be available to transport the troops. The Annual Report of the Secretary of the Treasury for 1920 states that the currencies needed by the United States in France, Great Britain and Italy for our war expenditures in those countries were provided by the respective foreign governments under an arrangement whereby the dollar equivalent of the amounts so provided was made available to the respective foreign governments for use to meet their war expenditures in the United States, and thus the needs of these governments for advances from the United States were reduced by a corresponding amount. The total amount of foreign currencies placed at the disposal of the United States under this arrangement, from April 6, 1917, to November 1, 1920, was $1,490,557,000; $449,496,000 by Great Britain, $1,025,438,000 by France, $14,425,000 by Italy, and $1,198,000 by Belgium. For these advances the respective nations received credit on the books of the United States treasury and against these credits they were enabled to buy in the United States goods which they needed for the prosecution of the war. A t the end of the war some remaining unsettled debit balances were paid by us in cash. The government of the United States has been severely criticised in some quarters for handling the accounts in the manner indicated instead of treating debits of our European ioo] BANKERS TRUST COMPANY allies against us as offsets to our credits to them. However, the criticism hardly holds water because our allies had to have the supplies furnished from the United States so that the method of accounting was unimportant. In the end our net advances must have been the same. The War Debt of the United States The Floating Debt: The methods of borrowing used by the United States government were much the same as those followed by the other belligerents except that w*e did not directly or indirectly issue any fiduciary currency. That is, we did not make any indirect issues by tendering treasury bills to a state bank which the bank must perforce discount, and in order to do so was authorized, really compelled, to issue its notes. However, the same result was accomplished, due to the fact that the federal reserve banks were authorized to rediscount for the commercial banks and to effect such rediscounts increased their note issues. Thus we see that during the three years above mentioned, the floating debt of the United States increased $2,739,000,000, while the amount of federal reserve notes outstanding increased $2,739,000,000, an exact parallel, although other causes besides the increase in the funded debt account to a considerable degree for the increase in the note issues. The actual amount of government securities of all kinds owned or loaned upon by the federal reserve banks on June 30, 1920, was $1,610,000,000. It is evident that the right to issue treasury bills, or in American parlance, certificates of indebtedness, had been used with reserve, for at the close of the period of war financing the floating debt was only 11.57 per cent of the total debt. THE INTER-ALLY DEBTS[64 The War Loans: There were four loans issued by the United States for an aggregate amount of $16,978,356,250. A comparative summary statement of the debt pre-war, at the close of the war, and at the close of 1923 may be found among the Statistical Tables. GERMANY'S BORROWINGS FOR WAR Barring a small loan raised in the United States and possibly some quite unimportant financing in other neutral countries, all of Germany's war financing was with her own citizens. Financing the First Part of the War The Floating Debt: Early in the war she adopted the policy of borrowing in the first instance from the banks and from the public against issues of interest bearing or discounted treasury bills, which bills were semi-annually funded into permanent loans. These latter loans were issued in March and September. Loans of the Imperial Bank to the imperial government which in the early part of 1914 had fluctuated between a minimum of $178,500,000 and a maximum of $323,918,000, suddenly jumped to $495,278,000 at the end of July, 1914, reaching a maximum of $1,131,690,000 at the close of September. Evidently, as a result of the successful flotation by the government of the first war loan, advances from the Imperial Bank fell off during October about $500,000,000, but they soon increased and, at the end of the year, amounted to just under a billion dollars. Meanwhile the circulating notes of the bank which before the war had fluctuated between $500,000,000 and $600,000,000, had by the end of the year reached an issue of over $1,200,000,000. J. JUJ J liANK.tRS TRUST COMPANY During 1915 loans to the government gradually increased, reaching a maximum of $1,432,000,000 in the latter part of March and of $1,788,000,000 at the end of September, and then dropping off again as the proceeds of the semi-annual bond issues materialized. A t the end of the year the bank was lending the government $1,381,000,000 while the circulating notes outstanding had reached $1,646,000,000. In 1916 the story of the bank is a similar one, loans to the government increasing in volume, with the usual peak load in March and September and closing the year at $2,287,000,000. Note issues did not markedly increase during 1916, the amount of notes in circulation at the end of the year being $1,917,000,000. On April 7, 1917, the eventful day when the United States declared war, the outstanding note issue of the Imperial Bank was $2,037,000,000 and the loans to the empire were $2,366,000,000. A t that date the total floating debt of the empire was $4,450,000,000 so that the Imperial Bank was carrying a little more than one-half of this class of debt. On July 31, 1914, the bank had a gold reserve of $298,000,000 while on April 7, 1917, the reserve was $603,000,000 or more than double the pre-war reserve. Therefore, while it is evident that during these years the government had used the facilities of the bank, it can not be said to have abused them, even though the relation of the gold reserve to net note issues had declined from a ratio of 1 to 2 to a ratio of 1 to 3 ^ . The Permanent War Loans: The permanent war loans were well received by the people, and in every case subscriptions were liberal. The loans all bore 5 per cent interest and were offered at a slight discount. Treasury bonds repayable by drawings were simultaneously issued. The first two issues THE INTER-ALLY DEBTS [ 161 of these bore 5 per cent interest, subsequent issues 4 y i per cent. The permanent loans and treasury bonds during the first three years of the war aggregated at par $10,805>000,000, while the floating debt increased $4,356,000,000, an aggregate increase in debt of $15,161,000,000, bringing the total debt on March 31, 1917, up to $16,446,000,000 as against $1,285,000,000 on July 31, 1914. The interest charge increased from $43,485,000 on March 31, 1914 to $800,639,000 on March 31, 1917. The Loan Banks: Subscriptions to the government issues were facilitated by the organization of loan banks. These banks, which were organized by the government or under government auspices, almost as soon as war was declared, had for their object making available for the use of the government investments in fixed forms, also investments in personal securities difficult of negotiation, as well as investments in securities ordinarily readily convertible. These banks were allowed to issue notes to bearer which circulated as money and which were accepted by the government in payment for its issues of bonds or notes. The loan banks accepted as security not only government bonds and other negotiable bonds and stocks but also loaned to some extent against goods, sugar, grain, silk and tobacco pledged by interior trading organizations. Financing the Last Two Years of Warfare During the remaining two years of active warfare, the same methods of borrowing were followed by Germany as those which we have just described, but the relation between floating debt and funded debt was altered for the worse with the result that whereas on March 31, 1917, the floating debt GERMANY'S PUBLIC DEBT STATUS (In " C u r r e n c y " dollars—000,000 omitted) R E C E I P T S FROM BORROWING For Fiscal Year Floating Ended Debt March 31 Discounted Treasury Bills 67 1.650 333 2.398 3.484 7.225 6,611 3I,I0S 33.067 1,903,107 Funded Debt Bonds of the Empire and Treasury Bills Bearing Interest 26 1.055 4.851 4.679 5,677 5.413 30S Total 93 3.705 5.184 7.077 9.161 12.637 6,919 21,198 33.067 I.903.107 C A P I T A L OP D E O T A T E N D OK F I S C A L Y E A R Floating Debt 67 1,718 2,051 4.450 7.934 15.160 21.770 42.969 66.036 1.969,142 Funded Debt 1,170 2.260 7.196 11.977 17.116 21,990 21.667 19,554 19.082 15.333 Total CIRCULATING N O T E S Interest Charge as Debt Stood at End of Year Imperial Bank Notes 43 6573 1.237 I80 3.078 CI,201 444 9.247 rf I.646 Boo 16,427 «.9I7 25.050 1,229 /2.729 6.067 37.1 So 1,829 10,750 043.437 3,104 16,521 62.523 3.056 31.337 85.U8 4.137 1.984.475 53.340 1.313,264 Treas- Loan Bant ury Notes Notes 56 78 84 83 S 72 106 231 684 M9I 2.624 3.26S 3.430 2.047 2.999 oNot Including "other floating debt" which according to another official document amounted to about $3,449 million. frjune 30, 1914^December 31, 1914. dDecember 31. I9I5. ^December 31. 1916. 'December 31, 1917. THE INTER-ALLY DEBTS[161 was only 27.06 per cent of the total debt, on March 31, 1920, the floating debt and the funded debt practically balanced each other. The former amounted to $24,990,000,000, or 53-3 per cent of the total debt, the latter to $21,896,000,000 and the total debt to $46,886,000,000. A t this time the notes of the Imperial Bank outstanding aggregated about $11,000,000,000 and those of the loan banks amounted to about $3,400,000,000. Summary Statement of War Borrowing A table expressly furnished for this book by the German ministry of finance is printed on page 118. This table gives for the year ended March 21, 1914, and for each year thereafter the revenue from borrowing, the total public debt at the end of the year and the interest charge on the debt as it stood at the end of the year. We have converted marks into dollars at the exchange parity and have added the amount of circulating notes outstanding on or about the same dates. It will be observed by reference to Statistical Table X V I I I that while the debt was large on March 31, 1920, amounting in currency dollars to $46,886,000,000 its status did not compare unfavorably with that of the debts of France and of England, the former of which owed $41,250,000,000 in currency and the latter $38,311,000,000. CHAPTER VIII The Inter-Ally Loans 1914-1917 ^ alliance in a great war, to be effective, means that each country must bring all its resources, whatever they are, into the common stock. An alliance of war can not be conducted on limited liability principles. If one country in the alliance has more trained and armed men ready with guns, rifles and munitions than another allied country can command, she must bring them all up against the common enemy without regard to the fact that the others can not for the moment make a similar contribution. It is equally true that the same principle applies to a country with a larger navy, or the country with greater resources of capital and credit—they must be made available to the utmost for the purposes of the alliance whether the other countries are in the position to make a similar contribution or not." With these words, Mr. Lloyd George, Chancellor of the Exchequer, concluded an address in the House of Commons in February, 1915, asking the approval of the House for the most important financial arrangements with foreign nations which up to that time Great Britain had ever undertaken. It was in pursuance of these arrangements with her allies and of similar arrangements with her dominions made in the previous November, that Great Britain during a period of a little over two years made net advances to dominions and allies of $3,824,496,000. It is evident that to England belongs the honor of being known as the banker of the entente group for the first three years of the war. T h e principal borrowers on balance were 120] T H E I N T E R - A L L Y D E B T S[161 Russia for $2,091,067,coo; Italy for $676,678,000; the British Dominions for $544,510,000; and Belgium for $291,063,000. During the same period, France borrowed on balance $40,524,000. The other borrowers for relatively small amounts were Serbia, Roumania, Montenegro, Greece and Portugal. The facts are clearly shown in the table. INTER-NATION INDEBTEDNESS DUE S T A T U S ON A P R I L ( I n dollars—000 LENDERS I, TO THE GREAT WAR 1917 omitted) Great Canada France Britain to Allied to Allied to Allied Gvta. Gvts. Gvta. Italy to Allied Gvts. Russia to Allied Gvts. Total BORROWERS British Empire Great Britain . . . . Australia Canada New Zealand . . . . South Africa . . . . British So. Africa Co. Crown Colonies . . . 169.558 289,584 88,561 86,138 3 T76 7.299 Total British Empire 714,068 Belgium . . . . . Belgian Congo . . . . France . . . . . . . . Greece . . . . Italy Portugal Montenegro . . . . . Roumania , Russia Serbia . . . . 930,865 7.H3 764.156 9.732 456 Total &375.90O 338.920 3.576 7.299 169.558 375,900 80.674 1,265.160 2.605,360 48,250 242,813 4,510 391*063 4,510 930,86s 3,860 168 10,973 764,334 9,733 553 96 60,825 36 58,562 5.715.788 £80,674 til, 265,160 1,891,293 238,920 389,584 88,561 86,128 426,530 60,825 3,356,327 94,267 6,972 35,705 169,763 890,341 87,646 1,265,160 8,128,697 ^Includes J973 million for interchange of credits with Russia. Gold Abroad." cGold. rfGoId $391,960; Interchange of credit* with Great Britain $973,000. T H E BRITISH, F R E N C H AND R U S S I A N A C C O R D OF I 9 I 5 The great event in connection with early inter-ally financing was the tripartite conference held in Paris in February, IZO ] BANKERS TRUST COMPANY 1915, when the military entente which already existed between France, Russia and England was supplemented and really made effective by a financial alliance which was the outcome of this conference. These arrangements were made by the finance ministers of the three nations, Mr. Lloyd George representing England, M. Ribot representing France, and M. Bark representing Russia. Mr. Lloyd George was supported by a very important group of financiers which included Lord Cunliffe, Governor of the Bank of England, and Mr. Montague of the English treasury department. Presumably the Russian and French finance ministers had financial advisers of similar importance. The outcome of this conference was officially recorded in the following statement which was given out at the close of the conference: " T h e Finance Ministers of France, Great Britain and Russia have met together at Paris to examine into the financial questions arising out of the war. They are agreed in declaring that the three powers are resolved to unite their financial resources, equally with their military resources, for the purpose of carrying the war to a successful conclusion. With this aim in view, they have decided to recommend to their respective governments to take over in equal shares the advances made, or to be made to the countries which are now fighting with them, or which may find themselves in the near future in a position to take up arms for the common cause. The amount of these advances will be covered by the individual resources of the three powders, as well as by the issue at a suitable opportunity of a loan in the name of the three powers. " T h e question of the relations to be established between the banks of issue of the three powers was the subject of a THE INTER-ALLY DEBTS [ 161 special understanding. The ministers have decided to proceed jointly with all purchases which their governments have occasion to make from neutral countries. " T h e y have adopted the financial measures necessary to facilitate Russian exports and to re-establish, so far as possible, the parity of exchange between Russia and the other Allies. " T h e y have determined to meet again according as circumstances may require. The next conference will be held in London." English financial circles were much disturbed at the intimations in the above statement that there was in contemplation " t h e issue at a suitable opportunity of a loan in the name of the three powers." Immediately after this agreement was entered into the Bank of England, on February 13, offered in London $48,660,000 treasury bills for the Russian government. These were twelve months' discount bills. They were offered at 95 and were over-subscribed, large subscribers being allotted only 82 per cent of the amount applied for. An Historic Address On February 15, Mr. Lloyd George addressed the House of Commons, explaining the terms of the agreement made at Paris for which he was asking parliamentary approval. In the course of this speech Mr. Lloyd George outlined the relative positions of the three great countries which had led the finance ministers to make the arrangement which he was commending to parliament. He called attention to the fact that Great Britain and France were two of the richest countries in the world and the great bankers of the world. He stated that Great Britain could pay for the huge expenditure J BANKtKS TKUST COMPANY of the war for five years, allowing a substantial sum for depreciation, out of the proceeds of her foreign investments, and that France could carry on the war for two or three years at least, out of the proceeds of her investments abroad, and that the respective countries at the end of these periods would have something to spare to advance to their allies. He claimed that the Allies were fighting the whole of the mobilized strength of the German army with perhaps less than onethird of their own strength, and he said that the problem was how to bring the remaining two-thirds of their resources and strength into the fighting line at the earliest possible moment. Russia's Difficulties: Mr. Lloyd George called attention to the fact that Russia was prodigiously rich in natural resources, in fact perhaps the richest country in the world in food products and raw materials. He referred to her great and growing population and commented on the fact that she therefore had labor in abundance with which to develop her resources. The great difficulty with Russia, he said, was that although she had great natural resources she had not been able to command the capital within her own dominions to develop those resources, even during times of peace. A t that time, under war conditions, she could not sell her commodities; this for several reasons. One was the difficulty of obtaining working capital; another was the fact that absorption of labor into the armies had reduced the amount available for use in the mines, factories and on the fields. For these reasons and others Russia was experiencing special difficulties in the matter of financing outside purchases for war use. Difficulties of France: Mr. Lloyd George stated that France also had special difficulties and that he was not sure that in England they quite realized the strain that had been put upon that gallant country up to that time. THE INTER-ALLY DEBTS [ 161 He referred to the fact that the enemy were in occupation of part of her richest territory; that they were within fifty miles of her capital, exactly as if a huge German army were at Oxford. But, he said, notwithstanding these facts, France had raised great sums of money to carry on the war and to help finance the allied states. He referred to the wonderful confidence prevailing throughout France, the "calm and serene confidence which is supposed to be incompatible with the temperament of the Celt by those who do not know him." The Needs of Other States; Reference was made to Belgium, devastated, desolate, and almost entirely in the hands of the enemy, with an army and a civil government to maintain but with no revenue; and to Serbia, "with a population equal to that of Ireland, a people of peasants maintaining an army of 300,000 and having her third great war within two years." It was stated that other states were preparing for war and that it was obviously to the interest of England that they should be well equipped for their task and that they could only borrow in the French and English markets. England's Difficulties: Mr. Lloyd George went on to speak of the special difficulties which England was experiencing. Two-thirds of her food supplies were purchased from abroad. Enormous quantities of raw materials for her manufactures and her industries were largely absorbed in war equipment and her ships were engaged in war transportation. Therefore, he said, "we can not pay as usual in exports and freights and services and our savings for the moment are not what they would be in the case of peace. We can not therefore pay for our imports in that w a y . " He explained that for these reasons it was necessary to finance purchases abroad by creating enormous credits and by enabling her allies to do the same thing. IZO ] BANKERS TRUST COMPANY Cooperation in Making Purchases: Passing over for the time Mr. Lloyd George's statement to parliament in regard to the special arrangements which had been made with Russia, it is of interest to nbte the very important announcement then made that the three countries had agreed to coordinate their methods of purchasing supplies. He said that the methods which had been in use had led to a good deal of confusion; that the three nations were buying in the same countries and buying against each other, therefore putting up prices upon one another. " I t ended," he said, "not merely in confusion but I am afraid in a good deal of extravagance." T o correct this condition he explained that a coordinating arrangement had been made which would eliminate this competition and enable the nations to combine their orders. He hoped this would lead to less delay and more efficiency and to the avoidance of extravagance due to the former methods of working. The House of Commons Approves In the course of the debate in the House of Commons on the motion to approve the action of the government, it w*as generally conceded that as the Allies were in a joint undertaking, they must regard all of their resources, men, armies, equipment, food, credit, as a whole and use them when, how and where they could be disposed of to the greatest advantage. Special commendation was given to the arrangement for the joint purchases of supplies. The extension of aid to the smaller countries, especially to Serbia, was also approved but it was not thought desirable, even for this purpose, that there should be any joint financing. The accord with France and Russia was approved on February 23. It will now be of interest to consider in some detail the THE INTER-ALLY DEBTS[161 outcome of these understandings. But first of all let us see how England arranged to uphold the hands of France in order that together they might support, and encourage Russia and thus insure her continuing cooperation with them in the struggle. FINANCIAL ARRANGEMENTS BRITAIN AND BETWEEN GREAT FRANCE In October, 1914, France placed her first loan on account of the war in the English market. This was an issue of £2,000,000 ($9,733,000) one-year sterling treasury bonds sold through Messrs. N. M. Rothschild & Sons of London. The London Conference of May, 1915 In May, 1915 a very important arrangement was created between the French and British governments at a conference held in London between M. Ribot, the French Minister of Finance and Mr. Lloyd George, Chancellor of the Exchequer. Perhaps we can not do better than to let M. Ribot tell us exactly what happened. We shall quote from an eloquent speech which he delivered from the rostrum of the Chamber of Deputies early in the month of May. He spoke in part as follows: " I have been to London recently. I found the entire government, especially the Chancellor of the Exchequer, Mr. Lloyd George, most amicably disposed. It is a pleasure to negotiate with such a quick and open mind as that of the chancellor. Business does not drag with him, and this is a quality that we know how to appreciate. In a few hours we had everything settled. " I told Mr. Lloyd George that we had heavy payments to make to America, to Canada, and to London, and that he IZO ] BANKERS TRUST COMPANY could help us by opening credits to us in England. We reckoned up together the amounts that France would have to pay out in the following six months. Six months is a long period in war time for a minister of finance, I do not wish to look any further ahead for the time being. We drew up estimates; perhaps a little underneath the exact amount for I can not answer for my friend, M. Millerand, not being led into going beyond his own specifications. I will try to manage so that expenses will be kept down to the indispensable minimum. However, we arrived at a total of a little more than a billion and a half francs ($289,500,000) to be paid in six months either to the United States, to Canada or to England. " W e asked ourselves under what form we might obtain credits in England. We might have launched treasury bills with the help of the Bank of England as we did in January last; we have at present sold £10,000,000 worth ($48,660,000) or in round numbers 250,000,000 francs. Our credit is pretty well quoted in London as you may see by the papers, which show our bills, issued at 5 per cent, discounted on the stock exchange at per cent. "French credit is therefore solid on the London market. If the government or the bank were willing to facilitate a fresh issue, we could make it under good conditions, but the chancellor of the exchequer is not anxious at present that loans should be made on the London market. He does not make any himself and does not want anyone else to do so. He, himself, offered to open credits to us, to put at our disposal the sum of 1,500,000,000 francs ($289,500,000) on condition that we would send over shipments of gold representing a third of the total credits, which seemed to us perfectly just. In other words, if we send to London at periods chosen by us 500,000,000 francs ($96,000,000) in gold (this is the maximum) THE INTER-ALLY DEBTS [ 161 we shall receive as a counterpart not 500,000,000 francs, but 1,500,000,000, that is to say three times as much* It is perfectly just that we should be asked for a shipment of gold, because England could not maintain her exchange with the United States, in view of the new burden laid on her by France, unless she were able herself to make gold shipments to America. " T h e plan is equitable and on broad lines. I accepted it in your behalf, gentlemen, and I hope you will not disavow it. We can accept it, not merely as a helping hand from our allies, but as a business transaction where each contributes an asset. We contribute the gold required; we have it and can offer it; and in exchange we are tendered credit. I can not call this exactly a trade but it is one of those transactions which are their own excuse; where the dignity of peoples is safeguarded because they bring reciprocal gifts." A t the conclusion of this address the deputies rose and applauded at length. The minister returned to his bench and was congratulated by his colleagues. In the course of his address, M. Ribot stated that the United States was actually the great source of supply for Europe of industrial materials and of armament and munitions. He also said that the United States was the creditor of Europe for from 700,000,000 to 800,000,000 francs monthly ($135,100,000 to $154,400,000) and that while the elements of compensation were temporarily lacking they would not remain wanting and they would consist largely of American securities held by European investors. He estimated that in the coming six months French government purchases in the United States, England and Canada would aggregate one and a half billion francs ($289,500,000). Referring to the loan of gold to England, M . Ribot said, " T h e bargain is advanta IZO]BANKERS TRUST COMPANY geous; it matters little that the gold reserve of the bank is reduced some 500,000,000 francs ($96,500,000); a decline in the gold holdings of the bank from billion francs to 3 billion francs ($675,500,000 to $579,000,000). This great sum was not accumulated never to be used. France, moreover, abounds in gold, although it is not seen and it is not to our interest that it should be seen. After the peace, if political and financial conditions are favorable, the bank's gold reserve will gradually be reconstituted." It was not in this address but in connection with an earlier address before the Chamber of Deputies in which he was setting forth the methods of finance which the government had adopted, that M. Ribot closed by saying " W h a t we are doing assuredly is not a work of genius, but it is a French piece of work because it is the product of sincerity, anxiety and clarity." These remarks may well be applied to this very sensible arrangement for mutual co-operation just described. Borrowing American Securities On June 3, M . Ribot presented a financial statement in which he said that the government had distributed widely to credit houses circulars stating that they were authorized to buy United States railway securities for government account. These securities were to be used as collateral to loans to be placed in America. Loans from Great Britain In November, 1915, France placed through the Bank of England a goodly amount of her first great loan of national defence, approximately $117,000,000 par value. It is understood that these bonds were distributed among some twentytwo thousand subscribers. The proceeds of the sale were THE INTER-ALLY DEBTS[161 used to liquidate some part of the large indebtedness which the French government had incurred in England since the beginning of the war. In January, 1916, the Bank of England received subscriptions for French sterling treasury bills which were issued at the fixed rate of discount of 5 ^ per cent. This issue of bills was for a maximum amount equivalent to $350,352,000 and was not to mature until two years after the close of the war. In consideration of this credit, the Bank of France sent gold to England worth $116,784,000. This was done in pursuance of the arrangements already described. In September, 1916, the British treasury agreed to discount a further amount of French treasury bills maturing three years after the war. The proceeds of these bills were to be used only to meet payments to be made within the United Kingdom. In connection with this credit apparently no deposit of gold was required. On the 1st of April, 1917, France was borrowing from the British government the equivalent of $930,865,000, but up to that time she had not borrowed from any other ally. France as a Lender On the date last referred to above, France was lending $890,341,000 divided, $375,900,000 to Great Britain (the loan of gold already discussed), $48,250,000 to Belgium, $3,860,000 to Greece, a small amount to Montenegro, $426,530,000 to Russia, and about $35,705,000 to Serbia, and she had agreed to make additional loans aggregating $173,000,000 to Serbia and Belgium, making her total loans or commitments $1,063,341,000. Thus her loans and commitments more than offset the amount which she was borrowing from Great Britain. IZO ] BANKERS TRUST COMPANY RUSSIA'S FOREIGN FINANCING We are now in a position intelligently to consider how France and England financed their great Muscovite ally. For convenience we shall bring into the record the story of the financial relations which existed during the war between Russia and her other allies. Russia's Total Borrowing Abroad Russia effected during the war, from August, 1914* to September, 1917, inclusive, foreign credit operations in the markets and with allied governments to a total amount of about four billion dollars. T h e loans were made payable in foreign money or in gold and according to reliable Russian authorities were obtained from the various lending nations in the following amounts: $2,766,000,000 in England 762,000,000 in France 152,000,000 in Japan 10,000,000 in Italy 279,000,000 in United States $3,969,000,000 In addition, in October, 1915, there was a credit operation of a special character effected in England for $973,000,000 in favor of the Russian State Bank. This is described in a later paragraph. T h e external loans of Russia during the war had a rather well defined limit, as was indeed the case with the foreign credits of the other belligerents. This limit was set, generally speaking, b y the quantity of orders for w a r material which foreign manufacturers received from each belligerent. So far as Russia is concerned, the amount of credits opened abroad THE INTER-ALLY DEBTS[161 was somewhat greater than the value of military orders sent abroad. The difference was caused by credits opened in Paris and in London for the payment of interest on the Russian debt, as well as by relatively small sums placed at the disposal of the Russian government to stabilize the exchange rate of the ruble and obtain exchange for the industrial and commercial circles of Russia. On the other hand, the distribution of military orders to the different countries did not coincide with the respective amounts of the loans which were effected in such countries. Thus Japan and the United States received from Russia more military orders than the credits allowed her by them, while on the other hand England opened a far greater amount of credit than the amount of the military orders which she received. In fact, England served as intermediary in the financial settlements of Russia with the United States and Japan and other countries, just as she did in connection with the foreign purchases made through her by France and some of the smaller allies. T o liquidate the balance of accounts unfavorable to Russia in other countries, England borrowed on her own account in those countries and opened corresponding credits in favor of Russia in London. Credit Operations of Russia in Great Britain As we have seen, the credit operations between the Russian government, the English government and the Bank of England, for the period in which Russia was a factor in the war, aggregated $2,766,000,000. Russia's Gold Shipment of 1914.-1$: Some important financing had already taken place before the accord of February, 1915. In October, 1914, Russia sold £39,000,000 in gold to England, the proceeds to be used in financing pur IZO ] BANKERS TRUST COMPANY chases by the English government for Russian account, and in consideration of this strengthening of the gold reserves of the Bank of England, it was arranged that the Russian government should receive advances of $58,000,000. In order to observe absolute secrecy about this shipment of gold, extraordinary precautionary measures were taken. The English cruiser Drake and the military transport Mantois, on arriving at Archangel, cast anchor on the high seas at a distance of thirty miles from the coast and the gold was carried out to them by night on lighters. Despite these precautions the Germans were apprised of this shipment and on their return to England the Drake and Mantois encountered mines which German submarines had placed in their route. The gold was finally delivered at Liverpool but the danger of such an enterprise and the fact that war vessels convoying the shipment of gold were damaged during the voyage, forced the British government to discontinue this means of transportation, and all subsequent shipments of gold were made by rail to Vladivostock and thence on Japanese cruisers to Vancouver, Canada, and presumably then overland to Ottawa where, it will be remembered, the Bank of England maintained for several months a depository for part of its gold reserve. Early Credits from England: This relatively unimportant sum could not smooth out the difficulties created for Russia by the prolongation of the war. Russia needed further credits of far greater importance. Prior to the meeting of the three ministers in Paris in February, Mr. Lloyd George had agreed to advances of some$97,000,000 in addition to the$58,ooo,ooo above referred to. In his address to parliament which we have just paraphrased, he stated that these credits had been availed of by Russia for making purchases in England and THE INTER-ALLY DEBTS [ 161 elsewhere outside of the British Empire. He explained to parliament that England and France had given a guarantee to Russia that she need not hesitate a moment in giving her orders for any purchases which were necessary for the war on account of fear of experiencing any difficulty in the matter of raising money for payments. Debts of Russian Merchants in England Financed: The chancellor further stated that arrangements had been initiated which it was hoped would help to restore the exchequer in respect of bills held in the United Kingdom against Russian merchants who, although perfectly solvent, could not discharge their obligations in England owing to difficulties of exchange. The plan adopted was to accept Russian treasury bills against these bills of exchange due from Russian merchants, the Russian government to collect the debts in rubles in their own country and to give Britain the treasury bills in exchange. The Paris Accord and English Credits: As a result of the Paris accord, additional credits were opened for Russia in London for $243,000,000. A contract was entered into with Barings for the immediate issue of Russian treasury bills to run from February 23, 1915, to February 22, 1916, with a guarantee of taking what the public might not subscribe. A commission of ^ per cent, plus stamp taxes and the expense of making the securities, was agreed upon, of which commission the Bank of England was to receive one-half. By virtue of these initial arrangements, the Bank of England discounted under the guarantee of the British government during November, 1914, $58,000,000 at 4 per cent.; during February, I 9 I S> $195,000,000 at 5 per cent; and during July and August, 1915, $243,000,000 at 6 per cent, or $496,000,000 in all. The Boulogne Gold Agreement: In September, 1915, there IZO ] BANKERS TRUST COMPANY was another meeting of the ministers of finance of the three countries, this time in London. This meeting was for the purpose of arranging for still larger credits to Russia. In the meantime there had taken place an Anglo-French agreement at Boulogne by which the Bank of France and the Bank of England contracted each to send to New York $195,000,000 with a view to facilitating the issue of the Anglo-French 5 per cent loan for $500,000,000. It was decided at Boulogne to request Russia to take part in this procedure by sending an equivalent amount along with this shipment of gold. A t the London meeting, M . Bark dwelt upon the difficulty under which he labored in permitting the further reduction of the gold holdings in the State Bank, in view of the sentiment of the Duma and of public opinion generally. On the other hand, Mr. Reginald McKenna, who in M a y had succeeded Mr. Lloyd George as chancellor of the exchequer when the latter became minister of munitions, pointed out the difficulties with which the Bank of England had to contend, as this institution alone of all the banks of issue of the powers at war, had not discontinued the exchange of its notes against gold. He made it very plain that England would be willing to open further credits in favor of Russia solely on condition that Russia placed at her disposal by way of an advance, a substantial quantity of gold. Lengthy discussions dragged out without giving any result. Russia finally yielded only when France, which nation also had requested the opening of credits in England, declared her readiness to export thither a portion of her gold. The Russian minister of finance, who was thus placed in a situation from which there was no escape, nevertheless succeeded in obtaining special conditions and particularly it was understood that the gold would be returned to Russia after the war, while THE INTER-ALLY DEBTS [ 161 the Russian government reserved the right to keep the arrangement secret in order not to bring to light at home the unfavorable influence of the decrease of gold on the balance sheet of the Bank of the State. The Great Credit of igi5; It was finally agreed that the British government would open in favor of Russia a credit for #1,460,000,000 for one year, this credit to be effected through the Bank of England, which agreed to discount every month $122,000,000 of Russian treasury bills at a rate one per cent higher than its own rate of discount. These advances were to be utilized for the payment of coupons, for purchases in England, and in connection with the exchange operations in the United States. In consideration of such advances, M . Bark promised to have Russia furnish the $195,000,000 in gold, of which one-half only would be exported during the first six months. In exchange for this gold Russia was to receive British exchequer bonds payable in gold after the close of the war, within a period to be decided later. "Gold Abroad" vs. "Intangible CreditsA further consideration received by Russia was an arrangement by which the British government agreed to open in favor of Russia a non-negotiable credit for $973,000,000, which appeared on the balance sheet of the Bank of the State as "gold abroad" and afforded a basis for the issuance of bank notes in Russia. This plan was made effective in the following manner: Great Britain made an exchange of obligations with the Russian government, the Russian government depositing with the British treasury non-interest bearing Russian treasury bonds, while the British Government gave in exchange intangible credits. This arrangement was to expire not later than one year after the conclusion of peace, when these obligations of equal value of both parties were to be redeemed. Thanks to IZO ] BANKERS TRUST COMPANY this arrangement, which was pure camouflage, in banking parlance "kiting," the decrease in the gold stock resulting from the exportation of the gold, was not perceived by the public at large. Indeed, the decrease of specie under the heading of "gold coin, ingots and vouchers of mines," was more than compensated by the increase in the quantity of specie under the heading of "gold abroad." This was one of the financial secrets of the war, which only came to light after the fall of the Czarist government. The Conference of igi6: In July, 1916, another conference of the three finance ministers took place in London. The Russian minister of finance was accompanied by General BelyaefF, Chief of Staff. M. Bark stressed the fact that during the first year of the war Russia had covered its internal expenses by appealing to the national market for about $3,602,000,000 and had covered its foreign expenditures by exhausting the funds accumulated with the correspondents of the treasury and finally by utilizing credits to the amount of $618,000,000 opened by the Allies. He set forth that the Russian needs were constantly increasing. He asked for $1,460,000,000 with the power to make payments for limited amounts in Italy, Japan and Scandinavia, with a view to paying the coupons of the state debt, the guaranteed debt, and the municipal debt, and furnishing exchange for commerce. England Demands More Gold: The discussion was keen. It dealt principally with the question of gold as the English statesmen were apparently terrified with the weight of their engagements and responsibilities. M. Bark endeavored to maintain the point of view to which he held that credits should be separated from the question of gold, and he insisted that up to that date France had not sent the gold as THE INTER-ALLY DEBTS [ 161 agreed at Boulogne. The tenacity of Mr. Reginald McKenna, then chancellor of the exchequer, prevailed, and the Russian minister had to agree to ship the balance of $58,000,000 out of the $195,000,000 promised in the autumn of 1915 to cover the former arrangements, and also to ship $97,000,000 in addition by June, 1917, against $730,000,000 of new credits. The shipments of gold contemplated in these several agreements were made in the following manner: For $195,000,000 to be delivered under the first arrangement, $49,000,000 were shipped in December, 1915, $49,000,000 in June, 1916, and $97,000,000 in November, 1916. The gold was sent partly to Japan and partly to Canada. In accordance with the arrangement made between the British admiralty and the Japanese minister of marines, the gold was sent on Japanese war ships and under Japanese escort. In like manner there were shipped from Moscow on the eve of the revolution, in February, 1917, in accordance with the second agreement, $97,000,000 in gold. In consequence of these shipments, the Russian gold stock decreased $331,000,000. It will be remembered that the first delivery in October, 1914, of $39,000,000 in gold was an outright purchase of gold by the British government against credits for $58,000,000. T o offset the loan of the remaining $292,000,000, England delivered to Russia gold exchequer bonds payable in from three to five years in equal portions without interest. Great Britain's Total Advances to Russia: The total advances made by the British government to Russia amounted to $2,733,000,000, of which $496,000,000 were advanced during 1914-15, $1,460,000,000 in accordance with the agreement of September, 1915, and $777,000,000 in accordance with the agreement of October, 1916. IZO]BANKERS TRUST COMPANY Both of our Russian authorities, Dr. EliachefF and M . Raffalovich, agree that the total advances of Great Britain to Russia amounted to $2,733,000,000. Dr. EliachefF states that the last $47,000,000 was advanced after the Bolshevist coup d'etat to the Russian National Committee in London. EliachefF also states that in addition to these direct advances, there was a debt resulting from operations in exchange amounting to nearly $32,000,000, making a grand total of $2,765,000,000. He adds that this figure " m u s t be increased by the accrued interest on the debt which on January 1, 1919, had already reached the sum of $234,000,000." He says, also, that there were $68,000,000 due on military orders. M . RafFalovich does not mention the debt due for exchange operations or the accrued interest, but he refers to payments made by the British government on coupons which he places at $19,556,000. He says that after the overthrow of the provisional government and the repudiation of the debt by the Bolshevists, the British government ceased its advances and paid no more coupons. He tells us, though, that the British government agreed to exchange against 3 per cent treasury bonds for twelve years, which were worth in the market 82 per cent, treasury paper issued in 1915 and commercial paper on Russia issued pursuant to the agreement of 1915. He estimates that in this w a y a sum of $40,777,000 was converted and added to the debt. If we assume that the ^i9>5S6,OOO paid on coupons was provided out of Russian money in the British treasury, but that the $40,777,000 was an addition to debt, we arrive at a total debt on RafFalovich's basis of $2,773,777,000, which agrees remarkably well with an official statement of the British government which shows that on March 31, 1918, Russia owed Great Britain $2,779,- THE INTER-ALLY DEBTS[161 000,000. The British statement for the next year, however, shows an indebtedness of $2,764,000,000, which would agree with EliachefTs figure. In all three cases it is quite evident that no allowance is made for accrued interest. Credit Operations of Russia tn France The character of the transactions of the Russian minister of finance in France differed in two essential respects from the credit operations effected in England. First, there was no agreement with private banking institutions, and second, the French government did not raise the question of a specie pledge by the offering of Russian gold. This question did not arise because the credits opened in favor of Russia in France were destined exclusively for the payment of military orders and for the payment of interest on Russian bonds held in France. In the course of the war the Russian government made three financial agreements with the French government; one in February, 1915, one in November of that year, and another in 1916. The general terms of these three agreements were identical, the differences relating only to the amount of the credits opened and to some secondary conditions. A t the time of the second meeting in June, 1916, M. Ribot said, " w e shall go, if necessary, to the very limit of our resources to back our ally, but our situation is becoming more and more difficult. We are forced to have recourse to the Bank of France to a large extent to meet our war expenses; it is the Bank of France alone which supplies the advances which we make to our allies. The bank has no means of increasing its resources other than the increased issue of its paper money." The issue of paper money had reached $3,088,000,000, a figure which gave considerable concern to M. Ribot. IZO ] BANKERS TRUST COMPANY The French government placed at the disposal of the Russian treasury its three months' treasury notes renewable within one year after the signing of peace. These French treasury notes were discounted by the Bank of France at an interest rate of 5 per cent and for the average amount of $24,000,000 a month. By reason of this moderate discount rate and the absence of commission to the Bank of France, Russia found in France the most advantageous conditions for her war loans contracted abroad, with the exception of the credits opened in her favor by the United States after the entry of the latter into the war. The French agreement of the month of February, 1915, opened credits in favor of Russia for $121,000,000, and that of the month of November for $290,000,000. The 1916 agreement was created for the duration of the war. It stipulated no limit as to the amount and merely fixed the monthly credit at $24,000,000, of which amount one million a month was placed at the disposal of the Russian exchequer for the stabilization of the exchange rate of the ruble and to meet the demands for exchange by Russian commerce and individuals. In addition to the agreement between the two governments, there was a special agreement, made in the early part of 1915, between the Bank of France and the Russian State Bank. This agreement opened in favor of the Russian State Bank a credit of $97,000,000 for the purpose of liquidating obligations of Russian commercial houses and industrial enterprises contracted in France before the war. A t the time of the Bolshevist coup d'etat, the total amount of credits utilized in France was $665,000,000, to which must be added the debt of $97,000,000 due by the Bank of the State to the Bank of France. THE INTER-ALLY DEBTS [ 161 Russian Credit Operations in Japan From the very first year of the war, in view of the isolation of Russia from Western Europe, Japan became an important supplier of war material to Russia. Heavy artillery, armored cars and even small pharmaceutical products were comprised in the wide range of articles which warring Russia imported from Japan. The restricted capacity of transportation of the TransSiberian Railway limited imports from Japan; nevertheless it is probable that Russia was the country which contributed most to the great economic development of Japan during the war. Payments for the numerous orders placed in Japan were made either by direct remittances or through England or by means of credits opened by Japan in favor of the Russian government. In February, 1916, an agreement was made between the Russian government and a group of Japanese banks headed by the Yokohama Specie Bank, which made it possible to dispose of $25,000,000 in Russian treasury notes on the Japanese market. These treasury notes issued for one year were renewed in February, 1917, for the further period of one year. In April, 1916, the Japanese State Bank discounted Russian treasury notes to the value of $8,000,000. The sum realized was remitted to the Japanese government in payment for the Japanese war ships purchased by Russia. These treasury notes issued for six months were renewed in October, 1916, and again in October, 1917, for a period of one year. They bore interest at 7 per cent. In September, 1916, the same group of banks represented by the Yokohama Specie Bank agreed to a loan of $3 5,000,000; the Russian government issued treasury notes payable IZO]BANKERS TRUST COMPANY within one year at the same rate. In September of the following year, in order to be able to pay for the matured treasury notes, the Russian Government discounted at the Japanese State Bank, new treasury notes payable within two years at the rate of 6 per cent and il/Z per cent commission to the amount of $52,000,000. Of the sum realized, $35,000,000 served for the reimbursement of the matured treasury notes and $17,000,000 remained at the disposal of the Russian ministry of finance. In October, 1917, under similar conditions (the commission of the Japanese State Bank had been reduced from per cent to 1 per cent) the Japanese State Bank discounted another lot of Russian treasury notes for the amount of $25,000,000. All sums derived from these transactions were devoted exclusively to payments made in Japan itself. Aside from the above-mentioned loans, the Russian government contracted in Japan debts amounting to the sum .of $37,000,000 to various Japanese houses which supplied it with war material. The total amount of the Russian debt to Japan thus amounted to $147,000,000, of which $110,000,000 was derived from the discounting of Russian treasury bonds and $37,000,000 represented the debt to industrial and commercial enterprises which supplied war material to Russia. There appear to have been other credit operations in Japan involving a further sum of $5,000,000 in regard to which exact information is missing. On December 2, 1918, the Russian ambassador at Tokio, M. Kroupensky, advised the Russian representatives abroad that the Japanese government had decided to consolidate the Russian debt to Japan and to keep intact the sum of $29,000,000 remaining in the Yokohama Specie Bank for the account of the Russian ministry of THE INTER-ALLY DEBTS [ 161 finance until such time as a new and lawful Russian government should be formed. Russian Credit Operations in the United States Until the entry of the United States into the war, Russia had had difficulty in securing credits in our country even for the payment of orders from the ministry of war placed in America. The credit terms charged for comparatively small loans were rather burdensome. For this reason a large part of Russian military orders placed in the United States was financed through England. The first transaction made in America was a credit of $5,000,000 opened in favor of the Russian ministry of finance in October, 1914, by the National City Bank. The Russian government paid 6 per cent interest and a commission of H per cent to the bank. The credit was opened for three months but it was renewable after an agreement to that effect between the Russian ministry of finance and the National City Bank. In April, 1915, the ministry of finance made a contract with the National City Bank by which the bank acquired Russian treasury notes to the value of $10,000,000. The bank took the treasury notes at the rate of 98 per cent, with 5 per cent interest and a commission of JlS per cent. The treasury notes ran for one year. In April, 1916, the matured treasury notes were paid by the delivery of new treasury notes to the amount of $11,000,000. The same operation was repeated in April, 1917. The terms remained the same except for the fact that the price paid for the notes was 97, but the bank's commission was eliminated. On June 28, 1916, an agreement was made between the Russian ministry of finance and a syndicate of American IZO ] BANKERS TRUST COMPANY banks headed by the National City Bank, for the opening of a credit of #50,000,000 on the following terms: Within three years sums paid out under this credit were to be reimbursed to the syndicate in dollars. The sums paid out could be utilized at the will of the Russian ministry of finance, but exclusively for payments to be made in America. The credit opened to the Russian government was guaranteed by a corresponding credit in rubles (for the sum of #77,000,000) opened in favor of the syndicate of American banks by the Russian State Bank in Petrograd. Interest at the rate of 6}4 per cent plus 1 per cent commission was payable by the Russian government on the amount of the credits in rubles not utilized by the American syndicate. Interest was paid in dollars at the exchange rate of 33}/$ cents per ruble. Onethird of the sums drawn by the syndicate on their account in rubles could be used toward the payment by the Russian government of the amount due in dollars. Finally in November, 1916,, the Russian government issued on the American market, through the same syndicate of banks, treasury notes for the sum of $25,000,000. These treasury notes at per cent interest were payable on December 1, 1921, in gold, either in dollars in New York or in rubles in Petrograd at the exchange rate of the day, as the holder might elect. After the entry of the United States into the war, the American government opened in behalf of Russia a credit of $325,000,000. The interest was not stipulated at the time of the opening of credit. In November, 1917, the rate of interest was fixed at per cent and at per cent for credits subsequent to September 25, 1917. The first draft on this credit, amounting to $35,000,000, was made on July 6, 1917* On November 15, 1917, the sums paid out amounted to THE INTER-ALLY DEBTS [ 161 $188,000,000. After the Bolshevist coup d'etat the American government stopped the credit. B R I T A I N ' S L O A N S TO A N D FROM H E R DOMINIONS The first step toward co-ordinating the financial resources of the British Empire was taken in November, 1914, when Great Britain, with a view to avoiding the disadvantages incident to the separate flotations of loans by each of the dominions, made arrangements with Canada, Australia, New Zealand, and South Africa to supply them with such munitions as they might require and probably with at least part of the funds with which to pay their soldiers. The advances were reckoned in terms of money and charged up to the different dominions upon the books of the British government. It was understood that the rate of interest to be charged the dominions should not in any case exceed the rate of interest at which Great Britain herself had borrowed. These advances amounted in the British fiscal year ending March 31, 1915, to $193,000,000. In the following year similar advances were made for $251,000,000 and in the year ending March 31, 1917* the advances totaled $270,000,000, so that for the three years prior to the entrance of the United States into the war Great Britain had advanced to her dominions and colonial possessions upwards of $714,000,000. On the other hand, she had received loans from Canada amounting to $169,558,000, while the Canadian banks had lent Great Britain $100,000,000. These loans from Canada were made to facilitate payment for munitions of war, including grain purchased in Canada by Great Britain. Apparently there were no similar counter loans made by the other dominions although arrangements were made by the British treasury with Australia for purchases of wool and IZO ] BANKERS TRUST COMPANY grain, with N e w Zealand for the purchase of wool and possibly some other materials, and apparently some supplies were also obtained on credit in South Africa. ITALY'S INTER-ALLY FINANCING Italy did not become a belligerent until M a y 23, 1915. This decision was arrived at following a secret treaty with Great Britain, Russia and France, signed on M a y 9 of the same year. In this treaty Great Britain undertook to facilitate the placing on the English market of a loan of £50,000,000 ($243,300,000) in favor of Italy. In the following June, Mr. Reginald M c K e n n a , Chancellor of the Exchequer, had an interview at Nice with the Italian minister of finance, at which time, recognizing the impossibility of effecting a loan in the London market, he offered instead to open to Italy a credit of £60,000,000 ($291,960,000) at the Bank of England, to be covered by Italian treasury bonds in sterling having twelve months maturity. In this connection an arrangement was made for the transfer of Italian gold to Great Britain. There is not very much known about the details but it appears to have followed along the same lines as the similar agreements entered into with Russia and with France. A s Italy has no state bank, the Italian government apparently caused the three Italian banks of issue, namely the Bank of Italy, Bank of Naples, and Bank of Sicily, to transfer to England the equivalent of $80,674,000, in gold lire, distributed approximately $73,000,000 from the Bank of Italy, $6,000,000 from the Bank of Naples, and $2,000,000 from the Bank of Sicily. I t is understood that around $58,000,000 of this amount belonged to the Italian treasury. In addition to this loan of gold to England, Italy advanced Russia about $7,000,000. THE INTER-ALLY DEBTS [ 161 B y a subsequent agreement made in London, December 21, 1915, the British government placed at the disposal of the Italian government a credit of £122,000,000 ($593,652,000) with the promise to make additional advances from time to time. The total advances so made aggregated the equivalent of $764,000,000 up to March 31, 1917. Italy also appears to have borrowed a small amount from Canada, but with this exception her entire borrowings prior to the entry of the United States into the war were from Great Britain. I N T E R - N A T I O N L O A N S OF T H E C E N T R A L P O W E R S The inter-nation financing of the Central Powers was much simpler than that of the Allied Powers due to the fact that there were only four nations involved, and that one probably did all the lending while the others were borrowers. Austria-Hungary, Bulgaria and Turkey all borrowed substantial amounts from Germany. During the month of January, 1915, German banks advanced $15,000,000 to Bulgaria. It was explained that this loan had been promised before the war began, and therefore was just a market proposition. Nevertheless, the receipt of the loan from German sources probably had its value in influencing Bulgaria, the following October, to become the active ally of Austria-Hungary and Germany. The total advances of Germany to her allies during the first three years of the war is estimated to have been $1,347,000,000. CHAPTER IX The United States Becomes Financier for the Allies 1917-1920 N April 6, 1917, the United States ceased being a merchant in munitions and began to manufacture and provide them in great quantities for the Entente Allies free of charge, while her markets were completely closed to the Central Powers. Up to that time we had exported to the belligerents a heavy tonnage of munitions of war, such as food, cotton, metals and manufactured articles. While our markets were nominally open to any nation which could pay for the goods furnished, by force of circumstances the exports were chiefly to the Allies. This state of facts is shown by the statistics of our foreign trade. In the twelve months ended June 30, I9i5,we exported to England, France, Italy and Russia goods valued at $675,000,000 in excess of our shipments in the previous twelve months, while our exports to Germany, Austria-Hungary and Turkey decreased $339,000,000. If we assume that our increased exports of $189,000,000 to neutral states lying contiguous to Germany, say the Netherlands and the Scandinavian states, found their way entirely into Germany, even then the value of supplies reaching the Central Powers from the United States was $150,000,000 less than in the last year before the war. In the next fiscal year the same statistics compare as follows: Increased exports to Entente Allies, 1916 over 1914* $1,882,000,000; decreased exports to Central Powers, 1916 under 1914, $346,000,000; increased exports to Netherlands and Scandinavian nations, $107,000,000. 150] O THE INTER-ALLY DEBTS[161 In the next year, namely from July i, 1916, to June 30, 1917, the statistics, compiled on the same basis, show that the exports to the Allied group amounted to $3,125,000,000 more than in 1914; the exports to the Central group decreased $345,000,000, while the exports to the Dutch and Scandinavian group increased $141,000,000. We were paid for these exports partly in gold, partly by a return of our evidences of indebtedness to European lenders, and, in part, we extended credits. As to the latter, we had been careful to know that they were amply secured. We took no chances. It is true that we asked no security against the largest of our loans—the $500,000,000 Anglo-French loan of October, 1915—but in this case we had the joint and several obligation of two great nations whose solvency, even under great stress, no one doubted for a minute at the time the loan was made, however much some of us may have come to realize the terrible stress they were under as the months passed by. Translating the total exports into terms of merchandise, we find that food products accounted for 18.49 P e r c e n t 1914; 35.40 per cent in 1915; 23.93 per cent in 1916, and 20.39 P e r c e n t , n I 9 I 7> crude materials for use in manufacturing amounted to 34.03 per cent in 1914, 18.79 P e r c e n t 1915, 12.55 per cent in 1916 and 8.54 per cent in 1917; while goods manufactured or partly manufactured accounted for 47-17 per cent in 1914, 42.83 per cent in 1915, 62.17 per cent in 1916 and to 66.38 per cent in 1917. The tremendous and growing demand for manufactured goods and the important demand for food stuffs is apparent. It is also evident what an important source of supply the United States was to the combatants and that the Allied group was the one principally benefited. However, we have shown above and in previous IZO]BANKERS TRUST COMPANY chapters that the American manufacturer and exporter took no chances and that theAmerican investor in European bonds loaned only on what he regarded as excellent security. The Break with Germany The long controversy with Germany in regard to her methods of submarine warfare by which she strove very naturally to keep American munitions from reaching her enemies, finally culminated in the spring of 1917 and led to our government taking a definite position on the side of the Allied Powers on April 6 of that year. The Grave Condition of Allied Finances in the Spring of IQIJ By their own admission the foreign finances of the Allied Powers in the Spring of 1917 were in a bad way. Consequently they were greatly concerned as to how they would be able to continue to obtain from America and elsewhere the munitions of war vital to their success. One British authority of very high standing has gone on record as follows: " A t the very moment that the United States came into the war, the British government, with commitments in the United States running into hundreds of millions of pounds, was at the end of its tether. It had no means whatever of meeting them." Another British authority of unquestioned reliability, stated that, "though it was not at the time generally realized, the entry of the United States into the war cut Great Britain free from a network of financial difficulties, continued entanglement in which might have spelled defeat and would certainly have impaired the war strength of all the Allies. The Allies, and especially Great Britain, had been buying supplies in great and increasing quantities from the United States. THE INTER-ALLY DEBTS[161 Despite the artificial stabilization of exchange, the difficulty of financing these purchases was steadily growing. It was becoming more difficult and more expensive to raise credit loans in the United States. Supplies of securities which could be used as collateral were becoming exhausted." The Federal Reserve Board had evinced anxiety as to whether the financial community had not already been overoptimistic in financing foreign governments. We have seen on the other hand, that the financiers had demanded security for their advances. While England and France still had in reserve substantial amounts of foreign securities, they were rapidly getting down "to the bottom of the box." They could not for very long have provided the American lenders with acceptable collateral. When that time had arrived, possibly within a very short period, they would in fact "have been at the end of their tether." The United States Joins the Allies The 65th Congress met at noon on April 2, 1917, and the same evening the President delivered to the two houses in joint session an address in which he recommended congress to declare "the recent course of the Imperial German Government to be nothing less than war against the government and people of the United States," and that congress "formally accept the status of belligerent which has thus been thrust upon it." In the course of his address the President said, " W e have no selfish ends to serve, we desire no conquest, no dominion, we seek no indemnities for ourselves, no material compensation for the sacrifices we shall freelv make." The House adopted the war resolution early in the morning of April 6 by 373 votes against 50. The resolution having already been passed by the Senate on April 4 by a vote of IZO]BANKERS TRUST COMPANY 82 against 6, the President signed the joint resolution on April 6 and by this act the United States and Germany were officially at war. The first act on the part of the United States government was the seizure of all German ships in American ports. They had an aggregate tonnage of 600,000. Wireless stations were also seized or ordered to be dismantled. Recruiting for the army and navy was promptly begun. America's financial relations with the Allies underwent an immediate change. For the last two years the Allies had been supplied with billions of dollars worth of munitions which were paid for by means of credits arranged by American bankers. It was now decided that theUnited States government should loan the necessary money to the Allies and thus undertake the risk heretofore borne by the financial community. Little did anyone realize, whether in or out of official life, what this decision was to cost. It meant that within the next three years the United States government would supply the Allied Powers with which it had now become associated, in exchange for their unsecured promises of payment at indefinite dates in the future, with munitions of war valued at over $9*500,000,000. Thus " t h e mantle of Elijah fell upon Elisha." T h a t is to say, Mother England ceased to be the foreign banker for the Allies and her lusty descendant, the United States of America, took her place. It is true that during the second part of the war up to the close of March 31, 1920, Great Britain lent $4,176,000,000, but she borrowed abroad $4,498,000,000. During the same period France lent $2,540,000,000 but borrowed $4,674,000,000. All the other nations, excepting Australia, Canada and New Zealand, were heavy net' borrowers. THE INTER-ALLY DEBTS[161 Borrowing to Lend Again Let us now retrace our steps to the eventful days of the spring of 1917. Some one had the pre-vision to realize that the first task which the United States, as a belligerent, would have to face, would be to furnish her associates in the war with an unlimited amount of food, clothing, guns and ammunition, motors, locomotives, railway cars, cotton, copper, iron, steel, other metals, and other raw materials. We had all these things in abundance. A t least we had the labor, the raw materials, and large factories and could greatly and promptly expand our manufacturing facilities. The seized German ships supplementing British and neutral shipping would provide over-seas transportation. All that was needed to set the machinery in motion was action on the part of the national legislature. This was quickly taken in the form of large discretionary appropriations, making the national resources available to the executive, by authorizing the executive to give credits to the Allied Powers and to raise the necessary money by increased taxation, and especially by phenomenal internal borrowing. Now we are prepared to go to the capitol and see what is taking place in the committee rooms and in the senate and house of representatives. T h a t ever since the breaking off of diplomatic relations with Germany on February 3 the administration, informally at least, had been considering what must be done in case of a final break, seems to be a foregone conclusion. We know that in February the National Defense Council met in Washington and took preliminary measures, in case of hostilities, to mobilize American industries and all other resources, and that the House then passed a naval appropriation bill, the IZO]BANKERS TRUST COMPANY largest in the history of the government. The bill appropriated $368,553,000. In the latter part of March, in a letter to his brother, Ambassador Page writing from London said, " T h e impression becomes stronger here every day that we shall go into the war 'with both feet'—that the people have pushed the President over in spite of his vision of the Great Peacemaker, and that, being pushed over, his idea now would be to show how he led them into a glorious war in defense of democracy. . . . I have my staff of twenty-five good men getting all sorts of war-like information. . . . "A gift of a billion dollars to France will fix FrancoAmerican history all right for several centuries. Push it through. Such a gift could come to this Kingdom also but for the British stupidity about the Irish for three hundred years. A big loan to Great Britain at a low rate of interest will do the work here. . . . " M y staff and I are asking everybody what the Americans can best do to help the cause along. The views are not startling but they are interesting. Jellicoe: More ships, merchant ships, any kind of ships, and take over the patrol of the American side of the Atlantic and release the British cruisers there. Balfour: Credits in the United States big enough to keep up the rate of exchange. Bonar Law: Same thing. The military men: An expeditionary force, no matter how small, for the effect of the American Flag in Europe. If one regiment marched through London and Paris and took the Flag to the front, that would be worth the winning of a battle." On April 1, Franklin K . Lane, Secretary of the Interior in President Wilson's Cabinet, wrote to his brother: " I took your letter and your proposed wire as to our going THE INTER-ALLY DEBTS [ 161 into the war and sent them to the President as suggestions for his proposed message which in a couple of days will come out—what it is to be I don't know, excepting in spirit. He is to be for recognizing war and taking hold of the situation in such a fashion as will eventually lead to an Allies' victory over Germany. But he goes unwillingly. The cabinet is at last a unit. We can stand Germany's insolence and murderous policy no longer. . . . The meetings of the c abinet lately have been nothing less than councils of war. T h e die is cast —and yet no one has seen the message. The President hasn't shown us a line. . . . The Council of National Defense is getting ready. I yesterday proposed a resolution, which was adopted, that our contracts for ships, ammunition and supplies be made upon the basis of a three years' program. We may win in two years. If we had the nerve to raise live million men at once we could end it in six months. " T h e first thing is to let Russia and France have money. The second thing, to see that Russia has munitions, of which they are short—depending largely, too largely, upon Japan. I shouldn't be surprised if we would operate the Russian railroads. And ships, ships! How we do need ships, and there are none in the world. All sides need aeroplanes—for the war that is perhaps the greatest of all needs; and there Germany is strongest. . . . This is the program as far as we have gone: N a v y , to make a line across the sea and hunt submarines; Army, 1,000,000 at once, and as many more as necessary as soon as they can be got ready; Financed, by income taxes largely. Men and capital both drafted." In subsequent letters Mr. Lane wrote, " T h e great need of France at this moment is to get ships to carry the supplies across the water. It is a secret but a fact, that France has IZO]BANKERS TRUST COMPANY 600,000 tons of freight in New York and other harbors waiting for ships/' " O n all sides they are frank in telling of their distress. We did not come in a minute too soon. England and France, I believe, were gone if we had not come in." Congress Authorizes Credits for of $3,000,000,000 Allies On Wednesday, April 11, 19x7, Representative Kitchin of North Carolina introduced in the House of Representatives a bill authorizing a bond issue of $5,000,000,000 from the proceeds of which issue the secretary of the treasury with the approval of the President was authorized to extend credits not to exceed $3,000,000,000 to foreign governments. The bill was referred to the committee of ways and means, was immediately reported, and was then referred to the committee of the whole house on the state of the Union. It came up for debate in committee of the whole house on April 13 and passed the house on the 14th. The bill passed the senate on April 17, it was sent to conference on the 18th. The conference report was accepted by both houses on the 23rd and was approved by the President and became a law on the 24th. Thus within less than two weeks time the United States congress shattered all precedents in regard to "alliances with foreign nations" and agreed to back up a military alliance with practically unlimited supplies of munitions of war. The Debate in Congress It will be of interest to note the course of the debate in congress and the arguments which brought almost unanimous THE INTER-ALLY DEBTS [ 161 support for the appropriation of such a great amount for the benefit of nations across the seas. Action of the Committee of Ways and Means: The report of the committee of ways and means contained the following statement: " T h e bill authorizes the secretary of the treasury with the approval of the President to extend credits not to exceed $3,000,000,000 to foreign governments. It authorizes the purchase with the proceeds from the sale of these bonds, by the secretary of the treasury with the approval of the President, of the obligations of foreign governments bearing the same rate of interest and containing essentially the same terms and conditions as the bonds issued under authority of this act. It provides, however, that should any of the bonds of the United States issued and used for the purchase of such foreign obligations, be converted into United States bonds bearing a rate of interest higher than 3 ^ per cent, that in such an event the obligations of the foreign governments held by the United States shall be converted into obligations bearing the same rate of interest as the like bonds of the United States. It will, therefore, be observed that the $3,000,000,000 credit proposed to be extended to foreign governments will take care of itself and will not constitute an indebtedness that will have to be met by taxation in the future." In introducing the bill, Mr. Kitchin, the chairman of the ways and means committee, said "This bill contains the largest authorization of bond issues ever contained in any bill presented to any legislative body in the history of the world. I am happy to report that this bill has the unanimous approval and indorsement, and has the unanimous vote of the entire membership—Republican, Democratic and Progressive — o f the ways and means committee." IZO ] BANKERS TRUST COMPANY The Debate in the House One of the first objections which Mr. Kitchin had to meet was that we were buying bonds at par of nations whose obligations were selling in the market at a discount; in the case of Russia at a heavy discount. Mr. Kitchin's reply was: " I would oppose any purchases of bonds of the allied governments if it were not going to help us more effectively to prosecute this war. That is the very object of it, and we leave it to the Executive, and to the war fighting power of our government to use the $3,000,000,000 for the best interests of this country in order to quicken the termination of the war in which we are engaged, and if the Executive thinks that a loan to a foreign government is the best way to do it, I for one am willing to give him such authority." Mr. Kitchin said further: " W e are in this war. We ought to do everything possible to help not only the United States, but to help those who are co-operating with us in this war. W e ought to help the Allies, and if their bonds have gone down to 80 or 75 or 50 per cent, all the more necessity exists for us to loan them this money at the lowest possible rate of interest, because they are helping to fight our cause." (Applause.) Loans Limited to Allied Powers and to the Duration of the War: Representative Fitzgerald urged that the bill should he amended to limit the advances to be made by the United States to governments at war with Germany, and that the power to make such loans ought to be restricted to the duration of the war. These suggestions were recognized as good and the bill amended accordingly, but they were evaded after the armistice, for the last loans were made late in 1920, and THE INTER-ALLY DEBTS [ 161 in order to extend aid to the starving people of Austria and to those of other former enemy powers our government made loans to Great Britain, France and Italy, which nations passed along the money or its equivalent in food and other necessities to our recent enemies. Retiring Market Issues with United States Money: The fear was expressed in the course of the debate that money borrowed from the United States might be used to retire bond issues theretofore placed in the money markets. Mr. Kitchin conceded that there was nothing specifically to prevent this, but said that he could hardly conceive that it would be done, but he added, " I f we are going to lend this money to the governments that we are co-operating with to more effectively prosecute this war, why not leave it to them to expend the proceeds in any wray which their judgment tells them is the best way to achieve success in the prosecution of this war and not limit or qualify the use of that money?" (Applause.) As a matter of fact several loans placed in the money markets prior to our entrance into the war were paid with money borrowed from Uncle Sam. The Borrowing Governments Should Be Required to Spend the Money Borrowed in the United States: Mr. Sabath of Illinois stated that he understood that Great Britain, in making loans to her allies, had in certain instances specified that the proceeds should be expended in Great Britain. He said, " I do not see why our government can not make the same arrangements and agreements." Mr. Kitchin replied that while he would not be in favor of qualifying or limiting the right of the borrowers to expend the money in any way they saw fit, yet the committee (ways and means) had considered.what the gentleman had suggested IZO]BANKERS TRUST COMPANY and were of the opinion that most of the money "will of necessity have to be expended in the United States." Guarantees: Mr. Wood of Indiana asked whether or not, in considering this measure, the committee contemplated the advisability of providing that the redemption of these bonds purchased from any one of the foreign powers at war with Germany should be guaranteed by the other foreign powers at war with Germany. Mr. Kitchin replied that this was not discussed, while another member added, " T h e fact is that if we ever get this money back at all when the war is won we shall get off cheap." As this question has several times since been stressed, it may be well at this point to note the unqualified statement of Mr. R. C. Leffingwell, former Assistant Secretary of the Treasury, that no such guarantee was asked or given. The question is discussed in detail in the section of this chapter dealing with our debt transactions with Great Britain. "The Mies are Fighting Our Battles;" The sentiment was freely expressed in the course of the debate in the House that as we were not prepared to fight our own battles, it was only right that we should finance our allies who were "fighting our battle along the battle fronts of Europe." Whether or not the loans were ever repaid was a minor consideration. Said Representative Mann of Illinois: " T h e administration has proposed that it shall have the authority to lend three billion dollars to those nations now engaged in the war with the country upon which we have declared war. When we take the responsibility of engaging in war, we ought not to expect that it will be a mere paper war or a mere discussion. We are not prepared to place men in the field. We are not prepared to fight with our army. We are not prepared to do very much with our n a v y . . . . But there is one way in which we are pre THE INTER-ALLY DEBTS[161 pared to engage in the war. There is only one way in which today we can do more than make our war an academic discussion and the only way left to us is to help finance those nations who are fighting our enemy." (Applause.) " T h i s bill will authorize the loan to them of three billion dollars. I doubt not that before a year has passed that sum will be more than doubled; but let us hope that by financing our credit and by loaning our money we may be able thus to end the war. I think it is our highest duty in the making of war to give it to those who are fighting the enemy against whom we have declared war; and I only hope and pray that the aid thus given may be effectual enough to end the war before we send our boys to the trenches." Mr. Moore of Pennsylvania countered: " I do not like the suggestion made by the gentleman from Illinois (Mr. Rainey) that those folks over there are fighting our battles. That expression has been used quite commonly during the last two or three weeks and it leads up to the inference that we are practically at the mercy of the belligerent nations and that the reason we propose to lend them the proceeds of our bonds is to reward them for 'fighting our battles.' M y view is that the foreign governments are fighting their own battles and that we are aiding t h e m . . . . I am not yet convinced that any one of these countries is fighting our battles in the sense now commonly expressed, or that we will not be able to fight our own. When we lend these foreign countries money, we are rendering them an assistance and they are not rendering assistance to us. . . . I would like them to understand that it is expected in due course that the obligations they may make to us will be redeemed. Mr. Madden's reply was applauded. He said, in part, " I am sorry to disagree with my friend from Pennsylvania IZO ] BANKERS TRUST COMPANY (Mr. Moore). When he states that we are loaning this money to the European nations to defend their interests in the war in which we are engaged, I think he stretches the case beyond the facts. We have already declared war and we are not prepared to begin to fight the war we have declared. If we can find somebody else to fight the war for us with our money, we ought not to hesitate to grant them the credit which they want and must have. We ought to begin the war upon which we have entered today, not tomorrow. We ought not to wait until we haVe enlisted an army that we can send over there. It will be a year before we can do that, but if we send our money to operate the armies that are already in the field, then we shall have done the thing that the American people are looking forward to us to do as their representatives." Our Attitude Toward France; We have already seen that Ambassador Page advocated a large gift to France, even as much as $1,000,000,000. The same thought ran through the debate in congress both in the house and in the senate. It was perhaps most eloquently voiced by Representative Montague of Virginia. Speaking on Saturday, April 14th, he said: " T h e world today beholds the agony and glory of France; civilization itself is moved by her heroic resistance to the colossal forces now battling to extinguish her republican institutions and to tear asunder the very fabric of her liberties. So I have hoped that today our great nation might, through their representatives in this hall, at least write into this bill a forebearance and remittance upon any French bonds purchased by the American government. T o do more would be becoming; to do less is ignoble. " M r . Chairman, has our republic forgotten its weakness and its dire extremities in the days of its infancy? Let the THE INTER-ALLY DEBTS[161 words of Washington recall it. Writing to his beloved friend, George Mason, on October 22, 1780, just a year before the surrender of Cornwallis, he said: ' W e are without money and have been so for a great length of time; without provision of forage except what is taken by impress; without clothing; and shortly shall be (in a manner) without men. In a word, we have lived upon expedients until we can live no longer/ Again, to John Lawrence, who had just been sent to beg a loan from France, Washington wrote on September 9, 1781: 'If France delays a timely and powerful aid in the critical posture of our affairs, it will avail us nothing should she attempt it hereafter. We are at this hour suspended in the balance. . . . We can not transport the provisions from the states in which they are assessed to the army because we can not pay the teamsters who will no longer work for certificates. Our troops are approaching fast to nakedness and we have nothing to clothe them w i t h . . . . In a word, we are at the end of our tether and now or never our deliverance must come.' "These words were ringing in the ears of Benjamin Franklin, of Silas Deane and of John Lawrence when endeavoring to reach the hearts and the treasury of the French nation. How did that nation respond? The historic record answers to her glory and to our deliverance. . . . " T h e gentleman from New York, Mr. Fitzgerald, has just intimated that there should be no discrimination as respects the allied nations. I myself would subscribe as a general principle to that statement; but I can never subscribe to a view that would prevent this nation from making discrimination in behalf of the nation that made the existence of this republic possible. (Applause.) " M r . Chairman, in conclusion I beg again to suggest that it is not my purpose or wish to embarrass any program. I am IZO ] BANKERS TRUST COMPANY willing, if reluctant, to sacrifice any personal opinion I may have as to the expediency of omitting a more direct expression of gratitude to France, hoping that at some future day, when the war is well over and the accounting of things is had, that the administrative department of our government, having in charge our foreign affairs, may write into some convention or treaty as was done by France in 1782, an ample and definite expression of the abiding gratitude of the American people of the transcendent generosity of France." (Prolonged applause.) Mr. Graham of Pennsylvania, continuing the debate, said, "Before concluding what I have to say, I would like to call attention to what the gentleman from Virginia, Mr. Montague, advocated in such eloquent terms—our relations to France. I cordially agree with the thought and wish it were practicable to put an amendment in this bill so that we might at this time, when the situation is so exactly analagous to what it was in the Revolutionary period, say to France, ' W e will make you a loan,.the interest upon that loan shall be remitted, and that loan itself shall be payable at your pleasure/ True, France was fighting England in those days; but we are fighting Germany. True, she loaned us money without interest. She gave us men, she gave us the immortal Lafayette to help Washington in the dark hours of the American revolution, and it would be but a small thing for us now to show that the old remark is without truth, that 'republics are ungrateful'; to show to the world that America with her higher ideals is prepared to set a new standard of action among the nations of the earth." Mr. Switzer of Ohio added, " I have no patience with those who think that we may, by making these loans, lose some money. I agree with what was said by the representative from THE INTER-ALLY DEBTS[161 Virginia, Mr. Saunders, yesterday. We must take a chance if we raise and equip a large army and meet the Germans on the field of conquest. We must also take a chance if we now loan our money. We must expect reverses if we equip an army to go across the water to Europe—and we would certainly expect reverses as well as victory, though we trust in ultimate victory in the end—and so it is with our money. It may be that some of these countries to which we send our credit may make no effective use of it and that money may be lost, but we must take that chance and abide by the decree of war." (Applause.) The bill passed the house unanimously with 389 affirmative votes. There were no negative votes, but there were 41 members absent who their colleagues stated would have voted for the bill if present. One member abstained from voting. The Debate in the Senate The debate in the senate followed very much on the same lines as did the debate in the house. " T h e Allies were fighting our battles and would have to do so for some months on account of our utter unpreparedness for war." "There was little else that we could do to help our allies than to lend them money." Said Senator Simmons of North Carolina: " W e have not the men to send over there at present to help fight our battles; our navy possibly can be of but very little use in its present condition. It will be long weary months of waiting before we shall be able to render much assistance to our allies in the field. The help this bill offers is an earnest and a guarantee, and offers assurance of greater assistance in the future. . . . " Senator McCumber of North Dakota endorsed this point IZO ] BANKERS TRUST COMPANY of view, saying, "While we are recognizing that we are putting $7,000,000,000 into this battle, we must not fail to recognize that we are not as yet putting in a single one of our American soldiers, while blood is being poured out by our allies in unstinted measure. Even during the winter months of February and March the reports from the British side in France showed an average loss of between 135,000 and 145,000 soldiers every month. That was on the British side alone. The French losses were probably nearly as great. It is probably true that more than a quarter of a million men are going down to death or are being wounded or captured every month during this conflict. Therefore, while they are suffering to that extent, we ought to be mighty liberal in the expenditure of money when we can take no part in the real battle which today is the battle of the American people." Senator Kenyon of Iowa said, " M r . President, I shall vote for this bill without any a p o l o g y . . . . I have heard some things said here today concerning these loans and whether or not they will ever be paid. I want to say this for myself, Mr. President, that I hope one of these loans, if we make it, will never be paid and that wTe will never ask that it be paid. We owe more to the Republic of France for what it has done for us than we can ever repay. France came to us with money, with a part of her army and navy in the hour of our sore distress. And without the aid of France it is doubtful if we would have had this nation of ours. . . . I never want to see this government ask France to return the loan which we may make to t h e m . . . . T o the boys in the trenches fighting what is now our battle, this is a message of cheer, but the greatest message it carries is to bleeding,wounded and stricken France, with its cities burned, its fields destroyed and fertile lands made a wilderness; rows upon rows of new made graves; over THE INTER-ALLY DEBTS [ 161 a million men gone, another million injured and wounded, her treasure nearly spent. It carries to France this message: 'When we were a young republic in a family of nations struggling along, hardly able to walk, you reached out and took our hand and helped us. Now we are the powerful one in that same family of nations and the big brother of democracy says to you that it is willing to give of its treasure and of its men enough to save you from the onslaught of the mad dog of Autocracy.' That thought cheers me for voting for this measure, regardless of the stupendous amount involved. We show to the world that republics are not ungrateful and to France that the great American republic does not forget." It is not necessary to make other quotations. The sentiment which actuated the vote of 84 yeas to nays o has been sufficiently made evident. On behalf of 12 members absent because of illness or pressing duties elsewhere, statements were made by their colleagues that, if present, they would have voted " a y e . " Subsequent Foreign Credit Legislation In September, 1917, congress increased the appropriation for loans to foreign governments "then engaged in war with the enemies of the United States" by $4,000,000,000, bringing the total authorization for such loans up to $7,000,000,000. The act provided that the authority given to the secretary of the treasury should cease upon " t h e termination of the war between the United States and the Imperial German government." In April, 1918, the authorization for loans to foreign governments was again raised, this time to $8,500,000,000. In July, 1918, the appropriation was raised to $10,000,000,000, I 7°] BANKERS TRUST COMPANY the maximum amount of loans to foreign governments authorized under the Liberty Loan acts By the terms of the Victory Liberty Loan act which became a law on March, 3, 1918, the secretary of the treasury was authorized until the expiration of eighteen months after the termination of the war between the United States and the German government, as fixed by proclamation of the President, to make advances in addition to those authorized in the several Liberty Loan acts " f o r the purpose only of providing for purchases of any property owned directly or indirectly by the United States, not needed by the United States, or of any wheat the price of which has been or may be guaranteed by the United States." No advances were made under this authority, but in the appropriation acts of 1918, for the support of the army and of the navy for the fiscal year ending June 30,1919, authorization was granted for the sale, under such terms as were deemed expedient, of property acquired during the war. In the previous February the American Relief Administration was authorized to furnish supplies on a credit basis to the stricken nations of Europe. Finally on March 20, 1920, the United States Grain Corporation was authorized to dispose of its surplus stocks to foreign governments on a credit basis. These various arrangements and the loans made in pursuance thereof will be discussed in the course of our narrative. Making the Loans England and France were overjoyed that we had come to their aid. They immediately raised the Stars and Stripes over their legislative halls and appointed commissions composed of certain of their leading statesmen to go to America and THE INTER-ALLY DEBTS[161 make plans for effective co-operation. The Italians also sent to Washington a commission composed of men of high standing. The British and French commissions arrived first, on April 22 and 24 respectively. The Italians came about a month later. A commission from Russia reached Washington on June 19 and one from Japan in August. The English mission was headed by Arthur J. Balfour, Foreign Minister and former Premier. Among his associates and advisors was Lord Cunliffc, Governor of the Bank of England. The leader of the French mission was M. Viviani, Minister of Justice and former President of the Council of Ministers, who had as associate and adviser on financial questions M. Simon, Inspector of Finance. The method of handling the financial co-operation between the United States and her associates worked out by Secretary of the Treasury McAdoo in consultation with the financial members of the commissions was as follows: Credits were to be established from time to time at the United States treasury against which the authorized representatives of the borrowing nations would be permitted to draw from time to time as money was required to meet payments. The uses for which the moneys were advanced by the United States were to be approved by the secretary of the treasury and the borrowers were obligated to furnish statements showing for what purposes disbursements were made. The First Loans The first advance was made to Great Britain on April 25, three days after the British commissioner arrived at Washington. It was for $200,000,000. This was followed on M a y 3 by an advance of $25,000,000 to Italy, on the 5th IZO ] BANKERS TRUST COMPANY and 7th of M a y by two additional advances of $25,000,000 each to Great Britain, and on the 8th of M a y by an advance of $50,000,000 to France. Altogether, up to December 31, 1917, credits had been established for different countries aggregating $4,236,400,000, and advances had been made for the net amount of $3,656,129,000. T h e advances were made chiefly to Great Britain and to France, $1,860,000,000 to the former and $1,130,000.000 to the latter. Italy received $400,000,000, Russia $187,729,000, Belgium $75,400,000, and Serbia $3,000,000. In 1918, prior to the armistice, further advances were made aggregating $3,640,000,000, or just about the same amount as had been advanced during the nine months of 1917. From the 1st of December, 1918, until the signing of the peace treaty, on June 28, 1919, $1,798,675,000 additional was advanced. After that date there were some further small advances aggregating $371,568,000. It will be noted that in 1917 the advances were at the rate of $457,000,000 a month, whereas in 1918 up to December 1, they averaged only $364,000,000 a month. The advances during 1918 were therefore more than $90,000,000 a month less than they were in 1917. This was not because our allies required less in the way of supplies, but it was due to the fact that as time went on a larger part of the productive capacity of our factories had to be given over to the manufacturing of munitions of war for our own army. Therefore we were not able to do as much in this way for our associates. One result of the United States government becoming banker for our associates was that it was no longer necessary for the latter to obtain loans in the open market and in fact some loans which had previously been obtained were paid off out of proceeds of moneys borrowed from the government. THE INTER-ALLY DEBTS[161 The Loan Policy Officially Defejided In an official bulletin issued in the latter part of 1917 by the United States treasury department, reasons were given to the public for the making of these great loans to our associates. It was stated that the loans wTere essential to our protection, not alone in a military way, but for our economic protection and welfare. It was also stated that we were producing more goods than were needed for our own uses and that our own economic protection and welfare demanded that we should sell much of our production to our allies. The attention of the public was called to the fact that the commercial salvation of our allies was an essential part of their effectiveness in the war and that their commercial welfare demanded that their export trade be maintained in a suitable measure; therefore that it was sound economic policy on our part to assist them in maintaining their industrial life and commercial welfare. It was stated that very little of the money loaned went out of the United States; that most of it was spent in our own country for war materials and food stuffs. The fact was stressed that the money wThich we were advancing wTas not a contribution but a loan, upon which the borrowers would pay interest and which ultimately would be repaid in full. The fact was also emphasized that our allies were looked upon by us as solvent people without ready money but with perfectly good credit. The public was further advised that the expenditures of our allies in this country were supervised by us, purchases being made with the advice and assistance of our War Industries Board; that thus the Allies obtained the same prices and same terms as our government demanded in making its own purchases. IZO ] BANKERS TRUST COMPANY In conclusion, it was stated that the loans made to our allies enabled them to do the fighting which otherwise the American army would have had to do at much expense not only of men but of money—money which would not be returned to us and lives that never could be restored. It was therefore claimed, that we were not only performing a duty to our associates in lending them a part of our great wealth but that we were also performing a duty to our soldiers and sailors and our own nation in making our allies powerful and effective, "thus lessening the work and danger and suffering for our own men in bringing the war to an earlier close." Supervision of Purchases Referring to the paragraph in the foregoing statement which called attention to the fact that purchases were being made under the supervision of the War Industries Board, one of the important results of the visit of the English and French commissions to the United States in April and May of 1917 was the understanding arrived at in regard to matters of trade and the purchasing of supplies. It was decided that the United States should give the Allies preferential treatment in commerce. With a view to defeating the German submarine campaign, it was agreed that all shipping, so far as possible, should be devoted to merchandise transportation. A detailed program was adopted in regard to shipping so that the commodities which were most needed would have priority in shipments. A definite understanding was reached to cover both American and Canadian wheat for sale to the Allied Wheat Executive Committee, and arrangements were made for full Canadian co-operation through a proposed food administration bureau. Munitions control and purchase were similarly centralized THE INTER-ALLY DEBTS[161 through an allied buying committee, although without price control. The Council of National Defence charged itself with some increasing manufacture so as to provide for the American war army without cutting off exports vitally needed abroad. In the Report of the Secretary of the Treasury to Congress in December, 1917, the statement is made that in arranging the loans for the associated governments the judgment of the secretary wras determined largely by what was represented to him as actual necessities for the purchase of supplies and materials and other requirements for carrying on the war. It is stated that in conducting these financial relations with allied governments, every possible effort was made to obtain the maximum results from the credits established. To this end, in August, 1917, formal arrangements were entered into by the secretary of the treasury with the approval of the President on behalf of the United States and by representatives of the allied governments for the creation of a commission with headquarters at Washington, through which all purchases made by those governments in the United States should proceed. This commission was composed of Bernard M . Baruch, Robert S. Lovett, and Robert S. Brookings. These men were also members of the War Industries Board of the Council of National Defence and by reason of this relation were able to co-ordinate the purchases of the United States government with the purchases of the Allied Powers. In the report for the following year it is stated that valuable information as to the needs of the governments of the Allies for war purposes, their urgency, and the necessity of meeting them from advances by the United States had been furnished from Europe by the Inter-Ally Council on W a r Purchases and Finance, and by its president, Mr. Oscar T . Crosby, formerly an assistant secretary of the treasury and BANKERS TRUST COMPANY IZO ] then Special Finance Commissioner of the United States in Europe. The great responsibility which devolved upon the W a r Industries Board and their European associates may be realized when the fact is appreciated that the expenditures made on behalf of foreign governments totaled $10,296,000,000. According to statements furnished by the allied governments to the United States treasury department, the total expenditures were made for the following purposes: E X P E N D I T U R E S OF T H E A L L I E D NATIONS IN T H E UNITED S T A T E S (In " C u r r e n c y " dollars) . . . $2,493,610,324.76 Munitions for other governments . . Exchange and cotton purchases . . . Cereals Other foods Tobacco Other supplies Transportation Munitions, including remounts 205,495,801.10 2,644,783,870.07 1,422,476,706.14 1,629,726,802.57 145,100,821.27 613,107,428.61 136,083,774.95 Shipping 173,397,083.77 Interest Maturities 730,504,176.91 648,246,316.94 ReIief 538,188,329.89 Silver 267,943,388.81 Food for Northern Russia Purchases from Neutrals Special credit against credits to be established for United States Government war purchases in Italy . . . Miscellaneous 7,029,965.94 18,718,579.42 25,000,000.00 168,530,575.56 $11,867,943,946.71 THE INTER-ALLY DEBTS[161 These expenditures exceeded the net advances of $9,466,283,000 made by the United States up to November 1, 1920, by $2,401,661,000. This difference apparently was provided by other resources of the purchasing governments. The statements published by the United States treasury department do not make the facts entirely clear and on the other hand the foreign governments have not made any statements for public use other than those made to the United States treasury department. Interest Arrangements In the Annual Report of the Secretary of the Treasury of the United States for 1917, it is stated that the obligations of foreign governments which had been purchased under the terms of the Liberty Loan acts were in the form of shortterm or demand certificates of indebtedness signed by the duly authorized representatives of the respective governments receiving advances of funds and that these obligations under their terms shortly would be converted, at par, with an adjustment of accrued interest, into an equal par amount of gold bonds of the governments concerned. Interest, on these demand obligations was first placed at 3 per cent per annum, and shortly thereafter increased to 3 ^ per cent per annum, these rates being established to conform to the rates paid by the government of the United States on its short-term certificates of indebtedness issued under authority of the act of April 24, 1917, in anticipation of receipts from the sale of the bonds of the first Liberty Loan. Subsequently, and coincident with the sale of these bonds, the rate was raised to 3 ^ percent, per annum, thus conforming with the rate carried by the bonds. For obligations purchased after the approval of the act of September 24, 19179 the rate was placed at 4 % per cent IZO ] BANKERS TRUST COMPANY per annum. By the terms of this act the normal rate of interest to be borne by the obligations of the United States issued thereunder could not exceed 4 per cent per annum. A t the same time it rendered the bonds thus issuable exempt from certain classifications of taxes, thereby substantially increasing the cost to the government of the money received from the sale of its obligations by diminishing the amount which it might in turn take from its citizens in taxes. The rate of interest to be charged on the loans to foreign governments under the terms of the act was not definitely fixed, but was left in the discretion of the secretary of the treasury, though a minimum was fixed. In the exercise of that discretion it was determined to fix the rate at 4 ^ per cent per annum, the additional one-quarter per cent being charged to compensate in part at least the loss to the government due to the taxexemption features on its own obligations above referred to and the cost incurred by the United States of issuing its own bonds. It wTas stated that this rate in turn would be further increased in case there should be higher rates of interest paid by the United States during the continuance of the war for the moneys that it might invest in the purchase of foreign obligations. Thereafter interest was charged at the rate of 4 % per cent per annum. In his report for 1919, the secretary of the treasury said, " A l l interest which has become due on the obligations of foreign governments held by the United States has been paid in cash with a relatively unimportant exception pending adjustment. T o the extent that such interest has not been paid from other resources of the foreign governments concerned it has been paid from the proceeds of loans made by the United States government. With the termination of the war and the rapidly approaching exhaustion of the appropriation, THE INTER-ALLY DEBTS [ 161 it was considered necessary and appropriate for the secretary of the treasury, as contemplated by the Liberty Bond acts, to take up with the foreign governments the funding of the demand obligations now held by the United States into long-time obligations and the funding during the reconstruction period, say for two or three years, of interest on the obligations. In view of the present derangement of the foreign exchanges it would add to the difficulties of the situation and would not be to the advantage of the United States to require cash payment of interest." The total amount of interest received on account of cash advances under the Liberty Loan acts up to M a y 15, 1919, was $429,658,000. From that date until November 15, 1922, payments of interest were deferred in pursuance of an arrangement made by Secretary Glass in the early autumn of 1919. A t this time the treasury informed the treasuries of the European governments to which it had made advances that it was prepared, in case they so desired, to discuss with them the exchange of their demand notes held by the United States for their long-term obligations, and in that connection the deferring of interest collections during the reconstruction period of two or three years from the spring of 1919. Public announcement of the position of the treasury was made on September 26, 1919, while under date of December 18, 1919, Secretary Glass addressed a letter to Mr. Fordney, Chairman of the Committee on Ways and Means, calling attention to the fact that on account of the derangement in the foreign exchanges following the discontinuance of the "pegging" operations in effect during the war, " a n impenetrable barrier exists which makes it impracticable for these governments to pay in dollars the amount of interest due from them to the United States." IZO ] BANKERS TRUST COMPANY After stating why this was so, he concluded, " M y advisers are firmly of the opinion that in connection with and as a part of a general funding of the demand obligations into time obligations I am duly authorized under the Liberty Loan acts to spread over subsequent years the interest which would accrue during the reconstruction period of, say, two or three years, and to include such amounts in the time obligations. If, however, the ways and means committee of the house, which shared with the secretary of the treasury the initial responsibility for the Liberty Loan acts, should question my power so to act, I shall be pleased to have you so inform me at once, in order that I may lay before your committee a proposal for further enabling legislation." The Committee on Ways and Means replied that there was in its opinion no legislative bar to the procedure proposed. In the finance report for 1920, Secretary Houston made the following statement: "Negotiations looking to the exchange and, in that connection, the deferring of interest collection were undertaken in Washington. They were continued in Europe in the fall of 1919 and the spring of 1920 by Albert Rathbone, then Assistant Secretary of the Treasury, and will be concluded in Washington. I trust that they will be completed in the near future. Such an arrangement will involve no present burden to the debtor nations and would do much in fact to clear the atmosphere and to improve European credits. The foreign exchanges are now at a greater discount than they were at the time of the treasury's original statement. It would add to the difficulties of the situation and would not be to the advantage of the United States at this time to require cash payment of interest from the debtor European governments." Nothing came of these funding negotiations but interest THE INTER-ALLY DEBTS [ 161 payments have not been resumed even yet, at the close of I923* °n the loans made under the terms of the Liberty Loan acts, except by Great Britain which nation promptly resumed payments at the close of the three years moratorium established by Secretary Glass. Exceptions to this statement should be made in the case of Cuba, which made regular cash payments, until paying off her loan in full, and in the case of Greece which paid in cash up to November 15, 1921. Certain sums credited to Russia were received from funds realized by the Russian representatives of this country in connection with the liquidation of their fiscal operations. On November 15, 1923, the interest account for advances made under the Liberty Loan acts stood as follows: INTEREST ACCOUNT TO NOVEMBER 15, 1923, ON OBLIGATIONS OF FOREIGN GOVERNMENTS RECEIVED BY THE UNITED STATES UNDER THE TERMS OF LIBERTY LOAN ACTS (In " C u r r e n c y " dollars—000 omitted) Interest Accrued Country Belgium Cuba Czechoslovakia France Great Britain Greece Italy Liberia Rumania Russia Yugoslavia $88,34* 2,287 13,539 779,622 883,078 2,659 . 424,681 6 5,349 56,086 6,554 2,262,2 02 Interest Paid Interest Due $10,907 $77,434 2,287 304 129,571 883,078 1,159 57,599 z 263 7,526 ,636 1*093,331 13,235 650,051 1,500 367,082 5 5,o86 48,560 5,918 1,168,871 IZO ] BANKERS TRUST COMPANY T h e interest accrued, paid and still due up to November 15, 1923, upon advances made to foreign governments on account of obligations received from them in connection with other loan operations, were as follows: INTEREST ACCOUNT MISCELLANEOUS LOANS BY UNITED STATES TO FOREIGN GOVERNMENTS TO NOVEMBER 15, 1923 (In "Currency" dollars—000 omitted) Obligations Interest Accrued Interest Paid Interest Due Account Sales of Surplus War Materials . Account Relief Supplies Furnished . . . Account Grain Corporation (Sales of Flour 95,7 68,8 26,9 16,2 0,5 121,9 15.7 10,0 10,0 69,3 52.6 Post Armistice Loans It will be remembered that under the terms of the Liberty Loan acts the secretary of the treasury was permitted to make loans only to foreign governments "engaged in war with the enemies of the United States," and that the authority to purchase bonds from such foreign governments was to "cease upon the termination of the war between the United States and the Imperial German Government." Section 13 of the Second Liberty Bond A c t states " t h a t for the purpose of this act the date of the termination of the war between the United States and the Imperial German Government shall be fixed by proclamation of the President of the United States." President Harding set this date by proclamation issued November 14, 1921, as July 2, 1921. In his annual report for 1918 laid before congress December 2 of that year, Secretary M c A d o o stated that on THE INTER-ALLY DEBTS[161 November 15, 1918, (the date of the armistice, it will be remembered, was November 11) there remained an available authorization for the establishment of credits in favor of foreign governments under the terms of the Liberty Loan acts, amounting to $1,828,000,000. In this connection he said: " I t is important that our foreign loans be discontinued as soon as may be, having due regard to the conditions of our industries and the essential needs of the foreign governments; in the meantime they should be held down to a minimum. Nevertheless, until certain of the allied countries can resume their normal activities the United States should be prepared to sell them on credit, even after the declaration of peace, foodstuffs, raw materials, and manufactured products of which they may be in need. I shall recommend the enactment of legislation extending the authority to establish credits in favor of foreign governments for a reasonable period and within reasonable limits to meet needs growing out of the war." In the finance report for 1919, Secretary Glass stated that, since the last report, credits had been established in favor of Belgium, the Czecho-Slovak Republic, France, Great Britain, Greece, Italy, Rumania, and Serbia, and that advances had been made to these countries and also to Cuba and Liberia under credits previously established. No credits were established in favor of Russia during the year, nor were any advances made to that country, and the balance of credits which had previously been established above the amount of the cash actually advanced was withdrawn. In certain instances, in which the purpose wras accomplished for which a credit had been established, or an advance had been made, without requiring the total amount of the credit or the ad IZO]BANKERS TRUST COMPANY vance, the balance of credit was withdrawn or the unused portion of the advance was repaid. Certain other repayments were made in connection with the routine of the accounts. He stated that none of the repayments constituted part of a general program of repayment by any foreign government. Secretary Glass summarized the facts as follows: the total appropriation provided by congress for loans to foreign governments was $10,000,000,000; from April 24, 1917, up to November 15, 1919, the credits established, after deducting credits which had been withdrawn and the cash advances, were as follows: Credits established Cash advanced Other charges against credits Balances under established credits . . $9,647,419,000 9,416,372,000 158,237,000 72,811,000 In the finance report for 1920, dated November 20, Secretary Houston stated that no further credits would be extended under then existing legislation and consequently that no further advances would be made to governments in favor of which there were no existing balances, and that all balances of credits in excess of the amount necessary to carry out the commitments would be withdrawn. T h e last advance was for $10,000,000 made to France on September 28, 1920. T h e total net advances under the Liberty Loan acts to that date were $9,466,000,000. O f this amount $2,170,000,000 was advanced after Armistice D a y . These post-armistice advances have been severely criticized as not coming within the terms of the authorizing acts which limited the loans to be made thereunder to foreign governments " t h e n engaged in war with the enemies of the United States." Although the war technically was not ended by proclamation of the President until July 2, 1921, yet as THE INTER-ALLY DEBTS[161 active hostilities had ceased, these critics, claim that the government exceeded its powers in making them. The government also is criticized for having allowed supplies bought with Liberty Loan money to find their way into enemy countries for relief purposes and otherwise. It is unquestionably a fact that millions of dollars worth of products purchased with United States money loaned to foreign governments were sent directly to Germany with our sanction, and that $48,000,000 of relief supplies were sent to Austria indirectly by making loans to Great Britain,. France and Italy, which those nations in turn used to aid Austria. It is also true that large quantities of supplies for relief of other distressed peoples were bought with Liberty Loan money, w+hile millions of dollars were lent to Great Britain after hostilities had ceased to enable her to build up her export trade. There is no question in regard to these facts, and also in regard to the fact that considerable loans were made to the newer countries to help them get on their feet. As we have seen, immediately following the armistice, both Secretary McAdoo and his successor Secretary Glass, sought congressional authority to extend the field of loan operations. However, all that congress was willing to do at that time was to grant authority to take the obligations o f foreign governments in payment for surpluswarsupplies. The administration then seems to have felt that the "end justified the means" and to maintain our prestige pending the peace treaty negotiations and especially in order to prevent a lapse of the conquered nations into a state of revolution and anarchy, because of a lack of food, determined to go ahead and make the necessary further advances. It is also a fact that the food administration was loaded up with supplies of meat and IZO ] BANKERS TRUST COMPANY cereals for which it was essential to find a market outside of our own country, in order to prevent the necessity of throwing upon our home markets tremendous quantities of food with a consequent crisis in the markets for such products. This was in line with the policy of scrapping thousands of automobiles and motor trucks owned by the government in order not to bring the automobile industry into ruin. The taking of the obligations of foreign governments in payment for surplus war materials sold them was specifically permitted by an act of congress approved July 9, 1918. This is also true of the obligations received by the American Relief Administration, the taking of which was permitted by the act of February 25, 1919. These loans which with unpaid interest on November 15, 1923, amounted to just under $100,000,000, are a mere bagatelle compared to the postarmistice loans for cereals, other foods, and relief made out of Liberty Loan money, which aggregated over $1,000,000,000. The question of these relief loans is treated more in detail in a subsequent chapter. Was the Loan Policy Justified? Unquestionably, yes. Without our aid thus given the Allies simply could not have successfully prosecuted the war. Secretary Glass in his report for 1919 tersely sums up the facts. We can do no better than to conclude this chapter by quoting his remarks verbatim: " I t is difficult to exaggerate the great purposes served and the great results accomplished by these advances to foreign governments. In the most critical stages of the war they immeasurably assisted America's gallant associates in obtaining the munitions, supplies, and equipment that were so imperatively needed to meet the enemy's offensives or to THE INTER-ALLY DEBTS[161 carry the fighting into his territory, and probably of equal importance was the fact that they served to hearten the allied armies and peoples by the knowledge that the vast credit resources of the United States were being shared with them for the effective prosecution of a common cause. Conversely, it is not difficult to estimate the disheartening effect that these loans of billions and the willingness of America to lend for the prosecution of the war as much more as was needed to the limit of her ability must have had upon the spirit and morale of the peoples and armies of the enemy. " I n the beginning, before the creation of our great army, the principal assistance of America was necessarily through foreign loans, and it was then that these advances proved so very potent in contributing to the final victory. Loans to Russia in 19x7 kept that great nation in the war and held the German troops upon the eastern front for six precious months. Similarly in each grave crisis, whether on the Italian front or on the battle fields of France or Belgium, the loans from the United States gave the Allies the means of replenishing supplies and equipment, and inspired their fighting forces and the peoples behind them with renewed hope and confidence and with strengthened determination in the face of an advancing foe. The service of these loans in assisting to hold the battle fronts of Europe until the might of our heroic army could be felt effectively, made possible, beyond the shadow of a doubt, the ending of the war in the fall of 1918. Without this aid to the allied governments, the war unquestionably would have been prolonged, if not lost, with the resultant great additional cost in life and treasure." The status on November 15, 1923, of the loans made by the United States government to foreign governments as officially given is printed on page 188. OBLIGATIONS OF FOREIGN GOVERNMENTS HELD BY THE UNITED STATES TREASURY ON NOVEMBER 15, 1923 (In "Currency" dollars—ooo omitted) ACCOUNT OF REACCOUNT OP SALES OF SURPLUS LIEF SUPPLIES FURNISHED WAR MATERIAL UNDER LIBERTY BOND ACTS Country Principal Interest (including Interest due N o v . Principal Interest 15.1033) Armenia . Austria * . Belgium . , 1347,3" Czechoslovakia 61,974 Esthonla . . Finland . . France . . * 3.933.365 Great Britain 4.600,oood 15,000 Greece . , . Hungary . . Italy . . . . 1.647.097 Latvia . . . Liberia . . . ""36 Lithuania Nicaragua. . Poland . . . Roumania. . 33.206 Russia . . . 187.730 Yugoslavia . 36,060 Total . 9.843,469 ACCOUNT OR SALES OF FLOUR $8,038 11.605 $3,933 34,056 177.433 $39,819 a&fr 13.235 20,604 $3,988 6,428 1.386 3.873 347 12,213 3.443 1.786 £8,282 7*8 407.341 650.051 I.JOO 367.083 5 5,086 48,560 5.918 ,168.871 378 3,533 833 4.159 a 176 79.947 13,044 13.923 3,585 30 406 34.978 4,631 595.088 36.931 3,610 15.688 $698 4.330 $11,960 34.056 377,030 91.8H0 13.999 8,383 3,340,607 4,600,000 IS.OOO 1.686 1,647.997 5.13 3 36 4.983 176 155.931 4.163 36,138 533 833 164 51.67 V 10.334 4.466 "713 84,094 Principal Principal Principal Total Indebtedness 56.859 $3,303 4.330 077.433 19.036 3.790 718 650,051 I.500 303 367,083 900 5 996 a 36.540 7.671 193,601 51.03S 49.303 to.549 10,010 10,578,509 1.331,500 $14,363 38,386 454.463 110,006 16,789 Q.OOO 3.990,658 4.600,000 I6.SOO I.9S9 3.015.079 6.033 31 5.978 176 183.471 43.799 341.903 61.587 11,800.010 oNo interest due on Nicaraguan notes until maturity, as is also the case of certain Belgian obligations aggregating $3,384,151-40. ^Interest has been paid as it became due. . . . . . . j . eAgrtement providing for refunding of these obligations as to both principal and interest executed, subject to approval of Congress, on M a y 1. 1923. Bonds of Finland amounting to $9,000,000 will be delivered to the Treasury in exchange for the obligations now held if the agreement 1» approved. dRefmuting bonds received under terms of agreement concluded pursuant to the A c t of Congress.approved February p, 1933, as amended by A c t of Congress, approved February 38. 1933. , * . t , Omission of three ciphers accounts for the fact that the Items do not exactly add to totals. CHAPTER X Great Britain as Borrower and Lender 1917-1920 A S we have already seen, the first allied commission to •L arrive in the United States after our declaration of belligerency was that from Great Britain. The financial members of this commission were Mr. (now Earl) Balfour, Lord Cunliffe, Governor of the Bank of England, and Sir Hardman Lever, Financial Secretary of the British Treasury. A contemporary record states that " t h e most important tangible accomplishment of this mission was the arrangement whereby the United States promised to lend a certain sum to Great Britain each month for expenditure in the United States." A s a matter of fact the place of expenditure was not prescribed, although as a practical matter, most of the credits and a considerable sum in excess were expended on our side of the Atlantic. T h e official statement on page 190 gives the facts. It will be noted that the net expenditures exceeded the net advances by $638,000,000. This amount includes any payments for services rendered by Great Britain to the United States, such, for instance, as for the transportation or victualing of troops, which the United States made in dollars in America. It also includes such sums as the British government had in America from its own resources, arising from interest on American securities or sales of such securities which it owned, shipments of gold and other exports to America. In this connection it is of interest to note the remarks of 1189 IZO]BANKERS TRUST COMPANY GREAT BRITAIN ADVANCES MADE BY THE UNITED STATES GOVERNMENT AND EXPENDITURES REPORTED BY GREAT BRITAIN FOR THE PERIODS GIVEN BELOW (In "Currency" dollars—00,000 omitted) ADVANCED NET ADVANCED . . . . EXPENDITURES Munitions Munitions (forother G o v ernments) Exchange and C o t t o n . . 1917 April 6 to Dec. 31 1918 Jan. 1 to June 30 4.377.o 80,3 i,S6o,o 1.315,0 731,0 481.0 4.196.8 i,S6o,o 1,315.0 73i,o 481.0 1.330.6 570,0 393,1 317.4 ISM 305.5 1,683,4 1.375,4 X,l69.3 99.3 315.3 48.9 19.3 387.7 353.5 16,0 361.6 7,0 47,8 194.8 1,374.6 361.9 154.6 31.3 48.7 8.3 373.7 385,5 404.8 7.4 60,7 X 9 33,4 467.1 3i9,o 56,3 83.7 1 1.5 XI 1,6 160,8 390,7 35.6 49,8 80,1 15.9 75.9 91.9 114.0 199.1 60.7 1X5,5 46.5 13.3 138.8 Other Foods Tobacco . . . . . . . Other Supplies . . . . Shipping Reimbursements . . . Interest Maturities Relief Silver Food, Northern Russia . Miscellaneous TOTAL REPORTED EXPENDITURES . . . . 7.3*9,4 Less Reimbursements from U . S. Credits to other Governments 1.853.6 Dollar payments by U . S. for foreign currencies . 449,5 Proceeds of rupee credits and sold from India . 814 «NET EXPENDITURES . . . 1918 July 1 to N o v . 30 Total April,'17 to Nov./ao 4.834.9 1018-19 Dec. 1 to June 30 1919-30 July 1 to Nov. l 8o,3 080,3 19,3" 3,3 3,7 4.9 5.3 72,1 7,0 19.3 3,736,8 1,665.4 1.679.3 1,133.8 5I3.I 395,0 6s6,3 350,o 30,3 46,3 76,4 158,8 168,1 18,4 3,4 30,5 33,9 13.6 3,310,3 1,393,6 913,7 591,4 a Repayments in excess of cash advanced. ^Receipts in excess of expenditures. 35,3 &I73.I cOn account of five ciphers omitted last digits do not exactly add. Secretary of the Treasury D . F. Houston in his Annual Report to Congress, dated November 20, 1920. He stated in substance that the reported expenditures of foreign governments did not represent their total disbursements in the United States. He explained that under the designation of T H E I N T E R - A L L Y DEBTS exchange were included many transactions which normally would have been settled with the importation of gold or the sale of exchange, except in so far as they might have been capitalized through the purchase of American securities held abroad or of securities of foreign governments held in the United States, or adjusted by transferred bank balances or otherwise. We are advised that in the early stages of the war all commodity purchases by Great Britain were thus merged in exchange, except the purchases of munitions and sugar, and that therefore the exchange item in the statement of expenditures reflected purchases of wheat, food, cotton, leather, oil under government control, and all transactions of individual buyers in the United States, and that the amounts shown under specific headings include only purchases bought under government control after centralized purchases and finance were established. The secretary explained that the amount expended by France for exchange was of a less complex character than the disbursements shown under the same heading for Great Britain. He stated that after March, 1917, imports into France were in general prohibited until after the armistice. In some cases, however, he said imports from the United States were authorized and that in such cases the Bank of France undertook to provide funds sufficient to pay for them. Prior to November 30, 1918, the dollar funds provided by the Bank of France constituted the major part of French exchange payments. Under this heading also were included certain sums expended in New York in purchasing drafts on Paris or in making payments for cotton. Some purchases on French account were paid for by draft on London, this being particularly true in the earlier part of the period. The purchases of these drafts IZO ] BANKERS TRUST COMPANY were included in the British item of expenditure and the amount of transactions as estimated from time to time for the French and British governments forms part of the reimbursements by the French to the British. The observation is made that it will be apparent that completely to analyze the total purchases of exchange is impossible. It is stated that it was consistently the aim of the treasury department to have whole classes of transactions, such as the buying of wheat and food, taken out of the general exchange market so far as possible, to be provided for by direct payments, and to determine, as completely as possible, the character of the remaining exchange transactions. In regard to the item of reimbursements, the statement is further made that under this head are included expenditures consisting principally of payments by France and Italy to Great Britain for cereals, sugar, meats and munitions and for neutral freights and other disbursements made to neutrals, and of payments by Belgium to Great Britain for horses, gasoline, oats, flour and certain relief supplies furnished by Great Britain out of supplies obtained actually or constructively from the United States. The Initial Loan from the United States The first advance made by the United States to Great Britain was for $200,000,000. This was the first loan ever made by the United States government to a foreign government. This transaction is thus described in a contemporary news item. " A loan of $200,000,000 by the United States to the United Kingdom of Great Britain and Ireland was consummated on April 25 with the handing over to Lord Cunliffe, Governor of the Bank of England, by William G. McAdoo, THE INTER-ALLY DEBTS[161 Secretary of the Treasury, of a treasury warrant for that amount. The money to make the loan was obtained by our government out of the proceeds of the sale of Treasury Certificates of Indebtedness due June 30. The loan to the British government was purely an emergency loan, and it is understood that it will be replaced with a bond issue loan just as soon as the treasury can complete its arrangements for issuing bonds. The transfer of the big sum was made in Secretary McAdoo's office at Washington in the presence of Federal Reserve Board and treasury and British embassy officials. Lord Cunliffe immediately afterward took the treasury warrant to the British embassy, where it was delivered to Sir Cecil Spring-Rice, Ambassador from Great Britain. Sir Cecil, acting on behalf of the British government, gave the treasury a note for the money bearing the same rate of interest as that borne by the issue of United States Treasury certificates of indebtedness. The warrant received Sir Cecil endorsed over to the United States treasury with a request that the amount be deposited in the federal reserve system to the credit of his government." Our Financial Assistance Vital We have already noted how much our help was needed by the Allies but it is of interest in this connection to read an extract from a letter dated May 4, 1917, written by Ambassador Page from London to President Wilson. This is what he wrote: " I heard all the speeches in both houses on the resolution of appreciation of our coming into the war. . . . It wasn't oratory but it was well said and well meant. They know how badly they need help and they do mean to be as good to us as their benignant insularity will permit. They are changing. IZO ] BANKERS TRUST COMPANY I can't describe the great difference that the war has made to them. They'll almost become docile in a little more time. " A n d we came in the nick of time for them—very true. If we hadn't, their exchange would have gone down soon and they know it. I shall never forget the afternoon I spent with Mr. Balfour and Mr. Bonar Law on that subject. They saw blue ruin without our financial help." Did Great Britain Act for Either of the Allies ? In connection with some of the loans made to the British government it was stated in the public prints during May, 1917, that considerable portions of the sums being advanced were in effect for payments for purchases made by the British government for other allied governments on account of contracts recently placed or then being placed in the United States. It was said to be understood that Great Britain was purchasing supplies on behalf of Russia in this country, there having been up to that time no loan made by our government to Russia. The facts in the case appear to be that England was using funds received from the United States to clear up obligations incurred for supplies purchased by her for her own account and for account of certain of her allies prior to April, 1917* This brings up the vexed subject of guarantees which we will now examine. Guarantees—Were Any Required or Given ? It has been claimed by some people that the United States required the British government to guarantee certain of the loans made to other nations. In particular, Earl Balfour, in a letter addressed to the French ambassador on August I, THE INTER-ALLY DEBTS [ 161 1922, in a paragraph dealing with the cost of the war to Great Britain, said "Under no circumstances do we propose to ask more from our debtors than is necessary to pay our creditors . . . for it should not be forgotten, though it sometimes is, that our liabilities were incurred for others, not for ourselves. The food and raw material and munitions required by the immense naval and military efforts of Great Britain and half of the $9,732,000,000 advanced to allies were provided not by means of foreign loans but by internal borrowing and war taxation. Unfortunately, the same policy was beyond the power of other European nations. An appeal was therefore made to the government of the United States; and under the arrangement then arrived at the United States insisted, in substance if not in form, that if our allies were to spend the money it was only on our security that they were prepared to lend it." It is hardly likely that as great an authority as Earl Balfour, who we have already stated was at the head of the finance mission to the United States when these loans were arranged for, would have made such a definite statement as this unless he had felt sure of his position. It would seem, however, that Earl Balfour, when writing the note to France, had not clearly kept in mind the exact conditions. Secretary of the United States Treasury, Mr. Andrew W. Mellon, in a statement published shortly after Earl Balfour's letter was issued, stated that a number of inquiries had been received with respect to the exact status of the obligations of foreign governments held by the United States, and that especial attention had been directed to the origin of the indebtedness of the British government. He said it had been stated that this liability was not incurred for the British government but for the other allies and that the United States in making the IZO ] BANKERS TRUST COMPANY original arrangement had insisted in substance that if the other allies were to use the money borrowed it was only on British security that the United States was prepared to lend it. In regard to these inquiries, Secretary Mellon said, " T h e statement that the United States government virtually insisted upon a guarantee by the British government of amounts advanced to the other allies is evidently based upon a misapprehension. Instead of insisting upon a guarantee or any transaction of that nature, the United States government took the position that it would make advances to each government to cover the purchases made by that government, and would not require any government to give obligations for advances made to cover the purchases of any other government." He goes on to say, " T h u s the advances to the British government evidenced by its obligations were made to cover its own purchases and advances were made to the other allies to cover their purchases." In support of this definite statement, Secretary Mellon quoted from a memorandum which the secretary of the treasury in June, 1918, handed to the British ambassador, which memorandum reads as follows: " S o far as the purchases of the allied governments for war purposes within the United States and its Territories and insular possessions are concerned, it is the expectation of the Secretary of the Treasury to continue as heretofore the advances necessary to enable the financing of such approved purchases. The Secretary of the Treasury quite agrees with what he understands to be the views of the Chancellor of the Exchequer that advances shall be made to each allied government for the commodities purchased in the United States by or from it and that no allied government should be required THE INTER-ALLY DEBTS [ 161 to give its obligations for such purposes when merely serving as a conduit for the supply of the materials so purchased to another allied government. Any other course would indeed be incompatible with what the Secretary of the Treasury deems a cardinal principle which should be followed in respect to such advances, namely, that the allied government for the use of which the commodity is purchased must give its own obligation therefor and the obligation of any other allied government can not be accepted by the United States as an equivalent." Mr. R. C. Leffingwell, who was Assistant Secretary of the Treasury in 1917, in an address which he made on May 12, 1922, before the American Academy of Political and Social Science in Philadelphia, stated emphatically that the impression which had been created, that the United States required Great Britain in some sense to guarantee or make herself responsible for loans to the Allies after the United States entered into the war was "wholly erroneous." He tells us that before the United States entered into the war Great Britain had established the rule that each ally should be responsible for the financing of interallied purchases within its own borders. He says " t h e same rule was extended to the United States when it entered into the war. Under that simple and sound rule the United States financed the requirements of the Allies within its borders; Great Britain financed the requirements of the Allies within the British Isles and to a great extent within the British Empire (but not in India, where the United States financed all the Allies by shipments of silver for a considerable period); and as to expenditures in the neutral world, Great Britain and the United States shared the burden of finance in accordance with a formula agreed upon between them." He continues " T h e theory of the rule IZO ] BANKERS TRUST COMPANY is simple: The people of each belligerent country could and should respond, in taxes and subscriptions for domestic loans, to the financial demands of its government. The American government could raise all the dollars the Allies needed, the British government all the sterling, the French government all the francs, and the Italian government all the lire. On the other hand, because of embargoes on exports of gold and control of foreign exchange, no government could provide finance outside its borders, except at the expense of grave depreciation of its currency in foreign exchange. It was a matter of course that, under the sound rule thus established by Great Britain before the United States entered the war, and continued without question thereafter, Great Britain should continue to be a lender as well as a borrower on international account. " I n one case only did Great Britain make advances after the United States entered the war for purchases by any of the Allies in the United States—that of Russia—and in that case only to the extent of contracts entered into by Russia and guaranteed by Great Britain before the United States entered the war. The amount is not important." From an important English source, we have the following testimony in regard to this question of guarantees. This authority states that there were only three substantial items in the British war debt to America which can be said to have been incurred directly on behalf of the Allies. The most important of these items was in connection with the question of replacement which arose in two forms in the autumn of 1917, "when the American army was making very urgent demands from Great Britain for various kinds of equipment which her own factories were not producing quickly enough. Great Britain began to put forward a claim that America THE INTER-ALLY DEBTS [ 161 should find the raw material, not merely in general but as a specific allocation against goods manufactured in Great Britain for the American army. It was clearly impossible to wait for this material, but we urged, or rather the departments concerned strongly urged, that actual steel or copper or whatever it might be, should be ear-marked for the department on this side. This was devised to meet the difficulty created by the acute competition for priority of material on both sides of the Atlantic and the American purchasing authorities fell in with it as a way to overcome the reluctance of particular departments to supply their goods to the American army in competition with British requirements. The claim fell through because supplies became subordinate to shipping, and claims based upon replacement had to take their chance in accordance with the more general over-riding order of priority. " B u t while the discussions on this question were still proceeding, Great Britain raised the same point in regard to supplies to her allies. As the difficulty of maintaining British supplies increased, we endeavored for supply reasons reinforced by financial considerations, to make our allies go to the less congested American market. For example, in the winter of 1917-18, we practically stopped making French shell steel, the orders in British factories being replaced in America. The Allies always strongly objected because the American market was far away; out of touch with their central inspectorate and subject to the risks inevitable to the early stages of production. In certain cases they established their point where, for example, highly technical processes had been started. But after the Inter-Allied Munition Council was established in June, 1918, all such requests were brought before that body and Great Britain undertook to supply IZO ] BANKERS TRUST COMPANY the goods if America would replace the raw material. But as soon as this arrangement was come to, the treasury at once pointed out that Great Britain would have to find dollars simply because France or Italy were unwilling to place particular orders in America. The American treasury admitted the force of the argument, and finally agreed that if the Munitions Council certified that British orders were being placed for material in the United States, which would not have been placed there but for the fact that we were supplying goods to the Allies, they agreed that the material should be paid for not out of the dollar credits of Great Britain, but from the dollar credits of the Allies concerned. This arrangement was only agreed upon early in August, 1918, but it is a fact that the last orders for pig iron and steel for shipment to British munition factories were paid for out of French and Italian dollar credits. " I can not attempt to estimate what sum would be involved, but it is certainly arguable that this rule ought to have been admitted from April, 1917, onwards and if it had been,it might have involved a substantial deduction from the British total debt to America, and a corresponding increase in those of France and Belgium/' This arrangement, together with such part of the British expenditure on maintaining the exchange which can be shown to have been incurred because of French and Italian purchases in various countries of the world, plus a certain sum spent by Great Britain in completing or compensating for the cancellation of orders for Russian type munitions which Great Britain had placed in America on behalf of Russia previous to April, 1917, constituted in the opinion of this authority the three substantial items referred to above, incurred^by Great Britain in America directly on behalf of the Allies. THE INTER-ALLY DEBTS[161 Our authority doubts "whether we should accept the argument that if it had not been for the burden on our finances of our advances to the Allies, we could have financed our own essential requirements in America;" this he adds " i s a very theoretical question." Another distinguished British authority, Mr. Austin Chamberlain, then Chancellor of the Exchequer, in reply to questions in the House of Commons on Tuesday, February 22,1921, stated that no loans were made by the United States government until after the entry of the United States into the war, and that " n o loans made by the United States government to allied governments were ever guaranteed by us." It would seem to be clear, therefore, that the advances from the United States to Great Britain, except in so far as modified by the statements which we have quoted above, were made directly to Great Britain for her own benefit and not through Great Britain for the benefit of other allies. Silver for India It will be noted that of the sums advanced by the United States government to Great Britain, $261,600,000 were used in purchasing silver. During 1918 and 1919, enormous amounts of silver were necessary to pay for the heavy excess of goods imported into England from India and China. The amount of silver required was emphasized because of the fact that gold exports to India necessarily had to be considerably restricted after 1915. The net imports of silver into India during the twelve months ending March 31, 1919 amounted to 112 per cent of the world's production during the same period, as against 26 per cent of the annual average production in the five pre-war years 1910 to 1914 inclusive. In the early part of 1918, representations were made to IZO]BANKERS TRUST COMPANY the United States government that in order to stabilize the Indian and Chinese exchanges, it was essential that Great Britain, if possible, should obtain a large amount of silver from the United States. The rise in world commodity prices and extensive hoarding of the metal in interior parts of India and other eastern countries, were factors contributing to the scarcity of silver, and therefore to this emergency. Added to this situation was the difficulty that silver production, since 1914, had been shrinking, as compared with the production prior to that year. It was a difficult matter for the United States treasury to know just how to solve this problem, but finally it was decided to recommend to congress that an act be passed allowing the treasury department to lend to Great Britain the silver impounded as security for the silver certificates. This arrangement, of course, would necessitate the retirement of the silver certificates outstanding. T o obviate any shrinkage of the circulation due to this cause, it was recommended that the federal reserve banks be authorized to purchase from the treasury an equivalent amount of certificates of indebtedness and against these certificates of indebtedness to issue their federal reserve bank notes, with the understanding that the operation would be reversed as soon as the emergency was passed and Great Britain prepared to reimburse our government for the advances. Congress approved of this plan. About 200 million fine ounces of silver were sold to Great Britain during 1918 and 1919. This was not entirely paid for by borrowing. The British government issued to the United States government its notes for $122,017,000 on account of purchases of silver and the balance of the account was settled by rupee exchange made available to the Federal Reserve THE INTER-ALLY DEBTS[161 Bank of New York for $71,353,000, while gold was shipped to this country from India in the sum of $9,999,000. The arrangement made with the British government was that interest was to be paid in cash at the rate of 5 per cent per annum semi-annually. The principal was to be paid in equal annual instalments in the years 1921 to 1924 inclusive. Until the payment in full of the principal with interest, in order to afford American nationals an opportunity to acquire rupee credits at the same cost as such credits were offered to British nationals, the British government agreed to permit the United States treasury, through the Federal Reserve Bank of New York, to make tenders to purchase rupee credits offered by the Indian government in London or elsewhere in Great Britain, on substantially the same terms as were open to British nationals, payment to be made in dollars to the agents in New York of the British government for the sterling cost of the rupees at the cable rate for sterling fixed by the Federal Reserve Bank of New York at noon of the day of such sterling payment in London. It is unnecessary to go into the details of further arrangements, but suffice it to say that this loan of silver tided over a serious emergency for Great Britain in connection with her Indian exchanges. The interest on the obligations given by the English government was regularly paid as it came due, also the instalments of principal and the balance of principal remaining unpaid March 31, 1923 was finally merged into the $4,600,000,000 settlement then arrived at with the British government on account of its gross obligation to the United States. The operation is also entirely closed so far as the United States treasury is concerned, the 200,000,000 ounces of silver sold having been repurchased in the American market and IZO BANKERS TRUST COMPANY ] returned to the treasury, the obligations issued to the federal reserve banks paid off and the federal reserve bank notes issued against them cancelled. Britain9s Borrowingsfrom Other Nations In addition to moneys borrowed from the United States, or their equivalent in munitions, Great Britain borrowed during the war considerable sums from other nations. T h e total external debt on March 31, 1919, when apparently it was at its maximum, was $6,641,360,000. Of this amount £5,240,234,000 were borrowed from governments and $ 1,401,126,000 were borrowed in foreign markets. The amount borrowed abroad: from governments other than the United States was $1,148,794,000 and in foreign markets, S535>3 23 >°oo,ooo. FOREIGN INDEBTEDNESS OF GREAT BRITAIN (In "Currency" dollars—000,000 omitted) Country in which Payable Argentina Canada . . . . . . . . . Denmark . . . . . . . . . Fiji, Strait* Settlements and Mauritius Certain Allied Governments . Holland Japan . . . . . . . . . . Norway. . . . . . . . . . Spain MARCH To Government 94 447 37 SS2" 7 . . . . . . . . . . Sweden . . . . . . . . . Switzerland . . . . . . . . To Market IS 313 45 9 141 61 13 33 Uruguay . . . . . . . . . All Countries other than U. S. 1,149 United States 4.091 31,1919 22 S^40 16 535 866 MOT MARCH 3*. »9 Total To T o Govemment Market log 660 7o 45 553 633 37 16 X4X 61 Total ts 15 37 633 70 37 13 33 16 33 1,684 693 4.957 4.661 6.64: 5.354 S3 3X8 370 745 4.879 5.634 THE INTER-ALLY DEBTS [ 161 These data are summed up in the table on page 204, columns are added giving the status of the debts on March 31, 1923, the latest date for which information is obtainable. We have already very fully considered the loans from the United States. Just as was the case with the United States, in nearly every instance, the loans were arranged to facilitate exports from the respective countries to Great Britain. There were three important exceptions to this rule, namely the loans of gold from France, Italy and Russia made prior to 1917 to facilitate purchases of munitions through England from the United States; and there was also the camouflage exchange of credits with the Russian Bank of the State. The former are probably included in the general classification, "Loans from Certain Allied Governments." They have already been fully discussed in Chapter VIII. The latter do not seem to appear in the accounts. Outside of these loans and those from the United States the only loans of important size were those made by Canada, which it will be observed totalled on March 31, 1919 the large sum of $446,700,000 due to the Canadian government and $212,500,000 due to Canadian banks; $659,200,000 in all. Canadian "Public Accounts" for the year ended March 31,1917, stated that at that time advances to the imperial government amounted to $169,458,000, while on the other hand the home government owed Canada $180,938,000, resulting in a net balance in favor of Great Britain of $11,480,000. B y the end of the next fiscal year the imperial government was a debtor to Canada on balance for $111,708,000. A t the end of the next year (March 31, 1919) the balance against Great Britain had reached $221,490,000. After this date Great Britain gradually reduced her obligation, so that on March 31, IZO]BANKERS TRUST COMPANY 1923, according to British "Finance Accounts," the obligations of the two countries were in balance, the amount due Canada being offset by a similar amount due from Canada. The loans made by Canada to Great Britain were chiefly to pay for guns and other munitions manufactured or produced in Canada. The munitions included large amounts of cereals and dairy products. The counter liabilities of Canada to Great Britain were almost wholly for supplies furnished by Great Britain to the Canadian army. Foreign Loans of Great Britain igij-ig20 We have seen in our discussion of the inter-ally loans prior to April, 1917, that Great Britain up to that time was the banker in chief and the chief purveyor and broker in munitions obtained outside of their own boundaries for the Allies. In the second part of the war, as we also have noted, Great Britain continued to be a heavy lender to her European allies and to her dominions, but was able to offset these loans by borrowing from the United States and in a minor degree from other nations. That is to say, money values of amounts borrowed and of amounts lent almost exactly offset each other, but when considered in terms of munitions the articles obtained abroad were for the most part of a different category from those supplied to the borrowing nations. For example, England obtained in America—north and south of the equator—provisions, cotton, metals, nitrates and certain classes of partly manufactured goods, as well as a large tonnage of manufactured goods ready for use. She probably passed along some of the provisions to those who borrowed, but her loans were largely in the form of manufactured goods made from British steel, combined with metals and partly manufactured munitions obtained abroad. She THE INTER-ALLY DEBTS [ 161 also exported a heavy tonnage of coal obtained from British mines. Thus while loans made offset loans received so far as money values went, goods loaned and goods received were of quite different categories. On April 1, 1920, Great Britain was lending $9,891,953,000; or if we deduct the camouflage loan to Russia of $973,000,000 the amount of actual loans was $8,918,953,000. On the same date the United States was lending $9,580,820,000. As the latter figures include accrued and unpaid interest, while the former include only some interest it may be said that the two great English speaking allies had contributed to the cause in goods about equal values. Statistical Table X X V gives the actual status of the interally loans, on or about April 1, 1920. CHAPTER XI French Loans From and To Foreign Nations 1917-1920 E N E R A L P E R S H I N G in his Final Report sums up tersely the conditions which confronted the Entente Allies in the Spring of 1917. He writes: " I t cannot be said that German hopes of a final victory were extravagant, either as viewed at that time or as viewed in the light of history. Financial problems of the Allies were difficult, supplies were becoming exhausted and their armies had suffered tremendous losses. Discouragement existed not only among the civil populations but throughout the armies as well." These facts were very definitely developed by Lord Balfour and his colleagues on the part of the British and by M . Viviani and Marshal Joffre for the French in their presentation of the subject to our government in April, 1917. T h e loans began almost immediately—Great Britain receiving her first loan, $200,000,000, on April 25 and France her first loan, $50,000,000 on M a y 8. G Debt of the French Government to the United States Government, IQ17-IQ23 T h e records of the United States treasury department show that the total advances by the United States government to France from M a y 8, 1917, to September 28, 1920 amounted to $2,997,478,00a France apparently expended in the United States through 208] THE INTER-ALLY DEBTS [ 161 or under cognizance of the United States treasury $4,196,247,000. These disbursements were met as follows: Cash advanced by the United States . . $2,997,478,000 Less refunds and repayments 31*450,000 $2,966,028,000 Reimbursements from United States credits to other governments 19,302,000 Dollar payments to France by the United States for supplies furnished to United States army in France 1,025,438,000 $4,010,768,000 Difference not explained in the Report of Secretary of Treasury 185,479,000 $4,196,247,000 In the table printed on page 210 compiled from official statements of the United States treasury department the statistics are separated by critical periods and the disbursements are partially analyzed. T h e United States treasury department does not explain w h y the particular periods used to classify the accounts were selected. I t will be noted that for the pre-armistice period they correspond roughly with the development of America's military and naval activities. During 1917 our army for the most part was simply in process of mobilization and training. General Pershing tells us that "on December 3 1 , 1 9 1 7 , there were 176,665 American troops in France and but one division had appeared on the front." During the first six months of 1918 the American army was still in process of organization as an effective fighting force. On March 21, approximately 300,000 American troops had reached France. B y the end of M a y we had a force of IZO]BANKERS TRUST COMPANY 600,000 in France. However, during these six months our men were still largely in training although many of them saw service with British and French troops and during April, M a y and June some took part in hard fighting, especially in M a y on the heights of Cantigny. ADVANCES MADE TO FRANCE BY THE UNITED STATES GOVERNMENT AND EXPENDITURES REPORTED BY FRANCE FOR THE PERIODS GIVEN BELOW (In dollars—00,000 omitted) Total 1917 Apr,, *X7 April 6 to to Nov., '30 Dec. 31 1918 Jan. 1 to June 30 1918 July 1 to Nov. 30 1918*19 Dec, 1 to June 30 1919-30 July x to Nov. 1 3,997,5 1.130,0 535,0 355.0 633,5 7,6 365.0 33.9 NET ADVANCES . . . . 2,966,0 1,130,0 535.0 355,0 634,9 33i.i 313,0 378,0 178.4 35.3 16.4 9,3 146,7 141,1 160,1 3,6 177.7 303,3 47.0 9.3 34.4 11,0 36.5 350,0 40.6 37.1 34.0 3.5 5.7 5,6 18,9 83,8 5.6 35.0 150,0 130.3 14.3 38.0 3,5 16.7 1.081,9 848.9 780,7 934.3 560,5 331.8 370,4 333.9 0,3 537.1 410,3 591,3 540.9 ADVANCED Refunded . . . . . . . 31.5 EXPENDITURES Munitions 837,3 806,6 Exchange and Cotton. . Foods 395.3 Tobacco 40,7 Other Supplies . . . . 376.6 Transportation . . . . 33,5 Shipping 133.4 aReimbursements . . . 1.045,8 Interest on loans by U . S. 368,8 Maturities . . . . . . 389.7 Relief 143,1 Silver . 6,3 Miscellaneous 41.3 TOTAL REPORTED EXPENDITURES . . . . 4,IS>6,3 ILess Dollar payments by U . S. for foreign currencies 1,035,4 R e i m b u r s e m e n t s from U . S. Credits to other Governments . . . . 19,3 N E T EXPENDITURES . . . 3.151,5 14.5 37,7 IM 10,3 33i,o 35,7 31,7 37,0 34,6 3,3 35,3 3p5.o 59.6 101,0 38,0 0,3 143.5 13,4 74.8 3,4 107.1 3,3 35,4 19.8 13,7 115.7 16,1 10,7 19,3 1,081,9 a Payments made b y France to Great Britain for cereals, sugar, meats and munitions and for neutral freights, and other disbursements made to neutrals. ^Currencies needed by the United States in Fiance for war expenditures in that country were provided by France under an arrangement whereby the dollar equivalent of the amounts so provided was made available to France for use to meet her war expenditures in the United States and thus the needs of France for advances from the United States were reduced by a corresponding amount. THE INTER-ALLY DEBTS [ 161 From July, on to the time of the armistice in November, our troops took an increasingly aggressive part in the fighting. From the time of our entrance into the war until its close our navy did splendid work in convoying the troop ships, in assisting in running down submarines and in tightening the North Sea blockade by mine-laying and in other ways. If there is merit in the contention that the loans should be cancelled which were made to our allies while we were developing our army in France into an effective fighting force, then the expenditures of the year 1917 and of the first half of 1918 should be carefully investigated in order to determine the amount which we might fairly be asked to cancel. A considerable part of the advances for this period was not for direct military requirements, while a substantial part appears to have gone to Great Britain to reimburse her for advances made to France. If the opinion is correct that our contribution to the war while our effective military force was being organized should have been the munitions required for its conduct, then the amount to be cancelled for France would be some part of the $1,130,000,000 loaned her in 1917, and of the $525,000,000 loaned her in the first half of 1918. These sums aggregate $1,655,000,000. As to how much of this amount was expended for direct military purposes; how much to repay Great Britain for borrowed money; and how much for non-military purposes, such as provisioning the non-combatants, stabilizing the exchanges, and for other non-military purposes, the records are not as clear as they might be. T o get at the full facts each division of the accounts should be carefully analyzed, especially the two blind entries, "exchange and cotton purchases" and "reimbursements." The secretary of the treasury in his report for 1920 says: IZO ] BANKERS TRUST COMPANY " I n considering the statements it must be borne in mind that the amounts shown under the various headings do not for the most part include expenditures of dollars obtained by foreign governments otherwise than from the American government's loans and expenditures in Europe, and therefore do not represent total disbursements." The amounts borrowed by France in the money markets of the United States or from sellers of munitions to and including May, 1917, aggregated $774,000,000. Deducting $95,000,000, the par value of obligations maturing during the same period, we have a net amount available for purchase of goods aggregating $679,000,000. From this amount we must deduct $289,700,000 refunded by proceeds of United States loans and included in the statement of disbursements already given. We thus arrive at a net amount of $389,300,000 to be added to our former total of $4,196,200,000. This gives us a grand total of $4,585,500,000 disbursed by France in the United States from August, 1914, to September, 1920, inclusive. To meet these expenditures the United States government loaned France $2,966,000,000; transfers from credits to other governments provided $19,300,000; the bankers of the United States and their clients supplied a net amount of $389,300,000; while expenditures of the United States army in France were offset by credits given France in the United States for $1,025,400,000. This leaves the sum of $185,500,000 unaccounted for. Thus American bankers, merchants, manufacturing, shipping and transportation interests profited to the extent of over three billion dollars, from French disbursements in the United States. On the other hand the large disbursements in France by the American Expeditionary force were similarly advantageous to French business interests. THE INTER-ALLY DEBTS [ 161 On November 15, 1923, France owed the United States government $3,990,657,000 as follows: Cash advances as heretofore stated . . . $2»997,477,ooo Less refunds and repayments 64,212,000 For account of army supplies purchased . Interest accrued $840,887,000 Less amount paid 190,836,000 GRAND TOTAL |2»933.265,000 407,341,000 650,051,000 $3,990,657,000 T h e war borrowings of France in the United States money markets had all been repaid at the end of 1923, except $216,000,000, viz:$45,ooo,oooFrench Cities 6s;$87,745,000 French Government 8s of 1945 and $82,150,000 French Government 7 # s of 1941. The year by year borrowings in the United States may be summarized as stated in the table on page 214. French Borrowiftgsfrom the United Kingdom Similar data in regard to the loans made to France by the United Kingdom do not appear to have been published. W e have already seen that in or about October, 1914, an issue of $48,666,000 French treasury bills was placed through the Bank of England and that on October 15, 1914, Messrs. Rothschild & Son floated in London $9,732,000 similar bills. A s explained more in detail in Chapter V I I I , in 1915 Great Britain agreed to lend France an aggregate of $289,500,000 on condition that France would loan to Great Britain gold up to one-third of any advances to be received from the British treasury. This gold was to be borrowed from the Bank of France and to be used in maintaining the British IZO BANKERS TRUST COMPANY ] WAR AND POST-WAR BORROWINGS OF FRANCE IN THE UNITED STATES (In dollars—000,000 omitted) MARKET LOANS Year Borrowed 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 A dd: Interest accrued and unpaid on Debt to the United States Government to Nov. 15, 1923 Total Debt of France in and to the United States on Nov. 15,1923 10 335 3*4 US Paid 10 70 83 74 95 100 100 236 250 58 63 9 1,069 853 Net 10 325 244 32 -74 -141 -150 42 -9 216 From U. S. Government, Borrowed 1,130 966 1,208 100 -46 "17 3,34i 650 216 3,99I exchange with the United States. This proposed loan was intended to facilitate transactions in British, Canadian and American markets. B y October 31, 1915, the amount of treasury bills sold in England was reported to be $198597,000. In December, 1915, a "substantial a m o u n t " of the first Loan of National Defense was reported to have been taken in England. T h e proceeds by arrangement with the English government were to be devoted to the liquidation of the large debts which had been contracted there by the French government. THE INTER-ALLY DEBTS [ 161 In the spring of 1916 additional treasury bills were placed with the English government on the same basis as the loans arranged in 1915, viz: the Bank of France to lend the Bank of England gold coin in amount equivalent to one-third of the advances made by England. In the fall of 1916 an arrangement was consummated for further advances from the British treasury, but with the stipulation omitted in regard to a reciprocal loan of gold. However, " i t was nominated in the bond" that the proceeds of these bills, except within certain specified limits, were to be used for payments to be made within the United Kingdom. Notwithstanding the large borrowings of France in the United States after April, 1917, the borrowings in England steadily increased, rising from $988,160,000 at the close of 1916 to $1,934,632,000 at the close of 1917; $2,390,305,000 at the close of 1918; $2,626,730,000 at the close of 1919; $2,684,437,000 at the close of 1920 and to $3,089,351,000 at the close of 1921. Goods purchased in England also seem to have been paid for by credits obtained by France from the United States government and transferred to England's account, under the head of "reimbursement." In April, 1918, France sold about $23,160,000 worth of her internal bonds in Argentina and she also arranged export credits in 1918 in Uruguay and other countries. After the close of the war France arranged for export credits for reconstruction and rehabilitation from Canada, from Spain, from the United Kingdom and from some of the South American republics. Loans Made by France to Other Nations In February, 1915, France, the United Kingdom and Russia, represented by their respective Finance Ministers, IZO]BANKERS TRUST COMPANY Messrs. Ribot, Lloyd-George and Bark meeting in Paris, agreed " t o unite their financial resources" for the more effectual conduct of the war. The outcome of this arrangement was that France and England each made large advances to Russia. The advances of France were in the form of bills discounted by the Bank of France. T h e loans to Russia were made in order to enable that country to cope with the difficulties in which she was involved because of the closing of her ports. The price of wheat and other goods purchased by France in Russia was to be charged against these advances, but when the Russian debacle came in October, 1917, the French government was caught with net advances of $1,053,587,000, the repayment of which by Soviet Russia is doubtful, not to say improbable. Early in the war France made considerable advances to Belgium. By the end of 1921 these loans aggregated $711,012,000. T h e Kingdom of Serbs, Croats and Slovenes received the next largest sum, $346,435,000. Roumania followed with $227,933,000. Then Poland with $203,808,000; Italy with $179,876,000; Greece with $166,173,000 and Czechoslovakia with $110,782,000. Sundry small loans aggregating $11,194,000 bring up the grand total of all foreign loans by the French government due to the war or its aftermath to $3,010,800,000. A s we have already seen, the foreign debt of France on account of the war amounted on December 31, 1921, to $6,863,659,000. Therefore, moneys due to France from foreign nations, if collectible, would cancel 43.8 per cent of moneys owed to foreign nations by France. For further details of the inter-ally financing of France reference may be made to the Statistical Tables. CHAPTER XII Financing Belgium 1914-1923 T U S T following the outbreak of hostilities in 1914 word •J had come to the American embassy in London giving the most harrowing account of conditions in Belgium. I t was said that Brussels had only food enough to feed the people for thirty-six hours. Ambassador Page, three Belgians and an American business man were in conference as to what could be done. " U p o n the result of that meeting," says Mr. Page's biographer, " h u n g the fate of millions of people." It was evident that the success of such an enterprise called for the leadership of a great executive. So Mr. Page realized. Turning suddenly to the American man of affairs he said, " H o o v e r , you're I t ! " It is recorded that Mr. Hoover made no reply. He acted. He glanced at the clock, got up and silently left the room. In a few minutes he returned stating that he had bought by cable several million bushels of wheat in New York—Belgian relief had started. T h e flow of food from America for Belgium which began then lasted until after the armistice—that is until Belgian national life once more was functioning. Belgium Before the War Belgium is the most densely populated country of Europe. In fact the population per square mile is 50 per cent denser than that of any other European nation. This population for fifty years prior to the war had been growing denser each decade, while immigration had exceeded emigration. T h e principal occupations in order of their importance were manufacturing, commerce, and agriculture. Manufac[217 IZO ] BANKERS TRUST COMPANY turing and its cognate mining industries occupied over half of the active workers. .While every square inch of soil was cultivated it was necessary to import annually 2,800,000 tons of live stock, beverages and foodstuffs in order to feed the population. Belgium imported in pre-war days nearly 30,000,000 tons of merchandise annually, five-sixths of which was raw materials or partly manufactured goods for use in her industrial plants. These imports were valued at around a billion dollars. Belgium exported some 20,000,000 tons of merchandise, valued at about $750,000,000. The excess of imports undoubtedly represented Belgium's earnings from her large foreign investments and the earnings of her banking, insurance and shipping interests from services rendered in international trade. In order to care for her domestic and foreign commerce, Belgian railways and ports were highly developed. In pre-war days the population was exceedingly active; the people moving about readily to places where their work was needed. The German Invasion Brings Distress All of this activity and prosperity was checked and paralyzed by the German invasion of 1914, and the occupation of the following four and a half years, accompanied as they were by requisitions, arrests, deportations and sabotage. The population scattered in terror, production ceased, prices soared, poverty increased on all sides with giant strides. However, the national misfortune had the effect of arousing new energy and a spirit of union. THE INTER-ALLY DEBTS [ 161 The First Steps to Prevent Famine In the declaration of war, August 2, 1914, the King was authorized to prescribe measures for feeding the population and for preventing hoarding. Price fixing and requisitions followed. A central commission with a delegate for each province was to study the needs and resources of the different sections and to supply food as needed. Food was gathered together in convenient centres for distribution. Arrangements were made for free distributions by means of the official charity bureaus. Private charity took care of the needs of as many as possible. One of Germany's first measures, on establishing herself on Belgian soil, was to abrogate these measures of relief. The local authorities were stripped of power; administrative disorder due to the invasion checked the functioning of the official organs of charity; private money was tied up by restrictions on withdrawal of capital. The need for a vaster, more efficacious scheme of relief applicable to universal and unprecedented misery was felt on all sides, although the lines theretofore followed, were still pursued with heroic * persistence. The National Relief Committee In the early days of the occupation of Brussels a national relief committee was founded under the name of "Central Committee for Relief and Feeding" with the philanthropist and manufacturer, Ernest Solvay as President. The protective patronage of the Spanish Envoy Villalobar and of the American Ambassador, Brand Whitlock, was sought and obtained. The first meeting of the committee was held September 3, 1914. M. Solvay gave its aim as being to gather sub IZO]BANKERS TRUST COMPANY scriptions with which to feed the needy, saying: " I t appears certain that later on the generalization and extension of our present movement will follow of themselves; and the intervention of all Belgians who have retained some prosperity, in behalf of those who have lost all, will be acclaimed and rendered obligatory." The committee began by raising money and opening soup kitchens. Financial resources were not all, however; the food had to be found. This was difficult; Belgians were afraid to bring their produce to market, because of requisitions. B y the intervention of neutrals, safe conducts in the shape of posters for the relief wagons were obtained from the Germans. The communes transferred their stocks of rice, salt, flour, and other provisions to the central committee, under the protection of the German poster—this was the embryo of the Department of Feeding, which was to develop so remarkably. Seeking Food Abroad Belgium had always relied on foreign countries for a portion of her foodstuffs, a purchase of which was now doubly imperative. An American, Mr. Millard K . Shaler, was sent for the purpose to England, where he was embarrassed by English fear of endangering the blockade against Germany. Through the joint actions of the Spanish and American ministers and of the Belgian government it was finally arranged that the Germans should refrain from requisitioning any humanitarian food imports; whereupon England consented to sell on condition that the products should be convoyed to their destination under the patronage of the Spanish and American ministers. This brought about the creation, THE INTER-ALLY DEBTS [ 161 through the initiative of Mr. Hoover, of an organization— "Commission for Relief in Belgium," whose mission was to send and receive products and to make sure that they did not fall into German hands. How this commission functioned we shall see shortly. Character of the National Committee The National Committee on Relief and Feeding was not a diplomatic creation. Its nucleus developed progressively, under the action of social forces in disruption, seeking a common centre which should replace the national power, then in exile. The National Committee had no political power, it could not have had such power, and continued to live under the German regime. Its unofficial character was its safeguard, permitting neutral powers to work with it, and England to sell to it. Political bias and grouping were done away with. Local committees were composed of representatives from the different parties. The committee was independent alike of administration and of the citizen, hence it was sovereign in its decisions, which had to be carried out without meeting any objection. England always stipulated this independence as a sine qua non for granting the supplies required of her. Germany, of course, would not have tolerated any political authority but her own; while the intervention of neutrals was otherwise impossible. The protective patronage of the neutral ambassadors whereby they became go-betweens between Belgium and Germany was of the utmost value. The work of the committee thereby became the work of the neutral powers also, which IZO ] BANKERS TRUST COMPANY assumed a mandatory position under cloak of which Belgium was able to carry on her task in a manner that would otherwise have been impossible. The Commission for Relief in Belgium The Commission for Relief in Belgium, which soon came to be known simply as the C. R. B., like the National Committee, had no precedent in history, its creation came solely from the feeling of human solidarity which always arises in the presence of great and undeserved calamities. But this is worthy of note and honors the Belgian recipients as well as her generous benefactors: this movement of solidarity did not have the usual ephemeral fate of movements born of special emergencies, but persisted vigorously as long as the war lasted. Financing the Relief Work Shortly after the armistice, in January, 1919, Mr. Hoover was able to announce that there had been no loss of life by starvation among the ten million people of Belgium and Northern France, while in Poland and Serbia which were also under German occupation, one-fourth of the people had died. During the four years over which the work of the C. R. B. had extended Mr. Hoover stated that more than four and a quarter million tons of food had been shipped to Belgium by the commission. We give in the words of Mr. Hoover himself, a summary of the work of the C. R. B. from the financial side: Accounting and Auditing: " T h e great moral responsibility for full accounting was realized by the commission from its first day. Therefore the precaution was taken to engage one of the leading international firms to audit every ramification THE INTER-ALLY DEBTS [ 161 of expenditure and receipts, and to make doubly sure they were also engaged to undertake the unusual task of themselves actually keeping the books and furnishing their own accounting stafiF at all principal branches. How Financed: " T h e commission was born as a purely philanthropic enterprise, dependent upon the charity of the world for support, conceived as a few months' emergency service to defend 10,000,000 people from certain starvation. However, it became evident that the war was not a struggle of months but of years, and that if these 7,500,000 people in Belgium and 2,500,000 in Northern France w ^ e to survive, it must be accomplished by much broader operation than public charity. The commission, therefore, sought and ultimately received financial support from the Belgian, French, British, and later the American governments. These official advances were, by consent of the Belgian and French governments, debited to them and were finally placed in the reparations settlement for preferred payment under the indemnity. . . . Organization: " A n understanding of the accounts requires some conception of the method of the organization. A primary division in operations was established between the provisioning of the population and the care of the destitute. The basic theory of administration was to erect a system of food supply with all of its train of handling agencies, stretching from the interior of the United States, the Argentine, Australia, India, and other great food centers, focusing into Rotterdam with a distribution through chains of primary and secondary warehouses, ultimately, through a ration card, reaching to the individual family, which paid for the food supplied at fixed prices. Philanthropic Side: "Destitution grew rapidly under the occupation and, of the 10,000,000 people, fully 5,000,000 IZO ] BANKERS TRUST COMPANY were wholly or partially destitute before the end of the war. A separate branch of administration was organized for the care of these destitute giving them assistance to purchase ration cards and by charitable public eating and clothing establishments. Their needs necessarily extended further afield than the provision of imported food and clothing—because bare living requirements necessitated supplies of native foodstuffs, fuel, light, shelter, medical care, as well. Provisioning Side: " T h e provisioning side was organized in the form of a commercial enterprise, transferring its cash receipts to the benevolent side of the administration for the use of the destitute. This plan of division greatly simplified the accounting and gained the administrative values of a separate personnel more adapted on one hand to commercial administration and on the other to charitable work.' It further made possible the exaction of a small profit from the sale of food to those who could afford it, and thus swelled the resources of the benevolent branch. Personnel; " T h e principal officers of the commission gave their services without salary and in many instances paid the whole of their own incidental and traveling expenses as well. Shipping firms, accountants, insurance agencies, buying agencies, throughout the world, gave their services without charge otherwise than the mere out-of-pocket incidentals. The distributing committees of over 55,000 members gave their voluntary services over these many years. Forty thousand Belgian and French women dedicated themselves to the saving of the child life of their nations. Never was there greater pressure for economy and efficiency upon an organization. A t no time were the population fed to more than the point of bare subsistence. THE INTER-ALLY DEBTS [ 161 Financial Results: " T h e total administrative expenditure was held down to less than one-half of one per cent (exactly 42/100 of 1 per cent) of the entire operation. The record of economy may be extended even further than this, for the changing tides of war often required the diversion of cargoes and sales of foodstuffs outside of Belgium to meet emergency readjustment of purchases or supplies whose shipment or distribution had already been arranged. Upon these and similar transactions entirely outside of Belgium and France a balance of profit of over nine and one-half million dollars was earned, several times greater than all overhead expenditures. From these profits on outside operations the commission, first, paid its entire administration and overhead expenses; second, paid over to the benevolent department some $2,600,000 for charitable distribution in Belgium and France; and third, as at 30th September, 1920, still held available for relief work in those countries and to meet the expense of liquidation approximately $3,120,000—since that date largely distributed. The economy of operation in the organization has, in fact, even a higher standard of test than this, in that the average prices maintained for food supplies in this occupied territory during the entire period of war will show from IS to 20 per cent less than the prices in the allied countries at the same periods. . . It was of the utmost concern, however, to those in official direction, not only that the work might be effectively performed and presented to the world, but that our honor and the honor of our country in this trusteeship should never be challenged." Following is a statement taken from the official report of the cost of the relief work in Belgium proper: IZO BANKERS TRUST COMPANY ] THE COMMISSION FOR R E L I E F IN BELGIUM BELGIAN RELIEF ONLY $821,680,358 TOTAL EXPENDITURES TOTAL RECEIPTS: British Treasury U. S. Treasury French Government: Benevolent Account . . Merchandise Account . Sundry . . . . . . . 188,362,821 257.774,647 $32,685,969 180,922,697 5,098,228 Rotterdam Merchandise Account . . . C. R. B. Educational Foundation Acct. Commercial Exchange C. R. B. Profits Allocated to meet deficiency 218,706,894 16,530.618 22,913.386 6,328,328 111,063,664 $821,680,358 The Total Advances by the Allied Powers to Belgium On August 3, 1914, the Germans invaded Belgium. On the 17th the Belgian government moved to Antwerp, the army following two days later. T h e Germans entered Brussels on the 20th. Antwerp fell on the 9th of October, the Belgian government and army having retired on the 3rd and 8th, respectively. From the fall of Antwerp until the armistice, all of Belgium, except a little corner in the extreme northwest, was occupied by the Germans. During this time the Belgian government, by the courtesy of the French, established headquarters at Havre. Under the circumstances of the case the Belgian government was without any source of income from their own country while in exile. This made it necessary for them to depend upon loans from their allies. T h e loans were required t o THE INTER-ALLY DEBTS [ 161 keep their army in the field, to meet the necessities of the royal family and government officials sharing their exile and to provide the relief funds for the people at home. Up to the date of the armistice these advances amounted to just under one billion dollars; to be exact $928,559,000. Of this amount Great Britain lent $392,533,000, France $364,246,000 and the United States $171,780,000. Of course the advances from the United States government did not begin until after April 6, 1917. There is no information available as to the purposes for which the advances of Great Britain and France were expended, but we know that $139,500,000 of the advances from the United States, 81.20 per cent of the total, went for relief. Germany to Reimburse Belgium for Pre-Armistice War Debt By the terms of Article 232 of the Treaty of Versailles, "Germany undertakes . . . to make reimbursement of all sums which Belgium has borrowed from the Allied and Associated Governments up to November 11, 1918, together with interest at the rate of five per cent per annum on such sums." Provision is then made that the amount shall be determined by the Reparation Commission, and that the German government shall "forthwith make a special issue of bearer bonds to an equivalent amount payable in marks gold, on M a y 1, 1926, or, at the option of the German government, on the 1st of May in any year up to 1926." Provision is made that the form of the bonds shall be determined by the Reparation Commission and that the "bonds shall be handed over to the Reparation Commission, which has authority to take and acknowledge receipt thereof on behalf of Belgium." IZO ] BANKERS TRUST COMPANY In September, 1921, the Reparation Commission decided that the amount due to Belgium should be settled on the basis of the rate of exchange of gold marks on armistice day. In a Statement of Germany's Obligations . . . at December 31, IQ22, issued by the Reparation Commission the amount of the Allies' loans to Belgium to November 11, 1918, is stated to have been 5,624,000,000 gold marks ($1,338,512,000). This is higher by $409,953,000 than the figure above given of $928,559,000. The difference is probably due partly to the addition of accrued interest in the Reparation Commission's statement and partly to the fact that their determination of the amount is made at the rates of exchange current on armistice day. The commission does not state the amounts estimated as due to each creditor. Of course, this estimate is not binding on the lenders, but simply settles the amount for which Germany is obligated to issue bonds to Belgium. Another estimate from an authoritative source places the amount due from Germany at $1,327,521,000 (5,572,754,000 gold marks) and allocates the share of each nation as follows: France, $607,541,000; Great Britain, $522,044,000; United States, $197,936,000. These figures include accrued interest to M a y 1, 1921. Physical Conditions at Armistice During the war Belgium's territory had been entirely overrun, and, in many parts, had been devastated by the invaders. Some 75,000 houses and other buildings had been destroyed or severely damaged. Her breed of horses, celebrated for their beauty and strength, had been seriously diminished by constant requisitions; her other live stock had been reduced by forty per cent. THE INTER-ALLY DEBTS [ 161 Her great stock of merchandise had been gradually exhausted. Warehouses and public and private stores had been emptied; trade had ceased to exist. Industry, as a whole, had suffered appallingly; in particular many important metal works either had been razed to the ground, or had their machinery, material and tools destroyed or removed. The admirable railway system, consisting of 2,712 miles of main line, supplemented by 2,543 miles of light local railways, which had borne the heavy traffic of nearly all of the German armies during the entire war period, had been poorly maintained and very roughly handled during their retreat. Many canals were rendered useless. Public highways, to the length of nearly 1,300 miles, including numerous bridges, were in such a condition as to require rebuilding. The direct material damage inflicted on Belgium by the German invasion is estimated at more than $3,000,000,000. Post-Armistice Financing The signing of the armistice restored Belgium to complete autonomy but the government for several months had to continue to supply food and clothing to the populace and had to maintain the unemployed during the re-establishment of industry. The government also faced other serious fiscal problems such as paying arrears of salaries and expenditure, as well as re-establishing civil and military services under conditions of greatly increased cost of living; liquidating requisitions made by the Belgian government for the organization of her army in the early days of the war, and above all repaying the monthly levies made by Germany during the occupation; IZO ] BANKERS TRUST COMPANY providing indemnities and pensions to soldiers and others who had suffered from the war; reconstructing public buildings and re-establishing public services; withdrawing the German marks left in the country; repaying the loans made to the government by the Allies during the war. Large Borrowing Inevitable These conditions made necessary continued resort to foreign loans and also necessitated large home borrowing. It was impossible immediately to balance expenses with revenue receipts. The United States Liberty Loan acts, under which advances to foreign nations were made, expressly limited such advances to nations "engaged in war with the enemies of the United States." Therefore, the financial officers of the government were somewhat at a loss to determine whether advances might be continued after the armistice. However this doubt was resolved in favor of loans " f o r relief purposes," such loans having been construed from the beginning of the war as incurred as the law requires for the purpose of "providing for the national security and defense and for the purpose of assisting in the prosecution of the war." The official termination of the war was to be fixed by proclamation of the President of the United States. Such proclamation was not made until November 14, 1921, when President Harding designated July 2 of that year as the date when war ended. This was long after all loans to foreign governments had ceased. The governments of Great Britain and France, not being limited by their parliaments as to the purposes for which advances could be made to their allies assumed the responsibility of making to Belgium loans for reconstruction. THE INTER-ALLY DEBTS [ 161 Some discussion arose between the United States and Belgium, because the Belgian government had made an arrangement to prefer loans made by Great Britain for reconstruction purposes. This discussion was settled by an understanding arrived at with Great Britain that our postarmistice loans made for relief purposes should rank equally in settlements with the British post-war loans for reconstruction for which purpose our government could not make loans. Belgium's Indebtedness to the United States However, although as a nation we could not make Belgium loans for reconstruction there was nothing to prevent our people from so doing. Consequently we find that through American bankers Belgium placed in the United States, after armistice day, loans aggregating $155,000,000 which, added to the post-armistice loans of the United States government aggregating $175,431,000, make the total capital resources furnished Belgium from America after the armistice $330,431,000. Of this amount $61,500,000 of the market loans had been retired up to the close of 1923. On the other hand accrued unpaid interest on loans by the United States government amounted on November 15, 1923, to $77,433,000, and surplus war supplies furnished to Belgium in exchange for her obligations were valued at $29,819,000. Therefore at the close of 1923 the Belgian government owed $454,463,000 to the United States government and also was indebted for market loans in the United States for $93,500,000; a total of $547,963,000. Belgium's Total Indebtedness to Foreign Governments On March 31, 1923, the British government claimed as due from Belgium an amount equivalent at par of exchange IZO]BANKERS TRUST COMPANY to $43,794,000. A t the same date according to the records of the lending governments Belgium owed the Dominion of Canada, $6,291,000 and France, $711,012,000; a grand total, including the $454,463,000 due the United States government, of $1,215,560,000. I t is understood that Great Britain has written off the $392,533,000 pre-armistice debt and she would appear to have settled in part her post-armistice debt, say for $66,919,000, altogether at par of exchange $459,452,000. While French statements apparently still carry the pre-armistice debt an understanding in regard to cancellation is understood to have been reached. Belgium's total borrowing from her allies in the Great War, therefore, may be summed up about as follows: BELGIUM'S LOANS FROM ALLIED GOVERNMENTS 1914-1923 (In "Currency" dollars—00,000 omitted) Country Canada France Great Britain United States Total Prearmisticc Postarmistice 364,2 346,8 6,3 <*392,5 Total 6,3 711,0 503,2 171,8 C282,7 454,5 928,5 746,5 1,675,0 oThts amount appears to have been settled. iOf this amount $66,9x9.000 appears to have been settled. ^Includes $77,443,000 for accrued and unpaid interest to November 1S, 1923. and 139,819,000 for surplus war supplies upon which interest is being regularly- paid. T h e statements in regard to the post-armistice debts to Canada and to the United States substantially agree with the books of those nations if to the amount acknowledged as due to the United States we add the accrued interest in- [ 161 THE INTER-ALLY DEBTS eluded in our statement. There is a very wide difference between the figures of the French and Belgian statements as to the amount Belgium owes France. There is also quite a discrepancy between the statements of the two nations as to the debt due Great Britain. T h e y agree as to the reconstruction debt, but not as to the other post-armistice debt. According to Belgian accounts on October 31, 1922, her debt to foreign governments was as follows: BELGIUM'S DEBT TO FOREIGN GOVERNMENTS A s OFFICIALLY REPORTED ON OCTOBER 3 1 , 1922 (000 omitted) Country In Dollars at Exchange Parities GREAT BRITAIN For reconstruction Other advances since armistice Total 43i794 24,414 68,208 FRANCE Advances since armistice 53,572 UNITED STATES Purchase surplus war materials Purchase frozen meat Advances since armistice Total 27,559 2,284 I7547 1 205,314 CANADA Purchase horses and mules Export credits Total 4,528 2,028 6,556 HOLLAND Cost of internment of troops Grand Total 24,167 357,817 This is actually a statement of post-armistice debt, r as Belgium does not carry in her statements her pre-armistice obligations to Allied Powers. IZO ] BANKERS TRUST COMPANY Budget Deficits Since the armistice, Belgium has not published statements of income and expenditure. Therefore only budget figures are obtainable. T h e estimated budget deficits for the years 1919 to 1923 have been as follows: POST-ARMISTICE BELGIAN BUDGET DEFICITS (000 omitted) Franca Year Ended Dec. 31 J9I9 1920 1921 1922 • • • • . . . . 7,071,531 4,005,451 18,714,669 1923 Total . . . . Currency Dollar® 1,178,398 1,364,805 773,052 295,676 3,611,931 462,621 4,074,552 From the close of 1918 to the close of 1922 the debt increased from $1,920,448,000 to $6,392,644,000, an increase of $4,472,196,000. This is some $861,000,000 greater than the estimated budget deficits to the same date, indicating that the excess of expenditure over income was greater than anticipated. N e w taxes have been instituted progressively at such times as circumstances have warranted. U p to August, 1923* tax collections exceeded collections for the corresponding period of 1922 by 40 per cent. T h e budget for 1924 estimates that t a x collections during 1924 will yield about 3 8 ^ per cent more than the collections in 1923. Status of National Debt at Close of IQ22 T h e exact status of the debt at the close of 1922, compared with the pre-war and armistice status is shown by the table THE INTER-ALLY DEBTS [ 161 on page 236 prepared from official data. The foreign debt is figured at par of exchange. The table does not contain any figures for the pre-armistice war debts of $928,559,000. T o the extent that these debts are unsettled the total debt should be correspondingly increased. The increase in the funded debt and in the floating debt was for the purpose of making good budget deficits. The new debt for monetary reform was occasioned by the necessity which the government was under of retiring the mark currency forced upon the people during the period of the German occupation. The indirect debt is for moneys loaned to the railways and other nominally self-supporting services. The inter-provincial debt was incurred to reimburse the provinces for German levies. We have already fully discussed the foreign debt. Up to mid-year 1923 the budget estimates were being borne out by actual revenues and expenditure, therefore when the fiscal results for the year are published it will probably be found that the increase in debt during 1923 was moderate. Reparation Receipts Under the terms of the Treaty of Versailles Germany's reparation obligation to Belgium was preferred to the claims of the other allies. Up to January 1, 1923 Belgium had received from Germany in cash or in kind 1,500,000,000 gold marks, say $357,000,000. No payments in cash were received during 1923, except the liquidation of certain notes included in the above total. The value of payments in kind received during 1923 has not been published. IZO BANKERS TRUST COMPANY ] aTHE PUBLIC DEBT OF BELGIUM (In "Currency" dollars—ooo omitted) 31. 1913 Dec. INTERNAL DEBT 790,000 Funded Monetary Reform Treasury Bonds in exchange for Monetary Bonds Advances from national bank Treasury Bonds replacing Interprovincial Bonds Inter-provincial Debt For War Damages Indirect Debt Floating Debt 65,000 Total Internal 855,000 Dec. 31. 1918 Oct. 31, 1922 791,652 2,034,171 586,786 362,725 1,061,500 453,125 360,486 92,640 78,028 507,088 562,55* 892,775 1,909,591 5,873,936 EXTERNAL DEBT Market France Great Britain United States 10,857 Total Market 10,857 Government Canada France Great Britain Netherlands United States Grand Total Debt a Excluding pre-armistlce war debt. 160,891 6,556 53,572 68,208 24,167 205,314 Total Government Total External . 10,857 49,125 100,909 357,817 38,000 10,857 518,708 893,000 1,920,448 6,392,644 See pages 231 and 333. CHAPTER XIII Loans for Relief 1918-1923 H E N the armistice was signed Europe faced important economic problems. Germany and Austria-Hungary were in great need of foodstuffs, especially fats, while quantities of food were still needed for Belgium and northern France. Even victorious England, France and Italy were forced for a time to continue food rationing and for a long time food control. On the other hand, America had a great surplus of food which had been produced under the stimulus of high prices and had been gathered into warehouses for the use of our armies and the armies and nationals of our allies. TheAmerican treasury department took the position that under the Liberty Loan acts the administration was powerless to continue making loans to foreign nations—former allies or recent enemies. The British took the position that if American financing were to stop immediately, the European governments might find it impossible to go on purchasing food from the United States at war-time prices. On January 8, 1919, the British withdrew their monthly buying orders. Mr. Hoover, as head of the United States food administration, at once wrote to President Wilson setting forth the seriousness of the situation. He said, in part: " I have cablegrams this morning stating that the whole of the customary monthly orders from the British buying organizations on behalf of the Allied governments has been withdrawn. . . . 237 IZO ] BANKERS TRUST COMPANY The Allied food necessities have been outlined from time to time. . . . Our manufacturers have provided the particular types of manufacture required by each of these governments and have enormous stocks of these materials in hand ready for delivery. . . . "While we can protect our assurances given producers in many commodities, the most acute situation is in pork products which are perishable and must be exported. We have in January a surplus of about 400,000,000 pounds, and the French, Italian and Belgian relief and other customary orders when restored, will cover 60 per cent of this. The British orders . . . would have been 140,000,000 pounds and covered our deficiency. . . . " I f there should be no remedy to this situation we shall have a debacle in the American markets, and with the advances of several hundred million dollars now outstanding from the banks to the pork products industry, we shall not only be precipitated into a financial crisis but shall betray the American farmer who has engaged himself to these ends. The surplus is so large that there can be no absorption of it in the United States, and, being perishable, it will go to waste. . . In a memorandum for agreement with allied premiers attached to this letter, Mr. Hoover pointed out that it would be impossible to discuss the peace of the world until adequate measures had been taken to alleviate the fear of hunger, its attendant anarchy and its danger of possible further military operations. "Therefore/' the memorandum reads, "before these peace negotiations can be opened auspiciously, it is essential to have the better feeding of the liberated, neutral and enemy territories of Europe in actual progress, as the foundation of sta THE INTER-ALLY DEBTS [ 161 bility in government antecedent to the settlement of the great problems that will come before the conference/' Mr. Hoover pointed out that in order to support the Allied governments in wTar, the United States had provided large supplies of foodstuffs, many of them perishable, which would have been required by the Allies had hostilities continued, and that in order to accumulate these supplies assurances and guarantees had been given to producers. Mr. Hoover then indicated that while this surplus was no longer required in its entirety by the Allies it was most fortunate that it was available to meet the necessities of Europe as a whole. Finally, Mr, Hoover explained where and how this food could be used for the good of Europe—immediate provision should be made for the acute need of the Balkan States, for the liberated peoples of Turkey and Austria, also for Belgium and Poland. Food should be made available to neutral countries while, foodstuffs should be offered to Germany, "subject to payment therefor and other conditions that the associated governments may impose." Ray Stannard Baker, in Woodrow Wilson and World Settlement, states that the President acted at once; that new co-operative arrangements were made with the European governments whereby the allied nations were to continue their purchases at war prices, but were to be allowed to resell to neutral and enemy countries, the proceeds to apply to further purchases in the United States. There was the further understanding that if this arrangement did not take care of the situation, " t h e United States treasury will advance the necessary amounts to pay therefor in the usual manner." Thus it was, notwithstanding evident hesitation on the part of the treasury and doubt as to the powers of the secretary in the premises, that loans to foreign governments were IZO ] BANKERS TRUST COMPANY continued by the United States government until late in 1920. A t the date of the armistice, our loans totalled $7,077,115,000. When all loans had ceased, September 28, 1920, the total had reached $9,466,283,000. Thus in a period of two years of peace, the loans had increased in the great sum of $2,389,168,000. Of this amount $295,467,000 represented accrued interest, therefore the actual increase was about two billion dollars. About one-half of this amount seems to have gone to clear up war accounts. The balance, and more than another billion dollars obtained from other resources, appears to have been spent by foreign governments in the United States during these two years for food and other supplies. The total post-armistice loans of all the Allied and Associated Powers aggregated $6,661,373,000. Of this amount possibly one-half may represent simply accrued unpaid interest added to the $21,599,717,000 loans as they stood on or about armistice day. Loans directly ear marked as for relief and reconstruction total just under two billion dollars. These loans were made by four nations to eighteen nations. The lenders were France, Italy, Great Britain and the United States. The large borrowers in alphabetical order were Austria for $153,424,000; Belgium for $308,244,000; Czechoslovakia for $263,246,000; Poland for $420,200,000, and the Serb-Croat-Slovene State for $551,758,000. Clause 26 of the Armistice Agreement stated that "the Allies and the United States contemplate the provisioning of Germany during the armistice as shall be found necessary/' It was not until the middle of the following March that the Allies could agree among themselves as to how this was to be done. Then arrangements were made to sell Germany for [ 161 THE INTER-ALLY DEBTS cash $200,000,000 worth of provisions. There appears to have been no loan in connection with this transaction. I N T E R - N A T I O N L O A N S F O R R E L I E F A N D Amount D u e in R E C O N S T R U C T I O N 1923 (In Currency dollars—000 omitted) LENDERS Borrowers Armenia Austria Belgium . . . . Czecho-Slovakia . Esthonia . . . . , Finland France . Franco-Polish . . Germany . . . . Hungary . . . . Latvia Liberia 4 Lithuania . . . . Poland Roumania . . . . Russia Serb-Croat-Slovene Ukraina . . . . Total Great Britain France $4,487 62,308 96 43.794 6,715 1,221 110,782 2,026 United States Italy 62,634 34.843 14.263 28,386 264,450 110,906 16,789 9,000 143,137 2,443 626 98 5 193 2,219 82 1,158 20,223 203,808 11,297 92,640 10,389 346,435 161,240 759,357 1,989 6,032 3i 5,978 13,698 182,471 28,292 237 5.177 236 61,587 8 114,104 878,488 CHAPTER XIV Payments Under the Treaty of Versailles H E payments required from Germany by the Treaty of Versailles may be concisely summed up as follows: Payments for supplies of food and raw materials . . . essential to enable Germany to meet her obligations in respect of reparation. The cost of the armies of occupation subsequent to the armistice of November n , 1918. All sums borrowed by Belgium from Allied and Associated Powers up to November 11, 1918, with interest at the rate of 5 per cent, per annum. Reparations proper. The Return of War Loot In addition Germany was obligated to effect restitution in cash " o f cash taken away, seized or sequestrated, and also restitution of animals, objects of every nature and securities taken away, seized or sequestrated." Much of the perplexity which has arisen as to the payments that have been made by Germany is due to confusing payments under these various headings. Manifestly the return of war loot is not in any sense a payment and yet in many statements emanating from German sources the payments under the first four heads above mentioned have been swollen by estimates of the values of returned stolen property. The Amount of Reparation T h e amount which Germany was to pay for reparations proper was not stated in the treaty but was left open to be 242] THE INTER-ALLY DEBTS [ 161 finally determined by the Reparation Commission by May I, 1921. On that date the Reparation Commission set the amount at 132,000,000,000 gold marks ($31,416,000,000); plus the amount of Belgium's pre-armistice war debt to her allies which was afterwards assessed at 5,624,000,000 gold marks ($1,338,512,000). Purposes for Which Reparatio?is are to be made Article 232 of the Treaty of Versailles after stating in the first paragraph that " t h e Allied and Associated Governments recognize that the resources of Germany are not adequate - . . . to make complete reparation for all such loss and damage" provides in the second paragraph that Germany "will make compensation for all damage done to the civilian population of the Allied and Associated Powers and to their property during the period of the belligerency of each" power. The damages for which compensation may be claimed from Germany are defined by Annex I of the treaty as follows:— (1) Damage to injured persons and to surviving dependents by personal injury to or death of civilians caused by acts of war. . . . (2) Damage . . . to civilian victims of acts of cruelty . . . and to the surviving dependents of such victims. (3) Damage . . . to civilian victims of all acts injurious to health, or capacity to work, or to honor, as well as to the surviving dependents of such victims. (4) Damage caused by any kind of maltreatment of prisoners of war. (5) As damage . . . all pensions and compensation in the nature of pensions to naval and military victims of war (including members of the air force) . . . and to the dependents of such victims, the amount due to the Allied and Associated Governments IZO (6) (7) (8) (9) (10) ] BANKERS TRUST COMPANY being calculated for each of them as being the capitalized cost of such pensions and compensation at the date of the coming into force of the present treaty on the basis of the scales in force in France at such date. The cost of assistance . . . to prisoners of war and to their families and dependents. Allowances by the Governments of the Allied and Associated Powers to the families and dependents of mobilized persons . . . Damage caused to civilians by being forced by Germany or her allies to labor without just remuneration. Damage in respect of all property . . . , with the exception of naval and military works or materials, which has been seized, injured or destroyed by the acts of Germany or her allies, . . . Damage in the form of levies, fines and other similar exactions imposed by Germany upon the civilian population. In Annex III of the treaty Germany recognizes the right of the Allied and Associated Powers to the replacement, ton for ton (gross tonnage) and class for class, of all merchant ships and fishing boats lost or damaged owing to the war. The methods by which this provision of the treaty shall be carried out are specified in great detail. Annex IV requires Germany to ''devote her economic resources directly to the physical restoration of the invaded areas" and defines how this shall be done. Annex V deals with the delivery of coal while Annex VI requires Germany to deliver such quantities and kinds of dyestufFs and chemical drugs as the Reparation Commission may require. Assessing the Damages In due course the several Allied and Associated Powers made up their bills against Germany and submitted their claims to the Reparation Commission. THE INTER-ALLY DEBTS [ 161 The commission, in a report dealing with its work from 1920 to 1922, inclusive, points out the many difficulties involved in analysing the claims and states that "the procedure followed by the commission (in determining the amount to be paid by Germany) was such that it is not possible to say which of the items figuring in the claims were submitted to reduction and to what degree." The commission points out that as the claims were stated in many different currencies, in some cases in 1914 values and in others in their values as at the time the claims were submitted, or their supposed values at the time of reconstruction, it was a matter of very great difficulty to convert the claims into gold marks. How the Amount to be Paid by Germany Was Determined Under the circumstances of the case the commission finally decided to determine "the gross total of the damages inflicted by Germany and her allies, without arriving at separate totals either for the damages suffered by individual countries, or for specific categories of damage." The Amount Assessed On April 27, 1921, the commission announced its decision as follows: " T h e Reparation Commission, in pursuance of the stipulations of Article 233 of the Treaty of Versailles decided unanimously to fix at 132 milliard marks gold ($31,416,000,000) the amount of the damage for which reparation was due from Germany under Article 232, paragraph 2, and Annex I of Part V I I I of the said Treaty. IZO ] BANKERS TRUST COMPANY C O N D E N S E D AS S T A T E M E N T R E P O R T E D BY OF G E R M A N Y ' S REPARATION D e c e m b e r 31, OBLIGATIONS COMMISSION 1922 (aln gold dollars—000,000 omitted) 1.—Pre-Reparation O b l i g a t i o n s t o A p r i l 30, 1921 AMOUNTS CREDITED AMOUNTS DEBITED Deliveries N o v . it, 1918, to April 30, 1931 Receipts between M a y i f 1931, to December 31, 1933 . . . Balance still due December 3 t . 1933 Coal Advances N e t Cost of Armies of Occupation, April 30, 1931 (including U . S. A r m y , 5340,856.000) . Provision for Inter-Allied C o m missions of Control to April 30, ZQ3Z 84i 2.—Capital Amount of Reparation Obligations as fixed 31,416 Allies* Loans to Belgium . . . 1,338 617 7 317 841 Debt (a) (b) Cessions of Properties Poland Soar Dantzlg Kiaochow Others 433 95 74 14 3 608 Further items to be credited 1. Property in Upper Silesia ceded t o Poland 3. Property ceded to M e re el (if any) 3. Other Credits under A r ticle 343 4. Sums received from other ex-Enemy Powers Balance of D e b t before Amortization 33,146 32.754 33,754 Balance of D e b t before Amortization brought down . . . 33,146 Less Amounts of " A " Bonds due t o be amortized as a t M a y 1, 1933 38 German Treasury Bonds Series " A " 2*837 Series " B " 9.044 Series " C " 19.510 ^Balance of D e b t not covered b y Bonds 73 r 33,118 A m o u n t of D e b t Outstanding . 33*118 oOriginal In gold marks: converted a t 33.8 cents. 6The final closing of this account either by further " C " Bonds or b y cancellation Of a part of those already issued necessarily awaits values for items b - 1 - 4 above. THE INTER-ALLY DEBTS [ 161 " I n fixing this figure the commission had left out of account that amount of damages in respect of which restitution had been or was to be made in execution of Article 238, and no credit would consequently be due to Germany on account of such restitutions. " T h e commission did not include in the above figure the sum representing the further obligation incumbent on Germany in terms of the third paragraph of Article 232, 'to make reimbursement of all sums which Belgium has borrowed from the Allied and Associated Governments up to n t h November, 1918, together with interest at the rate of 5 per cent, per annum on such sums.' " Apportionment of Reparation Payments The inability of the Reparation Commission to determine the amount to be paid each power out of receipts from Germany apparently was anticipated by the Allied and Associated Powers for, in July, 1920, their representatives met at Spa and agreed that receipts on reparation account should be pro-rated among them as follows: France, 52 per cent; British Empire, 22 per cent; Italy, 10 per cent; Belgium, 8 per cent; Japan and Portugal each of I per cent. The remaining per cent was reserved for the Serb-CroatSlovene State and for Greece, Roumania and other powers not signatories to the agreement. No provision was made for any payment to the United States. The Account Stated The status of Germany's obligation on December 31, 1922, as officially reported by the Reparation Commission is shown on the opposite page. In an official communique issued by the commission under date of October 5, 1923, it is IZO BANKERS TRUST COMPANY ] stated that the accounts have undergone "few and unimportant changes since the beginning of the current year." Payments Made by Germany The payments made by Germany up to June 30, 1923, are officially stated by the Reparation Commission to have been as follows: P A Y M E N T S B Y G E R M A N Y AS R E P O R T E D B Y R E P A R A T I O N COMMISSION T o June 30,1923 (oln gold dollars—00,000 omitted) Cash Deliveries in Kind Ships Rolling Stock Abandoned War Materials Coal, Coke and Lignite Livestock Dyestuffs Miscellaneous 452,3 177,0 307,0 79,0 337*0 40,0 15*0 136,9 891,9 State Properties in Ceded Territories (excluding Upper Silesia Plebiscite area) Total Payments by Germany Miscellaneous Receipts . . . . . . . . 608,0 1,952,1 2,7 Grand Total 1,954,8 a Original In sold marka which we h a v e converted a t 33.8 cent*. The distribution of Germany's payments among the several Allied and Associated Powers up to June 30, 1923, as officially reported by the Reparation Commission was as set forth in the table on the next page. THE INTER-ALLY DEBTS [ 161 DISTRIBUTION OF G E R M A N Y ' S P A Y M E N T S AS R E P O R T E D BY R E P A R A T I O N COMMISSION T o J u n e 30, 1923 (oln gold dollars—00,000 omitted) NATIONS 6For Cost of For Armies of Balance Repayment Occupation For Available Exchange of ipso cAnd for Coal Loans Commission Profit Reparation to Germany of Control Belgium Czecho-Slovakia France Great Britain . . Greece . . . . . Italy Japan Poland Portugal Roumania . . . . Serbia Total . . . . 345,9 5,4 5,4 3I4.4 57,6 429,3 46,8 298,7 229,4 0,5 0,2 3,O 2,6 0,2 6,9 16,1 3,6 2,8 7,6 48,6 93,3 605,2 Suspense (a) Deliveries in Kind Portion of Value of Ships Submarine Cables Miscellaneous 411,8 58,6 7-3 56,8 22,3 Total 0,7 608,5 3,0 80,6 16,3 3,6 2,8 7,6 48,6 1,307,7 Accounts 93,6 11,6 21,8 127,0 (b) Ceded Property and Portion of German Public Debt Poland 422,6 Danzig 73,7 Portion of Value of Saar Lines 23,8 520,1 i,954>8 ^Original in gold marks: converted at 23.8 cents. ^Nothing included in this settlement for United States army costs—$255,181,934, October 31. 1922. An the absence of definite information, no account has been taken of an amount of $1,166,300 relative to cost of Commission of Control. IZO ] BANKERS TRUST COMPANY Germany's View Point We have been furnished by the German government with a statement entitled "Execution of the Versailles Treaty, its Preliminary and Subsequent Agreements from November i i , 1918, to September 30, 1922." The statistics in this statement are in gold marks and are summarized as follows. We have converted the gold marks into dollars at 23.8 cents to the mark. G E R M A N P A Y M E N T S G e r m a n N o v e m b e r n , A N D O f f i c i a l 1918, t o D E L I V E R I E S S t a t e m e n t September 30, 1922 (In gold dollars—000,000 omitted) From: I. Deliveries from Materials on Hand . . . . 11. Payments and Deliveries from National Capital and Current Production III. Cash Payments IV. Other Payments and Deliveries chiefly in connection with scrapping the naval vessels 6,996 2,645 509 802 10,952 V. Expenditures and Losses within Germany Total A ,495 13,447 T h e statement concludes " I f , to this total, the value of Alsace-Lorraine, of the German colonies, and of the purely military material in various evacuated territories be added, the figure representing Germany's total payments and deliveries runs well above 100 billion ($23,800,000,000) gold marks." In the foregoing statement sections I, II and III appear to include the items taken into the accounts of the Repara THE INTER-ALLY DEBTS [ 161 tion Commission although part of the items in these sections include payments with which the accounts of the Reparation Commission are not concerned. For purposes of comparison we have re-arranged the German statement on the lines of the statement of the Reparation Commission, excluding all items representing property or claims forfeited by the terms of the treaty. We have also excluded items representing the estimated value of property delivered in substitution for war loot. The statement as thus revised shapes up as follows:— E X E C U T I O N OF November T H E T R E A T Y OF VERSAILLES i i , 1918, t o D e c e m b e r 31, 1923 (In gold dollars—oootooo omitted) Nature of Payments Cash Payments in Kind Ships Railroad Material Abandoned War Materials . . Coal Live Stock Dye-stuffs Miscellaneous State Properties in Ceded Territories Property of the Reich and of the States Saar Mines Cables Total Payments German Viewpoint Reparation Commission'S Viewpoint 452 509 177 1,433 207 533 79 237 452 555 124 40 3,097 137 892 608 1,347 242 19 L,6oS 5,214 1,952 It will be noted that one of the principal differences has to do with the valuation placed upon the ships. There is also evidence that the commission and the Germans hold widely IZO BANKERS TRUST COMPANY ] different opinions as to what valuation should be placed upon the other payments in kind and the value of state properties in ceded territories. T h e items which we have excluded from the comparison are as follows: I T E M S E X C L U D E D FROM C O M P A R A T I V E S T A T E M E N T (In gold dollars—000,000 omitted) From Section I Railroad and pontoon bridges over the Rhine 3 Shares in Morocco State Bank 93 German property liquidated abroad . . 2,794 Germany's claims on her former allies . 2,047 All of Section IV All of Section V Total Excluded Items 4,936 802 3,495 8,233 Unquestionably all of these items represent losses from the German point of view but not a transfer of property which could be applied to paying reparations. For example, Section V — " E x p e n d i t u r e s and Losses Within G e r m a n y " has chiefly to do with the loss suffered by disarmament, while the principal item under Section I V is the estimated value of the naval vessels delivered to the Allies. It is conceivable that the item " G e r m a n property liquidated a b r o a d " which we have excluded from Section I may to some extent be a realizable asset, but obviously the other large item excluded from this section " G e r m a n y ' s claims on her former allies ceded in accordance with the Peace T r e a t y " is utterly valueless. THE INTER-ALLY DEBTS [ 161 Belgium's Priority Rights We have discussed already on pages 227 and 228 the status of the pre-armistice advances made to Belgium by France, Great Britain and the United States. Inter-allied agreements exist giving Belgium, subject to various conditions, a priority on satisfaction of her reparation claim up to the amount of about $480,000,000, after the costs of the armies of occupation have been met. In Conclusion Enough has been elucidated in connection with this matter of reparation and other payments and property transfers under the terms of the Treaty of Versailles to indicate the great complexity of the questions involved. It is evident that they are questions requiring for their proper handling and solution great tactfulness, unlimited patience and excellent judgment. CHAPTER XV T h e Status of National Debts in 1923 N F O R T U N A T E L Y the reports of receipts and expenditures of many nations since the close of the period of war financing are quite incomplete. Great Britain and the United States have regularly published their usual statements and this is true in a general way of the British dominions, although some of the latter have changed their methods of reporting. N o doubt the changes in accounting are wise; but they are destructive, or partially so, of comparative reports. Some of the dominions have been slower than usual in publishing their statements. Some of the continental nations also have changed the form of their accounting and are publishing only partial statements. Under the circumstances, we have found it impossible for this period to present a consolidated statement in the form adopted for the pre-war and war periods. In a general way, it may be noted that Great Britain and the United States have absolutely balanced their budgets, stopped borrowing, except for refunding purposes, and reduced taxation. This has been possible because expenses likewise have been substantially reduced. Of the former continental allies, Belgium, France and Italy have each had to meet reconstruction problems of great magnitude which simply could not be taken care of entirely from taxation. A s a result, their debts each year have become more burdensome. This state of affairs is due largely to the failure of Germany to meet her reparation payments. On or about June 30, 1923, the national debts of five of the leading participants in the Great W a r stood as follows: 254] THE INTER-ALLY DEBTS[161 I — N A T I O N A L D E B T S OF T H E G R E A T P O W E R S J U N E 30, 1923 (In dollars—000,000 omitted) D e b t , C u r r e n c y Basis Nations France . . . dGrcat Britain Italy . . . . United States a Internal D e b t , c'*ipi3" Basis j ^Foreign GovMar- ern ket ment Foreign Grand Total TotaJ 59.058 2,387 19.228 21,615 32.384 381 5.560 5.841 18,534 43 18,550 18,593 33,350 InGrand ternal M a r - G o v Total ern- Total ket ment 80,673 f 14.440 38,225,1 20,759 37,127'; 3.263 32,350} 14,608 i,969,i42:| ^Germany . . 1,969.142 584 4.701 5.285 19.735 180 3.564 3,744 24.503 8 3,265 3,273 6,536 14.60S 406 406 a D e b t at face of the books done into dollars a t par of exchange. ftForcign debts at face value adjusted to currency values at ratio of New York Exchange on June 26, 1923, to par of exchange, e.%. 6.137 cents per franc, the rate of exchange, divided into 19.3 cents, the.par of exchange equals 3.1s times; therefore the French foreign debt in dollars at par of exchange is multiplied b y 3.15 to determine the amount on a currency basis. Similar adjustments are made for the other nations. ^Obtained b y dividing the debt of each nation on " C u r r e n c y " basis b y the wholesale price index number of the nation for the month of June, 1923. cfFigures are for year ending March 31, 1923. II—NATIONAL D E B T S A N D I N T E R E S T C H A R G E OF G R E A T POWERS vs. NATIONAL WEALTH AND NATIONAL INCOME J U N E 30, THE 1923 (In " 1913" dollars—000,000 omitted) NATIONS France frGreat Britain Italy United States ^Germany a Interest Paid and Accrued National Interest Debt % in Fiscal Income % Wealth Year Income 1923-33 Debt National Wealth 19,735 34.503 6,536 14.60S 57.900 70,000 31.350 330,000 34.07 406 55.000 .74 jj.00 30.76 6.35 676 7,000 10,000 3.400 31,000 37 7,000 799 1.017 310 11,41 10.17 6.18 2.18 53 tfln most cases interest was not paid on the inter-nation or " g o v e r n m e n t " debts* However, we have added to the amount paid on market debts the amount which-accrued during the year on the government debts. Figures in this column were obtained b y dividing the interest charge of each nation on "currency " basis b y the average wholesale price index number for the fiscal year, ^Figures are for year ending March 31, 1933. IZO BANKERS TRUST COMPANY ] Comparing the debts expressed in " 1 9 1 3 " dollars with national wealth and national income similarly expressed, we arrive at the statement as shown in T a b l e II on page 255. Reducing these figures to a per capita basis, the story is as follows: III—PER CAPITA STATUS—NATIONAL G R E A T POWERS J U N E 30, (In Population (In millions) 39 47 40 ZIO 61 1 1 1913" NATIONS France aGreat Britain Italy United States DEBTS OF THE 1923 dollars) Interest Charge Per Capita Income Per Capiu 1480.36 2O.40 31.64 179-47 308.33 901.64 .<5/ 114-73 Debt Per Capita Wealth Per Capita 303-77 321.34 1484.61 163.40 134.02 aGermany 6.6s 331.23 3000.91 3.23 6.13 85.00 381M3 ^Figures are for year ending March 31. 19^3. Statistics for other nations whose statements are available are given in Statistical Tables Nos. X X I , X X I I and X X I I I . Germany Repudiates Debt Although the debt of Germany in currency had reached nearly two trillion dollars in March, 1923, yet in " 1 9 1 3 " dollars it amounted to the negligible sum of $406,000,000. On January 31, 1924, Germany officially repudiated her debt. T h e correspondent of the New York Times advised his paper by wireless on that day that " a l l German government bonds, war loan and similar obligations were wiped off the books, the government decreeing that the Reich is freed from paying either the principal or interest of public debts, ' a t least until all reparation payments have been made/ " THE INTER-ALLY DEBTS[161 Other Acts of Repudiation As we have seen, the Russian debt was "settled" in the same summary manner in 1917. The Austrian and Hungarian war debts have been apportioned among the successor states. How the holders will finally fare in regard to these debts remains to.be seen. The Inter-Nation Debts in Ip2j As of about November, 1923, the nations of the world, some thirty odd, owed to six of their number in currency $28,261,000,000. In some cases nations were both borrowers and lenders, e.g. Great Britain was lending $11,171,422,000 and was borrowing $6,489,492,000; France was lending $3,463,744,000 and borrowing $7,020,616,000; Italy was lending $389,988,000 and was borrowing $4,747,527,000; the United States was lending $11,861,010,000 and had an unadjusted account with Italy for $2,750,000. The figures for each borrower and lender are set forth in Statistical Table X X V I . Of this great indebtedness, the only accounts in regard to which final arrangements for payment have been reached are those between Great Britain and her dominions and the debts of Great Britain and Finland to the United States. The American Settlement with Great Britain The debt of Great Britain to the United States in accordance with the terms of an agreement arrived at on June 19, 1923, was settled as follows: Issue of Long-Time Obligations: The British government issued to the United States government bonds for a principal sum of $4,600,000,000. These bonds are dated December 15, IZO]BANKERS TRUST COMPANY 1922, and mature December 15, 1984. Interest is payable semi-annually on June 15 and December 15 at the rate of 3 per cent a year from December 15, 1922, to December 15, 1932, and thereafter at the rate of 3 ^ per cent a year. Method of Payment: The principal and interest of the bonds is payable in United States gold coin, or its equivalent in gold bullion, or at the option of Great Britain, upon not less than thirty days' advance notice indicating the minimum amount which it is contemplated to pay at next due date in gold, cash or available funds, in any bonds of the United States issued or to be issued after April 6, 1917, to be taken at par and accrued interest to the date of payment. How Interest Payments May be Deferred: Great Britain has the option, by giving not less than ninety days' advance notice of paying one-half of any interest accruing between December 15, 1922, and December 15, 1927, in bonds of Great Britain maturing December 15, 1984, dated and bearing interest from the respective dates when the interest to be paid thereby becomes due and substantially similar in other respects to the original bonds issued in settlement. Principal Payable in Annual Instalments: The principal is payable in annual instalments on December 15 of each year from 1923 to 1984 inclusive. The amounts due on each date are given in Statistical Table X X V I I I . How Payment of Principal May be Deferred: Great Britain has the right, by giving ninety days' advance notice, to postpone any payment of principal to any subsequent June 15 or December 15, not more than two years distant from its due date, but only on condition that if at any time she shall exercise this option, the payment due in the next succeeding year can not be postponed to any date more than one year distant from the date when it becomes due, unless and until THE INTER-ALLY DEBTS [ 161 the payment previously postponed shall actually have been made. The payment falling due in the second succeeding year can not be postponed at all unless and until the payment of principal due two years previous thereto shall actually have been made. Great Britain has the right to anticipate payments in amounts of $1,000,000 and multiples thereof. Exemption from Taxation: The principal and interest of all bonds issued or to be issued under the agreement are exempt from all British taxation, present or future, so long as they are in the beneficial ownership of the United States or of a person, firm, association, or corporation neither domiciled nor ordinarily resident in the United Kingdom. Exchange for Marketable Obligations: The agreement between the two nations contains the important provision that Great Britain will issue to the United States at any time or from time to time, at the request of the secretary of the treasury, in exchange for the bonds originally issued, definitive engraved bonds in form suitable for sale to the public. The United States, before offering any such bonds for sale in Great Britain is obligated first to offer them to the British government for purchase at par and accrued interest and Great Britain has the further option, in lieu of issuing to the United States any such bonds, to make advance redemption, at par and accrued interest, of a corresponding amount of the bonds already issued to and held by the United States under the agreement. Amount of Indebtedness: The way in which the total amount due from Great Britain to the United States was arrived at is shown by the table on page 260, IZO ] BANKERS TRUST COMPANY A M O U N T OF BRITISH I N D E B T E D N E S S F U N D E D In dollars Principal amount of demand obligations to be funded . $4,074,818,358 Interest accrued thereon from April 15 and May 15, 1919, respectively, to December 15, 1922, at the rate of 4 ^ per cent per annum $629,836,106 Less payments made by Great Britain on October 16 and November 15, 1922, on account of interest, with interest thereon at per cent per annum from said dates, respectively, to December 15, 1922 100,526,379 529t309,727 Total principal and interest, accrued and unpaid, as of December 15, 1922 $4,604,128,085 Paid in cash by Great Britain, March 15, 1923 . 4,128,085 Total indebtedness funded into bonds of Great Britain $4,600,000,000 CHAPTER XVI T h e Wealth and Income of the Belligerents 5 shown in detail by the accompanying tables, the aggregate pre-war wealth of the active belligerents in the Great War approximated $630,060,000,000. Their pre-war national income approximated $93,050,000,000. From these statements we have excluded any estimate of the wealth or income of belligerents who did not take part in the war in a military way, either on land or sea. This qualification is necessary because it will be remembered that as the war progressed many nations allied themselves with one side or the other, but were not called upon to take any active part in obtaining the decision. The pre-war wealth of what were known as the Allied and Associated Powers was considerably in excess of the wealth of what were known as the Central Powers. T h e national wealth of the former group amounted to $506,560,000,000 or 80.39 per cent, of the total and the latter to $123,500,000,000 or 19.61 per cent, of the total. T h e same state of facts is true in regard to the national income of the belligerents. The national income of the Allied and Associated Powers amounted to $76,750,000,000 or 82.23 P e r c e n t total, while the income of the Central Powers was $16,300,000,000 or 17.47 P e r c e n t the total. Contrary to what might be thought on the first review of the situation, the cost of the war did not result in any important reduction in the total wealth of the belligerents, but rather in a redistribution of wealth. W e have shown in a previous chapter that the cost of the war, on a pre-war purchasing power basis of value, aggregated $80,681,000,000. [261 IZO ] BANKERS TRUST COMPANY There should be added to this amount the value of the destroyed property, especially that in the north of France and in Belgium, much of which never can be replaced because of its historic association. The direct cost of the war was unquestionably met during the progress of hostilities, and in the clean up afterward, from the earnings of the peoples of the various countries actively engaged. Therefore, we arrive at the conclusion that the total post-war wealth of the world is substantially the same as the pre-war wealth. As a result of careful estimates we place the post-war wealth on a gold basis at $619,050,000,000. However, while it is true that the wealth of the world was not materially changed as a result of the war, we find a different state of facts in regard to the income. This is because of the dislocation of industry throughout the greater part of the world, because of the loss of men during the war, because of the fact that factories were reorganized for war purposes and had to be changed back before they could be utilized; because of the inability of the people immediately after such a cataclysm as they had gone through, to settle down again to their daily working routine. Then again the change in the political affiliations of millions of people and the antagonisms against each other which the war aroused, also led to a dislike for work and an inability to set to work again. All these facts make it extremely difficult to make an estimate of the post-war income of the former belligerent nations. We have tentatively adopted a figure of $81,700,000,000 gold, as representing the probable post-war national income of the former belligerents. T h e post-war wealth may be roughly distributed $543,550,000,000, gold, to the former Allied and Associated Powers, and $75,500,000,000, gold, to the former Central Powers; say THE INTER-ALLY NATIONAL Allied and Associated DEBTS ALLIED AND ASSOCIATED POWERS British Empire Great Britain New Zealand Union South Africa . , Crown Colonies, Protectorates, etc. Total British Empire . United States Total Allied and Associated Powers . . . CENTRAL POWERS Austria Hungary . . . . Turkey and Central Powers omitted) PREAVAR POST-WAR WEALTH WEALTH PopulaPopulation 1914 tion 1933 Per Per In In Capita Capita Millions Amount Millions Amount Actual Actual Figures Figures 46 5 8 344 X 6 70,000 8,600 14*650 30.000 1,860 5.000 38 10,000 348 140,1X0 8 40 5 36 53 6 7 174 5 98 5,750 718.75 57.9OO 1,447-50 2,750 550.000 31,800 605.55 I I , 650 220.07 3,400 400.00 3,500 500.00 58,400 335.63 3.300 400.00 300,000 2,061*85 17 132 d it 110 714.28 5,000 57.900 1484.61 500.00 3,500 531.35 31,250 267M 15,000 400.00 2,400 588.23 10,000 340.91 45.000 500.00 5.50O 230,000 2,090.01 780 506,560 779 543,550 607-75 SO 5 68 21 30,000 3,500 80,500 10,500 600.00 300.00 1,183^2 500.00 C27 5 61 8 14,000 3,500 55,000 4,000 518.51 300.00 901.64 500.00 747.53 1J3I.74 1,720.00 I&3Z.2S 132.05 i£6o.oo 833.34 263.16 0402.61 649.43 47 5 9 347 I 7 40 356 7 39 5 40 n 70,000 9,000 15,000 35,000 2,000 6,000 12,000 300.00 b4l8.54 144 123,500 857*3 101 75,500 Grand T o t a l 924 630,060 681J8 880 619,050 . . oPer capita figure excluding India, |z,058.75. fcPer capita figure excluding India. Sx.046.04. ^Successor states: Austria, Hungary, Ciecho-Slovakia. d Serb-Croat-Slovene State. 1,489.36 1J800.Q0 1,666.67 141.70 2,000.00 857-14 149.000 T o t a l Central Powers . . 161 W E A L T H Powers ( I n " 1 9 1 3 " dollars—000,000 NATIONS [ 70346 IZO]BANKERS TRUST COMPANY 87.80 per cent to the former and 12.20 per cent, to the latter. The income may be distributed, $71,950,000,000, gold, to the former Allied and Associated Powers and $9,750,000,000, gold, to the former Central Powers; 88.07 per cent to the Allies and 11.93 P e r c e n t t 0 ^ Teutonic group. Foreign Investments of the Nations It is difficult to summarize the amount of money which before the war was invested by European countries in foreign lands. In the following pages we have dealt with this matter for each country. It maybe of interest to note here the characteristic forms of these foreign investments of the creditor countries of Europe. The English placed their foreign investments chiefly in their dominions and colonial possessions and in the less developed countries of the world;—in South America, Asia and Africa; and also to some extent in Russia. While they purchased substantial amounts of national, municipal and corporate securities, they promoted many industrial, public service and transportation enterprises, organizing corporations for this purpose which they actively operated, giving the preference to large enterprises. The French invested in government securities and large industrials that would provide them a steady income, but as a rule did not take an active part in the operation of the enterprises in which they invested. Germany placed relatively but little money abroad, except in connection with her banking interests which were extensive, but she played a most important part as a manager and director of business enterprises. A t the same time she was drawing on other countries for the development of her own resources. [ THE INTER-ALLY NATIONAL Allied and Associated I N C O M E Powers and ( I n " 1 9 1 3 " dollars—000,000 NATIONS ALLIED AND ASSOCIATED POWERS British Empire Great Britain Australia Canada India New Zealand Union South Africa . . Crown Colonies, Protectorates, etc* Central PRZ-WAR POST-WAR INCOME INCOME PopulaPopulation 1933 tion 1914 Per Per In In Capita Capita Millions Amount Millions Amount Actual Actual Figures Figures 46 5 8 244 Z 6 10,900 1.300 3,000 3,000 300 800 47 S 9 247 X 7 336.03 260,00 350.00 12.29 300.00 13343 38 1.500 19,600 056.90 8 40 5 36 53 6 7 174 5 98 1,100 7.300 330 3.900 1,600 340 350 7.500 330 34.400 137.50 182.50 66.00 108.33 30.19 40.00 50.00 43.io 46.00 351.02 T o t a l Allied and Associated Powers . . . 780 76.750 98.39 CBHTKAL POWERS Austria-Hungary . . . . Bulgaria Germany Turkey 50 5 68 31 4.5OO 350 10,500 1.050 90.00 30.00 134-41 50.00 Belgium France Greece Italy Japan Portugal Rumania Russia Serbia United States Powers omitted) 348 T o t a l British Empire . 161 DEBTS X 0,000 1,300 3,400 3,500 360 900 313.76 260.00 366.67 14.17 360.00 128.37 40 Z.500 37.50 356 19.960 bs6.07 7 39 5 40 56 6 17 900 7,000 300 3.400 3,000 34O 1,000 5,600 550 31,000 128.57 179.49 60.00 85.00 33-71 40.00 38.82 42.10 50.00 281.82 71.950 92.36 3,100 350 7,000 400 77.78 50.00 114-75 30.00 30.47 dn no 779 C3 7 5 61 8 T o t a l Central Powers 144 16,300 113.19 101 9.750 96.33 Grand T o t a l 924 93.050 100.70 880 81,700 92.84 . . . . aPer capita figures excluding India, $161.54. 6Per capita figures excluding India. $151.01. ^Successor States:—Austria, Hungary, Czecho-Slovakla. d Serb-Croat-Slovene State. IZO ] BANKERS TRUST COMPANY The Belgians and Swiss were also large investors in enterprises operating abroad. Brussels was to a great extent not only the center for the investments of Belgian capital but a clearing house and intermediary for the investments of other nations, particularly of France* Since the war, Great Britain with her usual astuteness, notwithstanding greatly unsettled conditions at home, has already begun to make new investments abroad, expecting that as a result of such investments she will bring added industrial activity to her people, and thus help to recoup her position as a world power. France also has followed this same course, notwithstanding the serious state of her home finances. She is known to have invested large sums of money in Austrian and Hungarian business enterprises, and to some extent in the Balkan countries. It is well known that the German industrial leaders have invested such large amounts in Austria, in Hungary, in Czechoslovakia, and particularly in Italy as largely to dominate in these countries important industrial establishments, especially industries engaged in the manufacture of iron and steel. Similar exchanges between Canada and the United States may be noted. Recent studies of the situation show that industrial leaders in the United States have found it to their advantage to build factories in Canada, and to manufacture goods there for use in Canada, and throughout the British Empire* rather than to manufacture and export from the United States. On the other hand, to some considerable extent, Canadian manufacturers have found it advantageous to come across the boundary and establish manufacturing plants in the United States. During the war, and since, Japan has found an outlet for a large amount of surplus capital in China. THE INTER-ALLY DEBTS [ 161 Large loans have also been made between the different nations to stimulate exports. Among other loans of this nature, may be mentioned those made from time to time during and since the war by South American countries to encourage exports of their products and similar loans made by Canada. It is interesting to note that at one time Canada was loaning to South America while, simultaneously, South America was establishing credits to facilitate exports to England and France. The most striking change from the pre-war situation is the transfer of the United States from the debtor to the creditor side of the international balance sheet and her entrance into the field as a lender of capital on a large scale to the peoples of foreign lands. In subsequent chapters dealing with the wealth, income and foreign investments of the respective nations may be found a more detailed discussion of these matters. The Re-distribution of Wealth Caused by the War In the opening paragraph of this chapter, reference is made to the fact that the wealth of the former belligerent nations of the Great War had not materially changed as a result of the war, but that there had been a marked re-distribution of such wealth. This re-distribution has taken place not only as between nations, but also as between the peoples within the boundaries of each nation. As the economists have many times pointed out, while the war was paid for as it was being fought, the method of payment has been adjusted very differently in different countries. Our studies of the situation show that in Great Britain 18.4 per cent of the gold cost of the war was met from taxation and other revenue receipts, 65.4 per cent from borrowing at IZO ] BANKERS TRUST COMPANY home and 16.2 per cent from borrowing abroad. The ratio of the indebtedness of the British government to the total wealth of Great Britain in 1913 was 4.91 per cent, while in 1923 the ratio of indebtedness to wealth is 35 per cent, on the " 1 9 1 3 " basis. As we have already seen, the actual wealth of the country in real estate and other tangible assets has not changed materially, but the mortgage on that wealth, if we may use such an expression, held by the owners of the governments debt, has materially changed. The people of the United States may be said to have a lien on Britain's wealth of 4.64 per cent, other foreign creditors of .71 per cent and home investors of 29.65 per cent. On the other hand, except in connection with current banking and trade balances and moderate holdings abroad of consols and other English securities, there were no foreign creditors of Great Britain before the war, and the British holders of the debt therefore had a lien on the national wealth substantially for a full 100 per cent of what was due them which, as already stated, was 4.91 per cent of the wealth. If now we turn our attention to France, we will find that very much the same readjustment has taken place there. The indebtedness of the French government before the war amounted to 11.4 per cent of the national wealth. Today (1923) the creditors of the French government may be said to have a lien of 34.07 per cent upon the national wealth which may be figured as follows: The United States 4.76 per cent, Great Britain 4.11 per cent, other foreign creditors .26 per cent, and home investors 24.94 P e r c e n t - These estimates only disclose one phase of the re-distribution of wealth. For similar analyses for other nations of the relation of public debts to public wealth, reference should be made to Statistical Table X X I I . THE INTER-ALLY DEBTS[161 Many people made large fortunes as a result of the losses and sufferings which their compatriots underwent because of the war. The purchasing power of some classes of the population was steadily reduced during the war, old estates had to be broken up, objects of art sold. The booksellers tell us that great collections of books have come into the market as a result of the war and found new owners. Where paper money inflation has been greatest these changes in wealth have been most serious; such changes, therefore, have been particularly notable in Germany and among the peoples who were citizens of Austria-Hungary. We pass over the Russian situation because the changed conditions there are not due to an economic situation, but to political upheavals. But to come back to Austria-Hungary and Germany, the decline in the purchasing power of the mark and the crowTn have affected the different classes of the population with great unevenness. The greatest sufferers have been the middle class people, so known on the continent, the professional men and those living on fixed incomes, particularly as they have found it difficult to readjust salaries and incomes to the steadily declining purchasing power of the money unit. T o some extent the industrial workers have been able to effect such a readjustment, but it is probably true to say that at no time have wages advanced in proportion to the increased cost of living, notwithstanding all efforts of the trade unions to keep the two things in balance. On the other hand, the industrial leaders have been able to take advantage of the relatively low price of labor to manufacture and sell goods at prices which attracted buyers, but returned the producers abnormal profits. So we have the picture of some people apparently enjoying great prosperity, living in luxury and wastefulness, while IZO ] BANKERS TRUST COMPANY others of the population are being very careful indeed in their expenditures. Then we see still others actually suffering for food, clothing and fuel—among them those who by persistent saving had built up capital reserves, those who had inherited wealth, and even those who had been devoting themselves to studies which had made possible the great industrial development of these countries. If the re-distribution of wealth within national boundaries has been important, so also has been the re-distribution of wealth between nation and nation. We have already noted the losses which France suffered in the north but which have to some extent been offset by regaining Alsace-Lorraine from Germany. Since the peace treaty, Germany has also lost other parts of her territory, but the re-distribution in Central Europe and Russia has been particularly notable. The dismemberment of the Austro-Hungarian Empire, and the redistribution of territory in the Balkans has brought about notable changes in wealth as between nations. We have already noted above the changed position of the United States as a world power from the investment point of view. CHAPTER XVII T h e Wealth and Income of the British Empire I N 1903, Sir Robert Giffen, the great English statistician, estimated the wealth of the British Empire at the equivalent of $108,513,000,000. According to the most reliable estimates, the wealth of the British Empire in 1913 amounted to $140,110,000,000. We estimate today, at the close of 1923, the end of another decade—the decade during which the World War was the dominating event—that the wealth of the British Empire, on a gold basis, amounts to around $149,000,000,000. From 1903 to 1913 the apparent increase in the wealth of the empire was $31,597,000,000 or about 29 per cent. However, during this decade prices increased substantially so that the real increase in wealth may not have been more than about 15 per cent. From 1913 to 1923 our estimates indicate an increase of $8,890,000,000, say 6.34 per cent. Measured on a per capita basis the average national wealth of the peoples composing the British Empire was $335.64 in 1903—or adjusted to the 1913 price basis, about $385. The per capita wealth in 1913 was $402.61 and in 1923, $418.54. Thus it is apparent that while there was a substantial growth in total wealth in the twenty years from 1903 to 1923 yet, measured in terms of population, wealth was almost stationary. In the following table we give the figures in comparative form for the three periods for Great Britain and for each of [271 IZO BANKERS TRUST COMPANY ] the great nations which comprise the British Empire, also very rough estimates for the smaller political units. The native Indian States have not been considered in making these calculations and their populations have been excluded in making per capita estimates. N A T I O N A L W E A L T H O F T H E BRITISH E M P I R E (In dollars—000,000 omitted) 1903 s Great Britain . . Australia Canada India New Zealand . . Union South Africa Crown Colonies Remainder of Empire Total >933 19X3 Per Capita % Per Capita 72,990 1,758.79 70,000 1,5^1-74 8,600 1,720.00 5,596 1,5*2-43 6,569 1,216*48 14,650 1,831*5 30,000 62.98 14,598 122.95 1,860 1,860.00 2,920 561.54 5,000 833-34 10,000 263.16 5,840 . . . . 108,513 at Per Capita 70,000 1,489-36 9,000 1,800.00 15,000 1,666.67 35,000 141-70 2,000 2,000.00 6,000 857-14 12,000 30O.OO 163.56 335-64 140,120 402.61 149,000 418.54 oln "1913" dollar*. The value of the data upon which the estimates in the table are based varies considerably. For 1913, we have what may be called quite scientific estimates for Great Britain herself, for the Dominion of Canada, and for the Commonwealth of Australia, and a fairly good estimate for New Zealand. The estimate for South Africa is our own based upon a comparison of the income tax statistics and other data. Our figures for India for 1913 and for 1923 are based upon estimates especially made for us by Mr. G. R. Josyer, M. A., President of The Young Citizens' Council, Bangalore, India, an Indian economist. THE INTER-ALLY DEBTS [ 161 We do not lay claim to scientific accuracy for our estimates of the present day wealth of the nations composing the British Empire. However, these estimates are the result of the careful weighing of many factors and we believe reflect fairly well the true status. The Income of the British Empire We now present an estimate for the three periods in question of the national income of the component parts of the British Empire. N A T I O N A L I N C O M E OF T H E BRITISH E M P I R E (In dollars—000,000 omitted) 1913 1903 1 Great Britain Australia Canada India New Zealand . . 8,515 2,920 205.18 276.22 343-33 12.60 ' ' ' 487 93.65 1,022 1,314 . . Union South Africa Crown Colonies Remainder of Em- pire Total Per Capita 973 . . . . 15,231 $ 1923 Per Capita 0$ 10,900 236.95 1,300 260.00 2,000 250.00 12.29 3,000 300 300.00 800 133-33 1,500 39-47 10,000 1,300 2,400 19,800 19,960 Per Capita 212.76 260,00 266.67 3,500 14.17 360 360.00 900 128.57 1,500 37-50 27.25 47.ll 56.90 56.07 oln " 1 9 1 3 " dollar*. An inspection of the table shows that there was apparently an increase in the national income of 1913 of about 30 per cent over Sir Robert Giffen's estimate for 1903. The actual increase when adjusted for price changes was probably not over 15 per cent. IZO ] BANKERS TRUST COMPANY Parenthetically, we may draw attention to the fact that we are not now considering the income of the national treasury, that is to say the receipts of the government with which to meet its expenditures, but the income of the people as a whole. It will be noted that the per capita income for the entire empire is estimated to have been $47.11 in 1903 (adjusted to 1913 prices, say $54); $56.90 in 1913 and $56.07 in 1923. In this case, as in the case of the national wealth, the per capita figures are much reduced because of the great Indian population included in the totals. The per capita income of Great Britain increased from $205.18 in 1903 (or say $235 in " 1913 " dollars) to $236.95 in 1913, but, as would be expected, fell off in 1923, the figure for that year being $212.76. With the exception of a slight decline in the case of the Union of South Africa, the dominions do not seem to have lost in per capita income because of the war. We estimate that each dominion has at least held its own or had an actual increase in income since the beginning of the war. The Foreign Investments of Great Britain For years the English people have been investing a large portion of their funds in foreign securities, and in foreign countries. The concensus of opinion of those best qualified to make such estimates is that, just before the Great War, the British people had foreign investments amounting to from $18,000,000,000 to $20,000,000,000. We are inclined to adopt the larger figure as more nearly correct. During the early part of the war, before the United States came into the arena with her men and money, these investments were very heavily drawn upon to finance the requirements of Great Britain and her allies for munitions of war THE INTER-ALLY DEBTS [ 161 which had to be purchased abroad, chiefly in the United States. It is estimated that during this period $5,000,000,000 of these investments were sold. Since the wTar the English people, notwithstanding the need for increased capital at home, perhaps because of such need, again have been lending abroad, thus maintaining their hold upon their foreign markets. Such investments since the war have approximated $2,000,000,000, bringing the total amount of English capital in use abroad toward the close of 1923 up to around $17,000,000,000. The History of England's Foreign Investments England was a pioneer in the field of foreign investment. She was compelled to seek new outlets for her manufacturing industries and commercial enterprises, or else these industries and her commerce would have atrophied and she would have sunk to the level of a second or third rate power. It will be of interest briefly to review the story of the growth of England's investments in foreign lands during the past half century. In 1872 the value of the foreign investments of Great Britain was about $5,500,000,000, bringing in an income of $325,000,000 a year. We have no knowledge of the exact distribution of this sum either as to countries, or purpose. England at this time was very much interested in Canadian and colonial economic development, and held large sums of United States railroad securities. She also had large Russian holdings. Probably a very small part, or perhaps no part, of this total is attributable to European borrowing. For the next five years there were no foreign loans of importance. It is probable that there was a decrease in these holdings of some $500,000,000. It is the habit of the English investor to reinvest the income received by him from foreign IZO ] BANKERS TRUST COMPANY capital, thus increasing his capital placed abroad. During this period, the investors kept their income from foreign investments at home, and this use of profits would effect a decline in the total foreign investments. About 1876, we find that the Russian securities were being sold to Germany and France. We are not surprised to find this situation because it is quite characteristic of the policy of British investors. The Russian securities were becoming more established; their yield was decreasing; the economic conditions surrounding them were more familiar, and more accessible to the investing public. The history of British investments proves that when securities are no longer speculative and therefore they advance in market value, and the net annual income falls, the English sell them, and enter new enterprises. New enterprises do not necessarily mean risky ventures, but new undertakings about which only the well informed know the details, and the English are careful to keep themselves well informed. B y 1881, it is estimated that the foreign securities held in the United Kingdom amounted to around $6,250,000,000. This total was divided into, say, $900,000,000 Indian government and Indian railway loans; $3,500,000,000 foreign government bonds and corporation stocks; $1,000,000,000 colonial and foreign railway securities, $125,000,000 colonial and foreign bank shares and $725,000,000 colonial government and municipal securities. After 1883, United States railway securities were not sent to England as the United States was more largely absorbing its own issues. Up to that time American issues had been a very important outlet for the export of English capital. In 1884 South Africa became the scene of gold and diamond discoveries and millions were invested in mines. THE INTER-ALLY DEBTS [ 161 By 1886 the South American railway and bank securities held had reached $290,000,000. These investments were mostly in Brazil and in Argentina. England also was actively developing the economic resources of Australia, building railways, docks and harbors; also investing there in land finance companies and mining companies. In these years, too, her help hastened the growth of Canada, and the Canadian Pacific Railway was in the foreground of capital investments. Indian rails steadily increased in importance in the London market. The estimate of foreign securities held by the British people in 1890 is $10,000,000,000, an increase of nearly $4,000,000,000 in ten years. The estimated income from these investments was around $457,000,000. This was a period of crisis which stopped the export of capital for several years. The government of Argentina defaulted. There was a revolt in Buenos Ayres. The mining stocks of South Africa fell in value, and there were many failures in Australia. In 1893 the colonies collapsed financially. During this period silver fell rapidly in value, and it is estimated that the British income from India heavily declined because of that fact. The United States also had a very serious financial and political situation because of the decline in the value of silver and these conditions were reflected in poor railway returns. Therefore our securities were sold back to us in large amounts at a great loss to the foreign investors. The result of all these conditions was that for several years foreign investment ceased. The surplus capital of the United Kingdom, instead of being sent abroad, was used for the development of home railways and industries, while large sums also were invested in home municipal securities. In the later '90s, the United Kingdom began to sell what IZO ] BANKERS TRUST COMPANY small holdings she possessed on the continent and to transfer the proceeds of these sales to China, to Japan and to foreign and colonial municipals, Again there was speculation in South African and Australian gold mining properties, and Argentine railway securities also were purchased. However, South America never quite regained her former place in the estimation of the English investors. Not until after 1896 did the United States recover. Then her railway securities were purchased in large amounts, but were resold in a few years in New York at a profit for the English investor. On the whole, the rate of increase of foreign investment holdings was slower in this decade due to this crisis period of 1890. It is estimated that in 1896 England's foreign investments were $10,500,000,000, about equally divided between her dominions and foreign countries; say, $5,500,000,000 in the dominions and $5,000,000,000 abroad. Of this latter amount over $1,500,000,000 were at work in the United States; $1,300,000,000 in Central and South America and nearly $1,500,000,000 in Europe. The other investments were distributed to the remainder of the "four corners of the earth." During the Boer War (1899 to 1902), the United Kingdom needed all her surplus capital. Her income from abroad then was about $500,000,000. Foreign government loans in London ceased, and the colonial issues declined. The war stimulated the war industries such as coal, iron and shipbuilding. After the war, we find the $150,000,000 Transvaal loan successfully floated; also large Canadian and Argentine railway loans being made. Russia was again popular with the English investor. The chief countries drawing funds from London at this time were Canada, the United States, Argentina and Mexico, while Brazil, Chile and other South American countries were important users of British capital. THE INTER-ALLY DEBTS [ 161 As we have already noted, by 1913 English investments abroad are estimated to have reached around $18,000,000,000 to $20,000,000,000. England in these last years was just beginning to take an interest in industrial enterprises. The most important loans theretofore had always been for railways. Docks, water and gas works, electric plants and telegraph lines were economic developments for which many of the newer loans were made. It was only in recent times that the English investor had encouraged manufacturing and industrial projects. Such investments were then being made especially in North America, India and Russia. The geographical distribution of England's foreign investments on the eve of the Great War is estimated to have been in about the same proportions as in 1896; say, not quite 44 per cent to her dominions, about 44 per cent to foreign nations and about 12 per cent, difficult to allocate geographically, invested in foreign shipping, banking, brokerage and insurance operations. The income being derived from these investments was approximately $1,000,000,000. Savings Out of Income in Great Britain British economists believe that prior to the Great War their compatriots were reinvesting abroad almost the entire income derived from their foreign investments and that, in addition, ten to twelve per cent of their home income was saved and added to capital. Therefore it seems probable that in the years immediately before the Great War the British people saved from their home income around $1,100,000,000 and that they reinvested abroad about $900,000,000. This IZO]BANKERS TRUST COMPANY meant a total saving of, say, $2,000,000,000, or approximately one-fifth of their entire national income. It is difficult to estimate the amount of these savings today, but they must be very substantial, if the sales of new capital issues in the London market give any indication. Apart from the absorption of new bond issues of the British government, which may be regarded in the light of refunding operations and therefore no guide as to the amount of new capital seeking investment, the London market purchased in 1921 new securities having a par value of around $900,000,000. Similar purchases in 1922 amounted to over $1,000,000,000 while for 1923 they were not quite $1,000,000,000. Undoubtedly, before drawing conclusions as to the amount of new savings evidenced by these figures, they also should be adjusted for refunding operations, but they clearly indicate a large and increasing volume of saving on the part of the British people. A surprisingly large proportion of the post-war investirig of the people of the British Isles has been in "over-seas" securities. In the calendar year 1920, the London market purchased new securities issued by the British dominions and possessions having a par value of say $153,959,000. Similar purchases in 1921 aggregated $440,751,000; in 1922, $364,581,000 and in 1923 $451,189,000. Thus, in these four years, the British dominions and possessions placed an aggregate of $1,410,480,000 securities in the London market. In the same period securities originating in foreign countries aggregating a par value of $633,067,000 were taken up by British investors. The total purchases of securities originating outside of the British Isles for the four post-war years, aggregated a par value of $2,043,547,000. THE INTER-ALLY DEBTS [ 161 While the absorption of foreign and colonial securities has not yet reached the pre-war level, it is clearly on a rising scale and has already assumed important proportions. The income derived by Great Britain in 1923 from her foreign investments was about $729,900,000. T o obtain Britain's entire income from her foreign business relations, apart from profits in connection with her foreign trade, we may add to the return from investments $535,260,000 for net shipping income and $194,640,000 from miscellaneous sources. This gives a total income from so-called "invisible exports" of say, $1,459,800,000. The Foreign Investments of Canada With the exception of the Dominion of Canada the other nations comprising the British Empire have no important foreign investments. The dominions are still in the development stage and the people of India have not become accustomed to investing to any great extent in securities, especially in foreign securities. An interesting development of the war has been the loans made to certain nations by the Dominion of Canada with the object of promoting international trade. These loans, which began immediately after the war, aggregated in 1921 over $40,000,000. Since then they have been much reduced, but the fact that they were made indicates that the British theory of winning trade by financing the borrower is endorsed by this great dominion which is itself a borrower and must so remain for a long time to come. However, this policy is only a new development in Canada so far as direct government loans are concerned, the Canadian banks have long found it to their advantage and to the advantage of their customers — t h e farmers, manufacturers and merchants of C a n a d a — IZO ] BANKERS TRUST COMPANY to stimulate foreign trade by foreign loans. Even as long ago as 1902 such loans by Canadian banks amounted to $78,000,000. With some fluctuations, they increased until shortly before the war, on March 31, 1914, they stood at $198,000,000. A t the close of 1920 such advances amounted to $396,000,000. A t the close of September, 1923, they were $348,000,000. T h a t these loans were made possible largely by foreign deposits does not change the fact that the Canadian banks, by making such loans—metaphorically speaking—carried the Canadian flag to all parts of the world, thus making possible a world-wide expansion of Canadian commerce. CHAPTER XVIII National V/ealth and Income of France ' I A HE wealth of France at about 1903 may be estimated to have been the equivalent of $52,000,000,000 and the national income about $6,400,000,000. The well known French economist the late M. Edmond Thery, who gave this question very careful consideration, estimated that in 1908 the wealth of his country had grown to $57,900,000,000. Between 1908 and 1914 wealth was almost stationary, increasing possibly $750,000,000. M . Pupin estimates that the income in 1913 was $7,300,000,000. No French authority has ventured to make an estimate of the wealth or the income of Franco at the present time and, therefore, we are left to draw our own conclusions in regard to the matter. From a very careful consideration of the items of loss and gain during the war and since we are led to believe that the wealth of France today may be taken to be substantially the same, on a gold basis, as her wealth in 1908. It is more difficult to arrive at a figure for the present probable national income, but after carefully weighing all the facts, we are led to believe that the pre-war figure is still being maintained, very nearly. W e tentatively estimate the national income in 1923 at $7,000,000,000. We have not included in these figures any estimate for the wealth and income of the French overseas possessions. These possessions are becoming more and more important and are rapidly reaching the point where they may be regarded as having a decided asset value, but it is impossible from the data at hand to assign a valuation to them. However, we may [283 IZO ] BANKERS TRUST COMPANY safely assume that from now on these possessions will be an increasing source of strength, adding appreciably both to the wealth and income of what may be called the French Empire. It is to be hoped that some well qualified French statistician will soon make a study of the national wealth and national income as of the present time and when making this study, will include statistics for the colonial possessions. French Foreign Investments The French have always been a saving people and while they have traditionally favored investments in real estate, yet as all the real property had long ago been absorbed by the people, other outlets for savings became imperatively necessary. The French people have always favored the securities of their own government and of the Credit Foncier de France, the great mortgage bank of France, but many years ago they were forced to seek an outlet for their surplus funds in foreign lands. In 1850 there were almost no foreign securities held in France. Twenty years later, in 1870, on the eve of the FrancoPrussian War, such investments are estimated to have been not less than $2,000,000,000 and possibly as great as $2,750,000,000. The estimated income derived by the French at this time from their investments in foreign lands is placed at from $120,000,000 to $150,000,000. The payment of the indemnity to Germany was greatly facilitated through the sale abroad of a considerable part of these holdings and the reinvestment of the proceeds in rentes. Sales made for this purpose and to provide the new capital required for the industrial and commercial expansion which followed the Franco-Prussian War so depleted the holdings of foreign securities that for some time they were quite unimportant. THE INTER-ALLY DEBTS [ 161 However, it is estimated that by 1880 the French people had so prospered that they had as much capital invested abroad as in 1870—possibly a larger amount. The French investor then and since has not cared to invest abroad in new ventures requiring his personal supervision, rather he has preferred to buy the bonds of foreign governments or of corporations which he believed to be well established. Thus he did not seek a large return from his lendings abroad. There was one marked exception to this rule and that was the success which the promoters of the Panama Canal had in attracting capital into that unfortunate venture. A t the end of the next decade (in 1890), the foreign holdings of the French people are thought to have reached $4,000,000,000, yielding an income of around $240,000,000. The largest amount was invested in Russia, say about onequarter of the whole. Most of the remainder was invested in other European countries lying contiguous to France, although perhaps as much as $400,000,000 was invested in Turkey and Egypt and around $500,000,000 in America, principally in South America. By 1902, it is thought that the investments abroad had increased to $5,000,000,000 or a little more. In fact, one estimate from an excellent source is as high as $6,000,000,000. About two-thirds of the total was invested in European countries, Russia leading with about $1,400,000,000, AustriaHungary and Spain coming next with around $600,000,000 each, then Turkey with over $350,000,000 and England with $200,000,000. The amounts invested in the other countries of Europe were smaller. The remaining third of the foreign investment holdings of France in 1902 was scattered all over the world, the American continent leading with nearly $800,000,000, of which IZO ] BANKERS TRUST COMPANY $640,000,000 was lent to the Latin-American nations. About $740,000,000 were being lent to Africa, including, say, $280,000,000 to Egypt. Around $200,000,000 had been utilized in Asia—about half of it in China. Small amounts had even been lent in Oceania. We now come to the eve of the Great War. How much did the French people have invested abroad at that time—say in the early part of 1914, or late in 1913—and where were these investments located? We believe that the foreign investments held just before the war broke out amounted to not less than $8,250,000,000, and that possibly they may have aggregated $200,000,000 to $300,000,000 more. Of these loans around 52 per cent were to nations subsequently allies, about 28 per cent to those which remained neutral and about 20 per cent to nations which became enemies. They were yielding an annual return of around $480,000,000. About thirty per cent of this investment of French capital—practically all of it drawn in small sums from the savings of the people—was loaned to the Russian government or invested in Russian municipal or industrial securities. In the chapter dealing with the wealth and income of Russia may be found more detailed calculations in regard to the indebtedness of Russia to France. About $500,000,000 was invested in Austria-Hungary, $600,000,000 in the Balkans and Greece, $800,000,000 in Spain and Portugal, about $1,000,000,000 in the securities of other European countries, about $600,000,000 each in Turkey and in Egypt, about $800,000,000 in Morocco and, say, $1,200,000,000 in America. When it became necessary to utilize these foreign investment holdings in financing the war, it was established that from $1,600,000,000 to $2,000,000,000 were such as could [be THE INTER-ALLY DEBTS [ 161 mobilized for this purpose. The amount actually sold during the war is estimated to have been from $800,000,000 to $1,000,000,000. After making allowance for such sales and for investments lost—perhaps forever—because of the Bolchevising of Russia and the readjusting of the states of southeastern Europe, France at the end of 1923 probably had productive foreign investment holdings aggregating $5,000,000,000, yielding an annual return of around $250,000,000. How Much the French Owe Abroad We have already considered the foreign indebtedness of the French nation. Prior to the war there was no borrowing abroad either by the government or by the people of France. It is true that there may have been joint investment of foreign and home capital in French business enterprises, particularly in French banks doing business abroad, but there were no important loans issued by the nation, municipalities or corporations. Exclusive of the inter-ally debts and of the debt to the Bank of England which is really in the same category, French government, municipal and commercial borrowings abroad outstanding at the close of 1923 aggregated at exchange parities, a value of about $623,000,000. Of these loans $376,000,000 or 60.35 P e r c e n t w e r e government borrowings. We do not include in this amount French rentes listed on the London Stock Exchange and to some extent dealt in in New York. Just what the foreign holdings of rentes may be we are unable to state. Municipal and departmental borrowings account for $97,000,000 or 15-57 per cent of the $623,000,000 bonds which we estimate IZO ] BANKERS TRUST COMPANY as held abroad, while $10,000,000 or 1.61 per cent were corporate borrowings other than for railroad purposes and $140,000,000 or 22.47 per cent were borrowings by the railroads for the rehabilitation, re-equipment, electrification and extension of their lines. Thus, today, apart from what may be called the political borrowings, that is the borrowings from foreign governments for war purposes,which we have already fully discussed, the French owe abroad an amount equivalent to only about I2}4 per cent of their productive foreign investments of $5,000,000,000. About one-half of this amount is due to the United States, about a sixth to London and smaller sums to other nations. CHAPTER XIX National Wealth and Income of Italy / | b e s t authorities place the pre-war wealth of Italy at just under $22,000,000,000. It does not seem likely that the wealth of Italy has seriously declined since 1913. The war damages which Italy suffered are estimated by good authorities to have been about $2,000,000,000. However, the provinces devastated by the enemy have now resumed their normal aspect. Most of the houses have been rebuilt with or without help from the government, and in a better manner than the old houses which were destroyed. There was considerable damage to arable lands caused by lack of care and deficiency of fertilizers, but the productivity of the land is now said to have been completely restored, with the exception of part of the damaged woodland. In view of these facts, we feel safe in assuming that the wealth of Italy, as geographically constituted before the war, is today substantially the same as it was in 1913. W e have adopted a figure of $21,250,000,000 as the sum of the national wealth in 1923. If we make allowance for the new provinces acquired by Italy as the result of her participation in the war, probably we ought substantially to raise the estimate of present day wealth above the figure just mentioned. Unfortunately we have no data upon which to base an estimate of the value of these new acquisitions and therefore must be content to allow our estimate to stand with the explanation that it applies to Italy as constituted prior to the war. [289 IZO ] BANKERS TRUST COMPANY The National Income of Italy The accepted pre-war estimate of the national income of Italy was $3,900,000,000. Professor Gini, the distinguished Italian economist, has expressed the opinion that the revenue of the Italian people in 1921 lay somewhere between 100 and 160 milliards of lira, or say between $19,000,000,000 and $31,000,000,000. Reducing these figures by the average price index number for 1921 of 578, we arrive at a pre-war or gold valuation for the income of from $3,300,000,000 to $5,300,000,000. Professor Gini admits that "these figures show a very wide margin, but, he adds, " I believe this margin necessary by rules of prudence, as before the war to be definite was very difficult and now is impossible." He says that some economists do not take into consideration agricultural improvements adopted by non-salaried farmers, which did not have in pre-war times the importance they have reached now. He thinks that, in order to obtain a complete valuation of the national income, another addition should be made relating to domestic work accomplished by people in their own homes, but apart from this last suggested addition which he says, if adopted would give a more complete and exact compilation of national revenue, he has " n o reason to think that noticeable changes should be made in the figure of 20 milliard lira ($3,900,000,000) given for the pre-war period/' After weighing all of the various factors entering into such calculations, we have adopted as our estimate of the present day national income of Italy the figure of $3,400,000,000 gold. The Foreign Investments of Italy Prior to the war, Italy was not to any important extent a creditor nation. Possibly at that time she may have been lending abroad around $300,000,000. THE INTER-ALLY DEBTS [ 161 Perhaps the most important foreign investment of Italy, before the war as is the case today, consisted of her Nationals temporarily or permanently resident in other countries from whom, metaphorically speaking, Italy year by year "cuts off coupons" to the amount of many million dollars. The following table gives the remittances of emigrants to the home country for the years 1913 to 1921, inclusive, the figures for 1920 and 1921 being partly estimated. R E M I T T A N C E S OF ITALIAN E M I G R A N T S 1913 t o 1921 (In dollars—000,000 omitted) Currency Basis $ 1913 1914 1915 1916 1917 102 76 67 57 94 "1913" Dollars t Currency Basis "1913" Dollars 91 259 423 306 22 $ 102 80 »9I9 50 28 1921 $ 71 67 53 31 It will be noted that on a currency basis the remittances after the close of the war were in 1919 two and one-half times what they were in 1913, in 1920 over four times, and in 1921 fully three times. However, the purchasing power of the remittances for post-war years was substantially less than the purchasing power of the pre-war remittances. The Foreign Borrowings of Italy In 1913 Italy was a large borrower of money from abroad. On December 31, 1913, there were in Italy two hundred and ninety-two foreign companies employing capital amounting approximately to eighty-eight million dollars. This was ex IZO ] BANKERS TRUST COMPANY elusive of some six million dollars invested in assurance companies and a like amount in steamship companies. Of these investments aggregating around $100,000,000, about thirty-six million were Belgian, thirty million French, twenty million English, nine million Swiss and six million German. These companies in the main were conducting public service enterprises such as water works, tramways, railways, gas and electric plants. In addition to the registered foreign corporations doing business in Italy, foreigners had large investments in the shares and bonds of Italian companies and in Italian government and municipal securities. It is difficult to arrive at an exact valuation of such investments. Germany's participation in Italy's economic activity which is known to have been large, was chiefly in the form of investment in Italian companies and the introduction of personnel and methods. As to Italian consols, France always was the chief foreign holder. Of $8,600,000 paid in interest in 1913-1914 on Italian consols held abroad, $8,000,000 went to France. CHAPTER XX T h e Wealth, Income and Foreign Indebtedness of Russia ^HE statistics in regard to the pre-war national wealth and national income of Russia are not at all satisfactory. The estimates of the wealth vary all the way from around $40,000,000,000 to around $65,000,000,000. W e have adopted as probably nearest to the true state of facts an estimate of $58,400,000,000. T h e post-war valuation must be materially reduced because of the radical territorial and other changes which have followed the war. We venture upon a tentative estimate of $45,000,000,000. The National Income of Russia In the absence of any detailed studies in regard to the national income, we can only arrive at an approximate figure. Perhaps we shall not go very far astray if we estimate that this income was and is around i z } 4 per cent of the wealth or, say, in round figures $7,500,000,000 pre-war and $5,600,000,000 today. Foreign Capital Invested in Russia In our study of the Russian public debt we learned that in addition to the indebtedness incurred for the purpose of defraying the expenses of wars, there was also a very large indebtedness which had been contracted for the purpose of the construction of railroads. Previous to the late war the [293 IZO]BANKERS TRUST COMPANY debt issued for this purpose had reached the sum of $1,594,000,000, or about 35 per cent of the total. The first railroad construction in Russia was in the year 1836, when the government built a short line from the capital to Pavlovsk, some fifteen miles away. The PetersburgMoscow line was opened in 1851. The Crimean War stopped the work of railroad building temporarily, but in 1857, a few months after the Treaty of Paris, a joint stock company called the "Society of Russian Railroads" was formed, with a capital of $129,000,000, and authorized to build 3,000 miles of railways which were to include a line from Saint Petersburg to Warsaw with a branch to the Prussian frontier and another between Moscow and Nizhni Novgorod. The first issue of stock representing $39,000,000 was easily placed, thanks to the abundance of capital, the numerous issues of bank notes and to the five per cent guarantee given to the company by the government. Encouraged by the success of the Society of Russian Railroads, a great many railroad enterprises sprang up and concessions were granted for railways in central, western and southern Russia. These were financed by domestic and foreign capital. Altogether from 1862 to 1868, $58,000,000 were spent on railroad construction and all the concessionaires were either assured a flat guarantee of a minimum interest or else large subsidies from the treasury. The profits realized from the successful operation of these lines flowed into new enterprises. In 1868 the government passed a measure which was of great importance in railroad construction. B y it those who held railroad concessions were relieved of raising capital for the construction of new lines. This capital was to be furnished by the government itself through the issue of special railroad bonds. The accumulation of capital for the purposes of rail THE INTER-ALLY DEBTS[161 road construction had a considerable influence on the financial situation of Russia, particularly in the years from 1868 to 1871, when simultaneously with the railroad movement in the United States, there went on in Russia a vigorous construction of railroads. The sum of more than $500,000,000 was spent within four years. The masses of Belgian and French capital that poured into the country caused a temporary inflation, but at the outbreak of the Franco-Prussian War in 1870, the supply from France was of course cut off. During the Russo-Turkish War, 1877 to 1878, practically all construction was suspended. This was also true during the period of great economic depression following that war. From the beginning of the *8os, Russia had been drawn into the net work of international trade and finance by her appearance as a grain exporter; therefore she naturally was bound to feel the long business depression which affected western Europe from 1877 to 1886. When the revival came, Russia also shared in full in the strong development of trade throughout the civilized world. A t this time Russia entered upon a capitalistic period, and from being a purely agricultural country was transformed into one partly industrial. This change has been attributed to various factors, and while it would be impossible to single out one cause, yet it must be said that one of the most potent of the factors was the further development of the railroad system resulting in the construction of new lines opening up the great coal resources of the south. In a country of such a vast population and continuous land area as Russia, the opening of a new line of communication brings into relation an enormous number of persons, and at once opens up new markets. The railroads in Russia usu IZO ] BANKERS TRUST COMPANY ally dragged behind the population so that when they came they immediately gave a new direction to previously latent productive powers. Besides her expenses for the direct conduct of the Great War, the Russian government during the war period made what, under ordinary circumstances, would have been considered heavy expenditures in the development of her lines of transportation and her harbor facilities. One great undertaking was the construction of 750 miles of railroad running from Petrograd to the ice-free harbor of Kola in northwestern Russia. This road was constructed at an estimated cost of about $34,000,000. The overland route through Finland and Sweden was improved. A new broad gauge line from Vologda to Archangel was constructed and the far eastern port of Vladivostock was developed. According to the explanatory note of the Russian ministry of finance regarding the estimates of state revenue and expenditure for 1916, the total length of government railways under construction and for the construction of which permits had been granted and plans made at the beginning of September, 1915, amounted to 5,600 miles, at an estimated cost $554>000>0°0- Of these railways, 3,500 miles were being constructed (at a cost of $324,800,000). Permission for construction had been granted on 300 miles at an estimated cost of $27,295,000 and further construction had been planned for 1,800 miles estimated to cost $202,086,000. It is further stated that concessions had been granted to private companies for the construction of about 842 miles of road at an estimated cost of $53,000,000. The total length of railroads in operation in Russia at that time may be closely estimated at 60,000 miles. The money for this railroad construction was to a very THE INTER-ALLY DEBTS [ 161 great extent obtained by borrowing in foreign markets. In January, 1914, the state railway loans were estimated at $1,594,000,000. These were long term loans bearing interest at from three to six per cent. Beside these direct loans issued by the government for the purpose of railroad construction, the state also guaranteed loans to the par value of $966,000,000. Therefore, the total direct and guaranteed obligation of the state for railroad construction in 1914 was $2,560,000,000. As noted in Chapter V I I Russia owed in 1914 for loans raised for other purposes than the construction of railroads $2,947,000,000 and was guarantor of securities issued by the Nobles and Peasants banks in the sum of $1,061,000,000. Thus the total direct and guaranteed pre-war debt of Russia was $6,568,000,000. It is difficult to tell just what percentage of the direct and guaranteed loans of the Russian government was placed abroad, but it is estimated that between one-third and onehalf thereof were so held. If we strike an average and take forty-four per cent, as the correct figure, we find that the total foreign indebtedness of Russia in 1914 on government account, direct and guaranteed, amounted approximately to $2,890,000,000. In addition to the bonds directly issued by the Russian government or guaranteed by the government, which were held abroad, it is estimated that the commercial investments of foreigners in Russia in 1914 amounted to $1,154,000,000. Adding this amount to the $2,890,000,000 government obligations held abroad we arrive at the sum of $4,044,000,000 as the total pre-war foreign debt of the Russian people. In the early part of 1922 the Soviet government published an inventory of the foreign capital invested in Russia in commercial enterprises. This inventory places the total IZO ] BANKERS TRUST COMPANY at $1,154,000,000 and distributes the amount as per country of origin as follows: G E O G R A P H I C A L DISTRIBUTION OF FOREIGN PRE-WAR I N V E S T M E N T S IN RUSSIAN C O M M E R C I A L ENTERPRISES (In "Currency" dollars—000,000 omitted) France Great Britain Germany Belgium United States Holland Switzerland Sweden Denmark Austria Italy Norway Finland Total Soviet Estimate Amount Per Cent. $377 261 227 165 61 32.6 19 1.6 17 12 8 4 1 1 1 22.6 19.7 14.3 5 2 1-5 X.I 0.7 0.4 0.1 0.1 0.1 100.0 CLASSIFICATION B Y INDUSTRIES OF PRE-WAR INVESTM E N T S IN RUSSIAN C O M M E R C I A L E N T E R P R I S E S (In "Currency" dollars—000,000 omitted) Amount Mining . Metallurgy Real Estate Banks Textile Industries Chemical Industries Commercial Industries Manufacturing of Food Stuffs . . Printing Shipping Lumber Industry Mineral Exploitations Animal Products Insurance Total Soviet Estimate $429 202 134 122 99 43 42 19 16 14 13 9 7 5 $M54 Per Cent. 37.2 17.5 US 10.6 8.6 3-7 3.7 1-7 1.4 1.2 I.X 0.8 0.6 0.4 100.0 THE INTER-ALLY DEBTS [ 161 Classified by the character of the industries, it is stated that the largest part of this sum was invested in mining and cognate industries. The next largest amount was invested in real estate, the next in banking, and the next in the textile industries. These facts are set forth in the previous table. French Investments in Russia France was by far the largest creditor of the Russian Empire. The estimated par value of French investments in Russia in 1914 is $2,190,000,000. These investments were distributed about as follows: FRENCH INVESTMENTS IN RUSSIA IN 1914 (In "Currency" dollars—000,000 omitted) Government bonds Railway bonds Industrial securities Bonds of Land Credit Banks and of Credit Fonder Mutuel Other investments $1,250 373 323 99 145 $2,190 Some French estimates are considerably higher, but the one which we have adopted is independently arrived at by two French organizations especially formed to protect the interests of French investors in Russian securities and properties. These estimates do not include the war debt of the Russian government to the French government. It will be remembered that this debt approximates $1,000,000,000. The commercial investments of the French in Russia covered practically the entire field. French capital exercised a dominating influence in the mineral and metallurgical industries, in the working of platinum, in the construction of machinery and in the building of locomotives and of ships. IZO]BANKERS TRUST COMPANY British Investments in Russia The English have not published their claims on Russia. Therefore it is impossible to give any tabulated statement. Apart from the advances made for the conduct of the war which, according to British Finance Accounts, aggregated on March 31, 1923, some $3,349,000,000, it is not known what amount the Russian Imperial Government may have owed in Great Britain. Estimates of pre-war holdings of such securities by the English people range from $190,000,000 to $258,000,000. These investments were distributed a little over a third in direct issues of the Russian government; and somewhat less than a third, each, in railway bonds and municipal bonds guaranteed by the Russian government. According to the Soviet estimate, the commercial investment of the British people in Russia amounted to $261,000,000. This capital was divided among 144 different enterprises, being of especial importance in the naphtha industry and exercising a large influence in the production of copper, in the making of thread and in the manufacture of tobacco. Belgian Investments in Russia Belgium's investments in Russia were chiefly in the commercial field, although her citizens are thought to have held around $125,000,000 of government, municipal and railroad bonds, and to have had due them some $80,000,000 more for uninvested capital on deposit in Russia or due on trade balances. The Soviets place the amount of Belgian capital invested in Russian commercial enterprises at $165,000,000. The Belgians place the amount very much higher—at nearly $460,000,000. THE INTER-ALLY DEBTS [ 161 If we adopt the Belgian estimates they are creditors of Russia for around $700,000,000. Assuming that there would be an accord as to other items than that of the commercial investments, we may estimate the total amount from the Soviet point of view at $370,000,000; just about half of the Belgian estimate. Belgian commercial investments according to the Soviet inventory were distributed over 107 enterprises. Belgian sources state that her citizens' investments were distributed over 161 enterprises. The Belgians had a monopoly in the production of glassware and plate glass and had important interests in mining and metallurgy; secondarily in foundry, chemical and textile manufactories and thirdly in public service companies. German Investments in Russia The total pre-war investment of the German people in Russia is very roughly placed at around $1,000,000,000. According to the Soviet inventory, the Germans had $227,000,000 invested in Russian commercial enterprises. In this field German capital occupied third place, representing 19.7 per cent of the total foreign capital invested in Russian enterprises. Differing from French and English capital, German capital was distributed in a much more equal fashion over the various branches of industry. In a general manner it may be said that the participation of German capital, and in particular of German banks, in the establishments of commercial credit of Russia, exercised a profound influence in all fields of Russian industry, independent of German capital directly invested in different Russian industrial companies. German participation in the industrial life of Russia was especially felt in connection with the management of the affairs of many IZO BANKERS TRUST COMPANY ] manufacturing corporations, also in life insurance and banking lines. Germany also played an important r6le in the chemical and electrical industries. XJjiited States Investments in Russia Except for investments of our insurance companies necessary to qualify them to transact business in Russia, very little United States capital was invested in Russian securities. Summary T o summarize: FOREIGN INVESTMENTS IN RUSSIA IN 1914 (In "Currency" dollars—000,000 omitted) Investing Nations France Great Britain Belgium Germany United States Other Countries . . . . Total Gov't, Municipal and Railroad Bonds Commercial Enterprises Maximum Total 2,720 333 205 554 10 503 323 to 377 261 165 to 470 227 to 446 58 63 3,097 594 675 4,325 1,097 to 1,675 5,422 to 6,000 I.OOO 68 566 Soviet Repudiation of Foreign Debts In February, 1918, all of this great sum owed by the Russian government to the use of which the transportation and industrial development of Russia largely was due, was invalidated by the Soviet government in the following decree. It will especially be noted, see section three, that "all foreign loans, without exception, are absolutely repudiated." Ap THE INTER-ALLY DEBTS [ 161 parently the same policy is being followed in regard to corporate debts. Soviet Decree Invalidating Russian Public Debt The decree adopted by the Central Executive Committee of the Soviets for the abolition of public debt, is as follows: I- Ail State loans concluded by the Governments of the Russian landlords and Russian bourgeoisie, enumerated in a special list, are hereby repudiated as from December 14, 1917. The December coupons of these loans are not paid. 2. In the same way are all the guarantees repudiated which the said Governments gave to loans of various concerns and bodies. 3- AH foreign loans, without exception, are absolutely repudiated. 4. Short-term liabilities and Treasury bonds remain in force. Interest on them is not paid, but the bonds themselves have a currency along with credit notes. 5' Poor citizens who hold State bonds of internal loans to an amount of not more than 10,000 roubles nominal receive in exchange certificates, made out in their names, of a new loan of the Russian Socialist Federal Soviet Republic to an amount not exceeding 10,000 roubles. The terms of the loan will be fixed later on. 6. Deposits at the State savings banks and interest on them remain intact. All debentures of the annulled loans which belong to the savings banks are replaced by a book debt on the part of the Russian Socialist Federal Soviet Republic. 7. Co-operative organizations, local government bodies, and other democratic bodies or institutions of common utility holding debentures of the repudiated loans are to be given certificates in accordance with rules to be drawn up by the Supreme Economic Council in conjunction with representatives of these bodies, which must prove that the debentures were acquired by them previous to the publication of the present decree, (NOTE—The local organs of the Supreme Economic Council have to determine which of the local bodies can be regarded as democratic or of common utility.) 8. The general direction of the liquidation of the State loans is entrusted to the Supreme Economic Council. IZO ] BANKERS TRUST COMPANY 9. The work in connection with the liquidation of the loans is entrusted to the State Bank, which shall immediately begin the registration of all the debentures of State loans and other interest-bearing papers in the hands of various holders, which may or may not be subject to invalidation. 10. The Soviets, in agreement with the local economic councils, appoint committees to determine what citizens are to be regarded as poor. These committees have the right to annul all savings not acquired by personal labour, even if they do not exceed the sum of 5,000 roubles. This decree was printed in the Russian newspaper " P r a v a d a " on February 8, 1918. It is impossible to forecast what settlement the creditors of Russia may ultimately be able to arrange in regard to the amounts due them from the former Imperial Russian Government and from her nationals. The creditors of Russia have not alone the present Soviet Republic to deal with but several new nations which have taken over portions of the territory and of the population of old Russia. CHAPTER X X I The Wealth and Income of the United States /T*HE money value of the economic wealth of the American people was officially estimated for 1904 at $107,104,000,000. Professor W. I. King, the leading authority for the United States on this subject, estimates that the national wealth at the end of 1913 was $197,587,000,000 and, in " 1913 " dollars, at the close of 1918, $226,475,000,000. Probably we would be justified in adopting a round figure of $230,000,000,000 in " 1 9 1 3 " dollars for the close of 1923. The preliminary estimates by the Census Bureau of the wealth of the individual states so far as published up to the time this book went to press may be found in Statistical Table X X I X . The national income for 1903 may be roughly estimated to have been $21,000,000,000. By 1913 it had reached $34,400,000,000 and in 1923 in " 1 9 1 3 " dollars was probably in the neighborhood of $31,000,000,000. It may be a surprise to some that the wealth as estimated for 1923 does not show a larger increase over the pre-war estimates, but while it is true that in its earlier stages the war created many war profiteers, at the same time, it had unfortunate effects on lines of activity not directly connected with the war. After we got into the struggle, so close a check was kept upon the cost of munitions for our own country and for the Allies that the making of abnormal profits by American manufacturers, farmers and merchants was largely checked and such profits in excess of pre-war profits as were made, were ver$" largely taken by the government through income and war profits taxes to meet the expenses of the war, including 13<>5 IZO ] BANKERS TRUST COMPANY our very large loans to our allies. In the United States, as in other countries, the post-war situation, until quite recently, has been one of readjustment from war conditions which has brought reduced activity in many lines of business and reduced prices in markets to which we send our products, so that instead of marketing our food and other products at a profit, we did so for some time at little or no profit or even at a loss. Therefore, taking all things into consideration, it is quite obvious that the nation, as a whole, has not profited to any important extent as a result of the war. On the contrary, on a per capita basis, it has perhaps even suffered some loss in wealth. The Foreign Investments of the United States It is only in recent years, and as a development of the Great War, that the United States has become an important factor in world wide finance. It is estimated that in 1900 we held $500,000,000 in foreign securities divided as follows as to their geographical location:—Canada, $150,000,000; Mexico, $185,000,000; Cuba, $50,000,000; Latin America other than Cuba and Mexico, $55,000,000; Europe, $10,000,000; China and Japan, $5,000,000, and life insurance companies guarantee investments in Russia and elsewhere, $45,000,000. Nine years later United States investments abroad are estimated to have reached a total of $2,000,000,000. Canada was then a debtor to the United States in the sum of $500,-, 000,000 and Mexico for from $600,000,000 to $700,000,000 while our investments in Europe had reached the relatively high total of $350,000,000. B y the close of 1913 we had invested outside of our own borders around, perhaps over, $2,500,000,000. This figure is THE INTER-ALLY DEBTS [ 161 higher than the accepted estimates, but we believe it to be a close approximation to the facts. However, the data from which to make such an estimate are not as complete as might be desired. These investments were distributed about as follows: FOREIGN INVESTMENTS OF THE UNITED STATES A T THE CLOSE OF 1913 (In dollars—000,000 omitted) Coon try Canada Latin America Cuba Mexico Central America South America Amount 100 i»050 50 100 Europe China and Japan Philippine Islands Porto Rico Total Per Cent 750 28.8 1,300 49.9 350 100 75 30 13.4 3.8 2.9 1.2 *2,605 100. o •Or say In round figures 12,500,000,000 If we may assume that a net return of 6 per cent was being received, the national income from this source was, say, $150,000,000. T h e war brought marked changes in respect to our foreign investments. American investors as a whole for the first time became familiar with foreign securities. In the early years of the war, with some hesitation, we loaned money to France and England, but we required very good collateral in the nature of our own bonds and stocks which were placed with N e w Y o r k trust companies as security for the French and English bonds which were sold to the public. However, there were some exceptions, the most important being the IZO ] BANKERS TRUST COMPANY Anglo-French loan for $500,000,000 which was placed in October, 1915, on the joint credit of the governments of England and France. The success of this loan and the act that it was paid off promptly at maturity, unquestionably did a great deal to inspire confidence in subsequent bond issues from foreign countries. American investment of new money, since the armistice, excluding all refunding operations, in foreign, state, municipal and corporation bonds is estimated to have aggregated to June 30, 1923, around $2,000,000,000. The estimates range from $1,800,000,000 to $2,200,000,000. In addition to our purchases of new issues placed in our money markets, we have purchased on balance about $800,000,000 bonds issued abroad. Besides our holdings of foreign, state, municipal and corporate bonds, our citizens unquestionably have large amounts of capital invested in real estate and mortgages thereon, in timber lands, mines, factories and merchandise not represented by bond issues. We estimate that such investments in Canada alone may aggregate over $1,200,000,000. There must be very large investments of a similar character in Mexico, Cuba, elsewhere in Latin America and in Porto Rico and the Philippines. We do not venture to give figures, but the amount is unquestionably large. Then we must not overlook trade credits made directly by our corporations or such as are given by our banks. The aggregate of such credits is no doubt large, but the amount must fluctuate greatly, depending upon trade conditions. Tentatively we estimate the foreign investments of the United States as of June 30, 1923, at perhaps $7,650,000,000 on a currency basis—say $5,000,000,000 in " 1 9 1 3 " dollars. In the following table these figures are summarized. They must not be taken as anything more than an intelligent guess, THE INTER-ALLY DEBTS [ 161 for the data are most incomplete. It is pleasing to observe that the United States department of commerce under Mr. Hoover's progressive management is beginning to make studies of these elusive questions. In a recently issued supplement to Commerce Reports, American capital abroad in 1922 is estimated at $4,483,000,000, from which, in 1922, the owners were in receipt of an income of $227,000,000. This total is for foreign bonds only. Of course, to arrive at the entire investment, the other elements referred to above, such as stock issues (or as the English say, "shares") and non-capitalized investments, must be considered. Our estimate is as follows: FOREIGN INVESTMENTS OF PEOPLE OF T H E S T A T E S AS OF J U N E 30, 1923 (In "Currency" dollars—000,000 omitted) UNITED Foreign securities sold in the United States since 1913 and outstanding on the above date Foreign securities originally issued abroad, imported since 1913 Banking and trade credits—say Corporate and personal investments in Canada since 1913 not represented by bond issues Similar investments since 1913 in Mexico, Cuba, the Philippines, Porto Rico—perhaps 3»050 800 1,000 1,200 1,000 Total new investments since 1913 Deduct—Defaulted Russian holdings—say 7»°5° 75° Net new productive investments Add—Pre-war investments 2,500 Less—75 per cent of Mexican holdings 750 Russian holdings 50 Securities paid off and not replaced by refunding issues—say 35° M 5 0 6,300 1*350 Total amount invested abroad June 30, 1923 . . . 7,650 I Exclusive of amounts due the United States government ] IZO ] BANKERS TRUST COMPANY It will be noted that we have deducted $1,150,000,000 from the estimated value of the investments brought over from the pre-war period. This we have done because of the long continued default in the payment of the interest upon Mexican bonds, also to allow for other possible losses and to allow for the repayment of bonds which have matured and been paid off in cash and not replaced by refunding issues. There is scarcely a nation which is not today indebted to the United States. Following is a statement of the geographical distribution of our foreign investments. Although an independent calculation the total checks closely with that of the previous table. GEOGRAPHICAL DISTRIBUTION OF INVESTMENTS OF T H E A M E R I C A N PEOPLE IN FOREIGN COUNTRIES IN 1923 (In "Currency" dollars—000,000 omitted) America North Central South West Indies Total Africa Asia Europe Oceania Government State or Corporate Municipal etc. 517 58 . • • 155 2 577 . . . 385 26 130 22 1,844 755 Add—Trade Credits—say Imported securities, not allocated to country of origin 2,775 4 544 '97 3,520 1 65 1,245 Total 3,556 4 823 354 4,737 z 476 2,194 22 4,831 1,000 7,430 800 1,800 Deduct—Defaulted securities Russia 800 Mexico 750 1,550 350 Total invested abroad June 30, 1 9 2 3 7,680 t Exclusive of amounts due the United States government 1 THE INTER-ALLY DEBTS[161 Foreign Indebtedness of the United States In 1899 the people of the United States owed abroad upwards of $3,000,000,000, possibly as much as $3,300,000,000. By 191 o this indebtedness had doubled and at the end of 1913 was $7,000,000,000. We then owed England some $4,000,000,000, Germany $1,250,000,000, France $1,000,000,000 and Holland $650,000,000, with smaller amounts due to other nations. From the foundation of the goverment up to 1914, we had borrowed abroad for every conceivable purpose. The Revolutionary Debt Abroad: We depended upon foreign capital to fight the revolutionary war to a successful finish. France, Holland and Spain were the bankers of the infant republic. This debt, after having been in default for several years, was refunded in 1790. Including arrearages of interest, it amounted on January 1, 1790, to $12,081,000 and was practically all paid by 1795, largely however, by new foreign borrowing. Every dollar of the foreign debt of the United States was paid by 1809. We cannot describe in detail the loans made to this country by France during the Revolutionary War, but, in view of discussions which from time to time arise on this question, it may be worth while to note here quite positively that these loans were fully repaid with interest. The last payment was made in 1795, except in connection with the final settlement with the estate ofBeaumarchais which was not made until 1835. The loans and subsidies which France made to the American States totalled 49,408,000 livres; or, say, $8,967,000— estimating the value of the livre at 18.15 cents. Of this amount, $1,193,000 was a free gift. This aid was given at a time when France herself was at war. IZO ] BANKERS TRUST COMPANY Later Foreign Financing: Following the settlement of the Revolutionary debt, the United States government did not again have occasion to borrow abroad until the Civil War period and thereafter. Even then we did not borrow directly from foreign markets, but our bonds found their way abroad and at several periods of crisis we availed of the services of international bankers. However, the states, municipalities and the corporations of the United States until 1914 were persistent and large borrowers abroad for every conceivable purpose. Our railroads were to a great degree financed with capital obtained in England, in France, in Holland and in Germany. Our farm lands were frequently developed from the proceeds of mortgages placed in England and Scotland and by money brought with them by immigrants or obtained in their home countries. Our public service corporations also sought capital abroad, as did our industrial companies. In fact, the United States owes her present prosperous status largely to the confidence placed in her integrity by foreign capital. The country could not have reached its present stage of development without the use of foreign capital and the work of foreign labor—of the immigrant. During the period of the Great War and since we have been paying off our foreign debts. During the past decade, according to the most carefully made estimates, we have reduced the claims of foreign lenders from the pre-war status of $7,000,000,000 by $3,000,000,000. If this estimate is correct, we now owe abroad $4,000,000,000 as against $7,500,000,000, upwards, owed to us, as shown by the table on page 310, so that on balance, apart from the $11,800,000,000 due the United States government, we are a net creditor nation for $3,500,000,000, thus reversing t^e pre-war status. CHAPTER XXII The Wealth, Income and Foreign Investments of Germany ^T us now turn from the consideration of the status as to national wealth and income of the former Allied and Associated Powers to that of their principal opponent in the late war, the German Empire, for so it is called even today by the German people, although now they have a republican form of government. Dr. Karl HelfFerich, Director of the Deutsche Bank, estimated in 1913 that the wealth of Germany at about that time amounted to 300,000,000,000 marks, or say $71,000,000,000 and that the national income amounted to 40,000,000,000 marks or $9,500,000,000. If it is difficult to make an estimate of the post-war wealth and income of France, it is still more difficult to make such an estimate in the case of Germany. However, we have attempted to arrive at a tentative figure which we have done by deducting from Dr. Helfferich's figure an estimate of the value of the territory lost by Germany because of the stipulations of the peace treaty. The fact has been kept in mind in making this estimate that while some of this territory was agricultural, and not highly productive, yet the loss of AlsaceLorraine carried with it very important deposits of iron ore and potash, and industrial works of considerable magnitude, while the occupation of the Saar Basin has deprived Germany of extensive coal deposits. We have also taken into consideration the fact that in losing part of Silesia, Germany lost many industrial plants and large iron and zinc deposits, and 4 2 % per cent of all the German coal lying within 500 [313 IZO ] BANKERS TRUST COMPANY yards of the surface. Taking all these facts into consideration, we have concluded that possibly a rough figure of the present wealth of Germany on a gold basis might be taken to be $59,000,000,000. It is even more difficult to make an estimate of the national income of Germany at the present time, but, for the purpose of discussion, we have concluded that we may assume the present income on a gold basis to be approximately $8,000,000,000. These estimates are both made on the basis of a temporary occupation of the Ruhr district. The Foreign Investments of Germany Dr. Helfferich figured that in 1913 Germany's foreign investments amounted to about $5,000,000,000. He estimated such investments in 1905 to have been $4,000,000,000 and he gives it as his judgment that between 1905 and 1913 the amount of such investments had not greatly increased because of the fact that the industrial development of Germany during that period was so great that it absorbed practically all the free capital. The pre-war foreign investments of Germany were distributed roughly as shown on the following page. Before the Great War, Germany was next in importance to France as the continental center of foreign securities. German investments abroad were cosmopolitan in their distribution. She was a pioneer in developing the newer countries. She colonized first and then followed with banking, trade and shipping facilities. She was notable as a manager and director of banks, mercantile establishments and industrial plants, also in mining and oil operations. Thus her influence in the industries and commerce of foreign countries was very great, making it possible for her to derive a much larger THE INTER-ALLY DEBTS [ 161 G E R M A N FOREIGN INVESTMENTS IN 1913 (In dollars—000,000 omitted) Europe Austria-Hungary 500 Italy 150 Roumania 200 Russia 1,000 Other European—around 150 2,000 Asia Asia Minor China and Japan Turkey 50 150 300 500 Africa North America—United States and Canada . . . Central America, Mexico and West Indies . . . . South America Not allocated in the estimates 350 75° 200 75° 45° 5,000 percentage of profits from her foreign investments than was obtained by other nations. She was a most important factor in the management of the banking, commercial and industrial fields in Russia. In fact, there was no important commercial or industrial center in any country of the world, with the single exception possibly of France and her colonies, where Germany's influence was not felt. In the early part of the war, it is unquestionably true that Germany parted with a substantial part of her foreign securities, finding a market for them in the neighboring neutral countries and in the United States. There are no statistics as to the total amount of such sales. Following the armistice, it is generally thought that the wealthy people of Germany have been endeavoring to send as much as possible of their IZO]BANKERS TRUST COMPANY property into foreign lands, and it is known to be a fact that large amounts of German marks and mark securities have been sold in foreign lands and the proceeds very likely reinvested in the countries where the marks were sold. It is true, of course, that the proceeds of these sales of marks also have been used to some extent in meeting foreign payments under the peace treaty. How much German capital, since the war, may have found a harbor in foreign lands, it is impossible to estimate, but the amount must be large. It is a fact that since the war, German capital has reasserted itself in Austria, in Hungary, in Czechoslovakia and in Italy to such a degree as largely to dominate in those countries the operations of important industrial establishments, especially those engaged in the manufacture of iron and steel. Through corporations organized for the purpose, German exports are "cleared" through the Scandinavian countries in such a way that a large part of the proceeds of their sale remains on deposit outside of Germany. The apparent ease with which enormous purchases of cotton and copper for German account are financed indicates that there must be large pools of capital outside Germany available for the purpose. However, in the very nature of the case, exact figures are unobtainable. Inquiries by the mixed commissions of experts being instituted as this book goes to press may be expected to throw much light on this situation. Statistical Tables Statistical Tables Money statistics are expressed throughout the book and in these tables in dollars as follows: In DOLLARS OR "CURRENCY" DOLLARS: All foreign currencies are turned into United States dollars at par of exchange:— £ sterling at $.4.866; Franc, lira, drachma, leu, peseta, finmark, dinar at I9.3 cents; Crown at 20.3 cents; Mark at 23.8 cents; Krone at 26.8 cents; Florin at 40.2 cents; Yen at 49.80 cents; Ruble at 51.46 cents; Escudo at $1.08. Thus all statistics given simply in dollars (sometimes referred to as "Currency" dollars) reflect the face of the books just as published by the finance departments of the several countries, without adjustment of any kind. In " 1 9 1 3 ° DOLLARS: Statistics thus expressed are adjusted for inflation by dividing the "Currency" dollars by the wholesale price index number" of the several countries. The index numbers used were: For Great Britain, Statist; Australia, Belgium, France, Germany, India, New Zealand, Union of South Africa, Official; Italy, Bachi's revised; Canada, Department of Labour; United States, Bureau of Labor; Russia, Eliachcff. For other countries we have made estimates from the best data available. These numbers are based upon a combination and averaging of the prices of groups of commodities which enter into common use. The prices of the year 1913 are taken as normal, at any rate as prices not affected by war conditions. These prices are taken as a base ( 1 0 0 % ) and the prices for subsequent years are estimated in percentages of the base price. Thus it is possible to determine to what extent prices were increased by the war demand for commodities and especially how they were inflated by the great increase in the currencies and other credit facilities developed in financing the war. In short " / p / j " dollars may be said to be dollars of the year 1913 purchasing power. Manifestly the statistics when expressed simply in dollars or currency dollars reflect conditions in terms of currencies of varying purchasing power and in the nature of the case are not fairly comparable. By reducing them to the pre-war or 1913 basis they become comparable. Table X X V I I gives the wholesale price index numbers for several countries at quarterly periods, 1913 to 1923 inclusive, and the corresponding purchasing power of their currencies. [319 NOTES—TABLES IV TO VIII, INCLUSIVE A N D T A B L E ON PAGE 13 <xThe cost of the war is taken to be the excess expenditure over the iverage expenditure of the three years preceding entrance into the war. In some cases the expenditure of the year previous to the war, or the lverage expenditure of the two previous years, is taken as a basis. "Direct Cost" —The cost exclusive of loans. If loans made and loans received are settled in full this will be the final cost of war to each nation. "Gross Cost"»Direct war expenditure, plus loans. "Net Cost" = The actual cost as the accounts stood at the close of the war. If loans made and loans received remain unpaid then this will be the final cost of the war to each nation. If any nation pays her loans in full (vide England's settlement with the United States) but does not receive payment from her debtors, then "Net Cost" will be the actual cost to that nation. b"Normal expenditure" shows what the expenditure would have been on the pre-war basis. cA rough approximation. Data unobtainable. Where totaU are given they include the omitted items which, however, are not separately given in official or other sources. dA rough estimate for five years. eA rough estimate for two years. /Proportion for period estimated. Total for six years from official statement. ^Adjusted. See page 25. /iThe totals, respectively, of Columns III and VII and of Columns IV and VI of Table IV should exactly agree, but differing accounting methods followed by the several nations have made an exact balancing impossible. It is somewhat remarkable that the figures tally as closely as they do. tThat the expenses do not exactly balance with the receipts (Tables IX to XIV) is chiefly due to the fact that cash balances brought and carried forward have not been brought into the tables, in many cases not being obtainable. ./Russia ceased to be a belligerent in September, 1917. ^Greece did not become a belligerent until August, 1916, as the finances of that year were little affected, the war expenses are taken as beginning from January i t 1917. AVhere a minus sign appears on a Cost of War Table, it does not mean that the cost was less than nothing, but that on the " 1913 " dollar basis the expenditure was less than the pre-war expenditure. 320] NOTES—TABLES IX TO XIV, INCLUSIVE aThe receipts in excess of the pre-war basis. See Note 5. bAs a rule the average receipts of the three years immediately preceding entrance into the war, multiplied by the number of years that the nation was a belligerent and for which data are obtainable. In some cases the receipts of the year preceding the war or the average receipts of the two preceding years arc used as a basis. cA rough approximation. dCovers a period of 3 X years. ^Partly estimated. /Five years. Even for these years the statistics are quite unsatisfactory. No data whatever are available for the last year of the war. ^Classification approximated. /(Including $50,000,000 cash on hand at the beginning of the period. ./Includes net receipts from government services and monopolies. fcThat the receipts do not exactly balance with the expenses (Tables I to VIII) is chiefly due to the fact that cash balances brought and carried forward have not been brought into the tables, in many cases not being obtainable. /The United States did not become a belligerent until April 7,1917. mRumania did not become a belligerent until August 27, 1916. ttGreece became a belligerent August 27, 1916, but as the war conditions only slightly affected the figures of the fiscal year ended December 31, 1916, her war financing is taken as beginning January 1, 1917. ©Russia ceased to be a belligerent September 12, 1917. Therefore these figures cover a period of approximately 8}4 months. pTwo years only. Data very unsatisfactory^Includes a period of 1920. years—January I, 1917, to March 31, [321 10 w T A B L E I — P R E - W A R A N N U A L E X P E N D I T U R E S OF A C T I V E B E L L I G E R E N T S IN G R E A T W A R (In dollars—at (000,000 omitted) ALLIED AND ASSOCIATED POWERS British Empire . . . . Great Britain . . . . Australia Canada India New Zealand . . . . Union South Africa cCrown Colonies, etc. . Total Empire . . . Belgium France . Greece Italy (ts>!4) Japan Portugal Rumania . Russia . Serbia United States Total Allies . . . CENTRAL POWERS Austria Hungary . . Bulgaria Germany Turkey Total Grand Total. . , Population . . . . exchange parities) OTOTAL FIGURES (000.000 omitted) PER CAPITA FIGURES PER CENT NATIONAL INCOME Public Debt, InMilitary Total Debt Military Total Civil Debt 6 Total terest & Military Manage- Expenses Expenses Expenses Charge Expenses Expenses Charge Expenses Expenses ment 96 3 14 49 13 33 9 307 478 39 350 II 103 58 30 14 318 6 33 17 311 43 177 99 IS 17 410 6 440 959 3.013 46 5 8 344 1 6 38 348 8 40 5 36 S3 6 7 174 S 98 780 SO 5 68 31 ISO 8 59 36 144 924 373 1.333 357 14 11 96 139 37 353 69 538 3,601 339 74 17A 340 85 73 IOS 1.078 I 376 31 310 89 31 73 983 13 338 3.056 4 773 38 135 60 995 4-OSI 783 91 197 385 98 96 H4 1.763 103 837 75 490 346 76 103 1,610 34 701 6.038 2.00 .60 1.73 .20 13.00 H6 2.80 1.37 -30 3.83 .24 50 4/7 6.25 2.20 2.86 1.07 3.00 2.00 1.37 2.12 Wo ifr 17.00 t8.20 24.62 1.58 08.00 16.00 3.00 S.06 12.87 20.92 15.00 13.61 4.64 12.67 1.25 2.30 243 246 ..23 440 7-15 7.73 2.58 740 S.IO 21.62 14.60 I.20 1.23 1.081 73 547 155 1,856 3.60 7.884 1.60 " L 1.18 8 1.20 2.58 14.71 9.25 4.80 8.04 I.8Q 3.28 4.08 12.80 1.33 2.81 8.53 7.38 .88 .23 3.27 1.63 3.20 1.08 55 4.33 .60 1.05 3*55 3.42 J.JJ 2.64 3.56 12.30 4.00 2.Q1 2.61 .07 1.23 4.00 3.20 .36 3.47 1.67 1.32 2.41 1.55 7.17 5.00 0.8s 12.83 32.66 12.00 7.60 8.00 4.26 0 37 11.47 6.ig 6.23 4.86 31.67 13.03 4.54 5.47 2.61 1.28 2.62 2.87 14.80 3.36 6.37 3.61 2.70 22.73 12.36 13.37 2043 21.47 10.43 2.04 7.85 24-02 2Q.20 3.21 14.76 11.38 8.47 oln most cases the figures are an average of the expendIturcb for the three fiscal years 1911 ( i g u - i a ) to 1913 (or igi3-i4) Inclusive. In some cisea the figures for 1913 (or 1013-14). alone, have been taken. fcOnly the net results of the operation of public services have been taken. ^Estimated. T A B L E II P R E - W A R A N N U A L R E C E I P T S OF A C T I V E B E L L I G E R E N T S IN G R E A T WAR (In dollars—at exchange parities) (000,000 omitted) NATIONS ALLIED AND ASSOCIATED POWERS British Empire . . . Great Britain . . . Australia Canada India N e w Zealand , . . Union So. Africa . cCrown Colonies, etc. T o t a l Empire . . Belgium France Greece Italy Japan Portugal Rumania Russia Serbia United States . . . T o t a l Allies . . CENTRAL POWERS Austria-Hungary . Bulgaria Germany Turkey Total Grand T o t a l . . . . . OTOTAL FIGURES (000,000 omitted) Population Taxes 46 5 8 >44 1 6 38 767 81 136 lag 30 t l 1,261 Other Total BorrowRevenue Revenue ing 51 3 9 321 53 36 36 818 £ 389 1,6S1 83 833 43 458 347 77 1*9 1,640 34 701 34« 8 40 J 36 S3 6 7 174 5 08 780 50 33 58l 13 673 U 173 <18 169 56 37 96 1.039 13 39 3,833 2.041 SO 5 68 31 317 31 508 88 I44 9*4 924 934 764 13 46 44 866 3,907 3,907 69 660 «5 3&9 191 35o 83 -41 61 33 33 33 17 113 31 33 33 33 7 -16 PER CENT. NATIONAL INCOME PER CAPITA FIGURES iTotal Receipts 777 9i 197 373 106 56 13 3 t.764 103 855 75 400 TOJ 1,640 5.875 —4 206 697 6,081 I,08l 33 554 133 40 6 33 L.OSI 73 560 155 I.800 7,67s 7,675 69 375 National Income 236.0s 260.00 230.00 12.30 300.00 '3333 30.47 Taxes Borrowing 16.67 16.20 -.89 *S-73 '33 30.00 8.00 3O.10 2.to 3.62 8.62 16,50 3.00 8.03 3.60 JO.00 3.28 36.00 137*50 182.30 66.00 108.33 40.00 43.10 46,00 351.02 08.30 .po 30.00 134.41 8.33 3-34 3.40 6.86 4-03 6.34 4.20 7-47 4.10 iJSo 7.62 .00 23-00 3.67 .43 .32 2.6 2 A55 6.40 .80 .13 —.17 -2.28 — .04 .26 8.00 .00 1.00 .48 .30 Total Receipt* 16.80 18.60 34.63 !cS3 106.00 16.00 3.24 3.07 12.87 21.37 13.00 13.61 4.70 12.67 t4-7t 0.43 4.80 7.11 7.82 31.62 14.60 8.33 7.38 1,869 6.48 I3.Q8 4.76? 7,950 T 7 3 ~~8Ti ., 4.767 7,950 375 5.16 8.62 a l n mort eases the average receipts of the three fiscal years 1911 (or 1911-13) to 1013 (or 1013-14) inclusive In some cases the figurea for 1913 (or 1913-14) alone have been taken. inclusive. ftOnly the net results of the operation of public services have been taken. 30.00 113.19 100.70 100.70 c Estimated. Taxes 7.03 6.23 6.30 4.31 10.00 6.00 3.32 6.36 6.27 9.04 8.33 7.4i 11.02 20.82 6.36 7.7S 3.22 1.05 4.00 Total Receipts 7.13 H s 0*3 12.40 3S33 13.00 8.20 8.ot 0.36 11.71 22.73 12.36 13.87 31.67 30.43 21.87 10.43 3.03 7.02 7.04 8.40 & 24.02 20.20 S. 73 JT2 S.12 11.46 T J j 8.34 3.33 14.76 TABLE III—PRE-WAR NATIONAL DEBTS OF ( I n dollars—at Internal Debt ALLIED AND ASSOCIATED POWERS British Empire Great Britain . . . . Australia Canada India . . . . . . . N e w Zealand . . . . Union of South Africa Crown Colonies, etc. . Empire without India Total Empire . . . . Belgium . . France . . . Greece . . . Italy . . . . Japan . . . Portugal . . Rumania . , Russia . . . Serbia . . . United States Total Allied Powers CENTRAL POWERS Austria-Hungary . . . Bulgaria Germany Turkey . . . . Grand Total. BELLIGERENTS Funded 3.098 76 I 83 51 Floating 338 333 "36' 3.04S Total Wealth 74-6O 4.551 3,346 5,401 6,897 51.03 19.82 1.058.75 402.61 4.00 4.02 855 6,598 72 3.034 S35 504 381 3.S43 70 1.188 38 893 6,508 235 3,034 1,287 703 281 4,541 70 111.62 164.0s 47.00 S4.28 24.28 718.73 1,447-50 350.00 605.55 220.07 400.00 300.00 335.63 460.00 2.061.85 15-53 11.40 8.54 13.02 II.05 20-30 8.03 7-77 3.04 0.67 3,556 400 3o 95 176 3.956 30 1.385 176 763 199 i,99S 1,188 5.506 25,727 667 3,956 174 1,285 843 S.447 35.668 6.317 U7.J7 40.14 26.10 14.00 10.48 70.12 iS.QO 640.43 3.08 13.19 6.96 1.60 8.03 40.14 600.00 500.00 1,183.82 300.00 6,258 43.46 857-63 31,985 34-61 681.88 34-So aFigures are for the close of the fiscal year next preceding the opening of hostilities, August, 1914. Debt % National Wealth 4.01 1.08 3-71 4.00 26.07 12.28 2.20 30,331 . Foreign Debt Total Debt 1.321.74 1,720.00 1,831.23 122.05 1,860.00 833.34 26J. 16 1,661 3.363 WAR 18.60 68.00 6.13 483.00 102.33 6.03 18,560 4.746 GREAT 3,436 93 544 1,496 485 614 229 65 3io 49 170 77 THE 17 311 863 403 524 339 3.436 76 333 634 83 90 70O 6.388 33 3,864 525 340 381 3466 70 968 164 IN PER CAPITA FIGURES OTOTAL FIGURES (000,000 OMITTED) NATIONS Total ACTIVE e x c h a n g e parities) S-07 T A B L E IV—ATHE COST OF T H E W A R — E N T I R E PERIOD COVERING THE S i x FISCAL Y E A R S 1914 (OR 1 9 1 4 - 1 5 ) TO 1919 (OR 1919-20) INCLUSIVE (In "Currency" dollars—000,000 omitted) (For cost of the war in " 1013 " dollars. gee page 13) NATIONS I DATE OP ENTERING WAR TOTAL EXPENDITURE II ANORMAL EXPENDITURE III DLRF.CT COST % 1914 1914 1914 1914 1914 1914 53.907 2.JJO 3.713 3.344 1.141 774 4.693 54« 1,180 3,313 586 576 8.71 33.63 31.70 60.14 St.36 74.42 40,445 1,772 2,321 1,032 555 198 1914 684 10.578 77-20 i6.ot 202 1914 886 66.084 ^Belgium * France eGreecc Jt Italy. . Japan . c Portugal «Rumania ./Russia cSerbia . United States 1914 1914 1916 1915 19X4 1916 1916 1914 1914 1917 3,004 38,577 560 31.574 3.040 I.I45 i.Soj 35.857 579 39.447 618 5.030 334 3,943 1.476 456 411 S.903 144 30.84 13.01 41.70 tj.64 73.35 T o t a l Allies CENTRAL POWERS rfAuatria-Hungary , ^Bulgaria . . . . Germany . . . . cTurkey 199.370 AUKOct. AUKNov. T o t a l Central Powers Grand T o t a l 1914 1915 1914 1914 Col. I 39.83 37.3s 22.83 25.17 3.864 7.36 30,646 1S'37 19.801 I.370 50.330 3.199 5,407 473 3,382 932 73.GOO 10.093 6.52 42.38 13-71 1272.970 40,739 14-92 27.31 37.17 V GROSS COST c ALLIED AND ASSOCIATED POWERS British Empire. Great Britain Aug. Australia . . Aug. Canada . . AUK. India . . . Aus. N e w Zealand . . . AUK. Union of South Africa Aug. cCrown Colonies, Pro tcctoratcs, etc. Aug. T o t a l British Empire Aug. Aug. AUKAug. May AUR. Mar, AUK. AUK. AUR. April IV LOANS TO ALL tcs CoT?V 40,525 1,386 30,740 326 18,632 564 689 1,092 19,662 435 27,060 147,111 14,394 798 45,001 1,267 61,460 A 208,571 Coi 82. tS too.oo 01.67 100.00 too.oo too.oo 8.770 311 too.oo X3.82 100.00 91.60 JOO.OO 100.00 100.00 100.00 100.00 08.54 100.00 73-07 87.10 100.00 100.00 05.65 100.00 06.77 80.81 V 17 £2 S.J3 #,981 16.18 3,8R7 8.40 293 1.46 9,523 26.03 12M1 21,613 3.047 4.35 3,047 J. 33 ft 23.660 JO.lQ c $ LOANS FROM I ALLIRS 49,2 J 5 1,772 2,532 1,032 555 198 01.30 76.38 63.21 30 M 48.64 23.S8 202 22.80 83.09 55,506 1,386 33,557 326 18,632 564 689 1,092 19,954 435 36,583 168,724 6Q.I6 86.09 58.21 86.36 37.6s 60.17 72.65 77.17 74.83 02.74 84.63 63,507 73.60 62.83 93.48 57.62 86.20 232,231 85.08 14,394 798 47,048 1,267 VI Deduct VII NET COST 139 56 43,812 1,610 2,540 1,032 426 142 5.743 49,764 S.403 162 - 8 202 I.386 5.397 284 3.911 91 413 3.625 435 397 21,681 R,OOO 476 571 3.047 28,160 42 14,721 564 598 679 16,329 36,186 147,043 13,394 322 47,048 696 61,460 623,738 4208,503 T A B L E V—ATHE COST OF THE WAR—FIRST I'ART FISCAL Y E A R S 1 9 1 4 (OR 1 9 1 4 - 1 5 ) TO 1 9 1 6 (OR 1 9 1 6 - 1 7 ) INCLUSIVE NATIONS ALLIED AND ASSOCIATED POWERS British Empire . . Great Britain . Australia . . . Canada * . . . India New Zealand . . Union So. Africa cCrown Colonies. Protect., etc. . Total British . (Belgium . . ^France Italy . . . . Japan (Portugal . . (Rumania . . Russia eSerbia . . . United States . . . . . . . . . . . . Total Allies Public Debt. Int. & Man- Direct Cost agement & 9.26 3-33 (» 1,298 8.47 520 100.00 7,140 87.34 4.510 91.80 ?o .86 3S9 83.30 IS 3.21 35.636 84.84 1.383 7.970 109.82 -3S -473.00 14 173.00 875 7.30 10,658 89-90 594 100.00 C* 836 3.46 13.082 C« 530 263 6.33 3.33 — 6 -16.22 c1 (' 734 g1 3 5.0S •43 Total Ccn. Pws. Grand Total Other Special War rect Direct ExCost pendi- Cost tures 3.28 11.750 84.04 1,281 730 535 82.03 43 72 i' 6.71 >7 523 102.96 34 42 1400.00 7 333.34 133 55.70 4.64 II I I I 120.65 II 11.03 . CENTRAL POWERS (Austria Hungary (Bulgaria . . . • Germany . . . . (Turkey Military . 85.30 9744 88,87 Direct Cost Direct Cost % Gross Cost 61 3.30 3,632 6.2S 41.990 86.40 398 3.36 "713 lb -88 398 2.02 -785 435 140 59 I.824 2.80 Total ExTotal pendiExp. tures for for Period Period •52 13,833 75-70 4,440 24.30 18,273 640 640 100.00 11.25 677 507 —13.02 74.89 ' " 1 7 0 25.11 3 3 100.00 -46 -1333.34 237 237 100.00 30-66 94 92 02 too.oo -JO — 32.60 8 8 100.00 8 100.00 19,930 4,610 15,320 23-13 76.87 .68 104 100.00 90.30 100.00 100.00 100.00 100.00 98*41 100.00 34.54 1,781 Gross Loans % Gruss Cost to Allies Cost 72 72 -<56 520 8,175 4,913 37 151 95 15-07 12,105 207 467 13.06 — 16 -43.24 142 04.04 95 too.oo 9.557 78.05 19.184 Civil Government 1.S47 5-36 2.85 159.46 5.96 520 9,044 4,913 37 151 95 195 1.50 12,300 207 885 65.46 1,352 ' 869 9.67 6,559 13.53 48,549 88.62 20.619 70.02 914 1.367 53.43 0.26 1.150 530 44-72 380 24.21 2.29 350 70-02 35.219 839 62.73 78-41 11.554 76.96 6.384 775 4.77 379 30.84 198 47.08 71.So 17.130 63.38 279 2.068 74-0O 64.815 7,257 60.11 10,503 7,257 100.00 -9.82 3 IO -8 -3-Sl -8 -100.00 200.00 74 11,843 89.79 /1.347 10.21 13,190 88.94 14.831 594 56.04 1,060 594 100.00 19,686 93-50 1.347 6.41 21,033 70.06 26.604 3.00 6L676 S8.64 7.906 11.37 69^582 76.11 91.410 -3.98 T A B L E VI—ATHE COST OF T H E W A R — F I R S T PART FISCAL YEARS 1914 (OR 1 9 1 4 - 1 5 ) TO 1916 (OR 1 9 1 6 - 1 7 ) INCLUSIVE (In 1 1 1013" dollars—000,000 omitted) Public Debt. Int. & M a n - Direct Cost agement NATIONS ALLIED AND British Empire Great Britain Australia . . . . . . India N e w Zealand , . Union So. Africa . cCrown Colonies, Protect., etc. . . T o t a l Empire. (Belgium France Italy . 395 AS 23 — 10 3 4 4.43 7.47 672 -8.20 1.30 6.35 933 114 241 388 100.00 4.530 03.54 38 31 1.01 . . T o t a l Allies . . . C1 CENTRAL POWERS ^Austria Hungary . c» 7-34 -6 Civil Government % Direct Cost '-7*14 3 546 cl _ _c1_ 30,518 * V.J s 7.02 0.65 .80 3,184 103.20 —31 35 100.00 4.355 77.30 148 100.00 119 141.67 5,337 -74 7.1^7 417 00.34 134.67 87.06 01.68 100.00 -5.30 -503 59 -rap 45 -48 859 1.23 -6.21 1.00 15.37 -70 9,672 4-31 1.08 22,713 -1.374 -34.67 "13 15.20 3.30 -163 2.00 3,963 364 364 05.8I 1,344 245 75 33 3.944 34.77 11,884 375 100.00 476 71*5 " I 3 4 28.13 -122 100.00 144 100.00 63 100.00 83.3T 57.78 44.63 -11 Jo 33.03 17.03 -37.78 I4.A3O 649 1.066 1.034 437 351 373 70.76 18,039 388 5,233 5567 67.58 697 7,743 2,076 58.53 35 3.547 738 363 87.30 5,822 148 666 -13.31 -87.27 34.66 66.07 48.07 10,653 331 1.360 83.00 4.357 16.10 27,070 62.32 43.315 3,963 54.07 -63.01 84.17 47.23 7*209 133 10,368 883 *503 0.50 3.33 100.00 -85 100.00 7,774 80.08 /953 10.02 417 100.00 2.10 -1,550 -12.84 12,069 Q2J68 34,782 86.76 — 3.75 ToUl Expendlpendi- turea ture for Period Period & 3.078 24.14 12,750 75.86 3.38 -1.305 -70 100.00 35 100.00 -48 100.00 5,627 06.65 195 148 100.00 84 12.61 " 5 8 3 980 -45.34 Loans % Gross to Gross Gross Cost Cost Allies Cost 2,076 100.00 10.71 -38 % 388 100.00 4,731 00.41 9 13,807 106.11 33.335 Direct Cost — 3.01 8,940 10.31 -180 375 —12 -3.30 342 -34.21 3.22 -116 -O5.o8 -122 144 38 26.30 63 -46 -73.02 -70 -100.00 00.08 * . . . XI 8,800 eSerbia " * ' United States . Grand T o t a l 933 4.37 . . Total Cent. Pws. 7.803 87.2S 359 03.73 435 124.37 3.28 4 104 72.22 105 166.67 443 iPnrttiral cRumania ^Turkey A C« . . . . . . Military Other Special War rect Dnrect ExCost pendi- Cost tures 7.32 -48 -85 8,727 417 13,022 70.04 18.593 5.310 13.24 40,092 64.78 61,908 953 T A B L E FISCAL V I I — A T H E YEARS 1917 C O S T (OR O F 1917-18) T H E TO W A R — S E C O N D 1919 ( I n " C u r r e n c y " dollars—000,000 Public Debt, Int. & rect ManCost agein ent & NATIONS ALLIED AND ASSOCIATED PQW. British Empire Great Britain. Australia. . . Canada . . . India . . . . N e w Zealand Union of So. Afi eCrown Colonies, Protectorates, etc T o t a l Empire T o t a l Allies 3.392 to.88 1,446 4.63 3,082 11.01 23.93 13.18 43.26 32.90 22,227 ei 3,158 14.00 21 644 i*5oi 10.03 57 866 100.00 14,842 65.75 227 60.63 10,211 74.44 296 56.17 361 67.10 997 100.00 4,49<> 59.41 228 100.00 18,788 70.65 ci e» 009 12.03 ei 1.769 ' 6.65 e» . 73.533 ei 62 7.6o 4.984 13.03 ei ei T o t a l C e n . Pws Grand T o t a l . 71.22 4.140 13.27 — — 15 "'.83 486 47.23 = 60.95 6.705 03.05 564 60.08 19.176 57.83 673 lOO.OO 1919-20) 736 3.77 56 4.03 388 31.30 73 7.10 -37 -11.63 36 33.96 194 100.00 P A R T INCLUSIVE omitted) Direct Direct Cost Cost 3,891 10.86 19,420 887 1,217 353 30U 42 e» Civil Government 72.07 78.33 67.08 34.30 06.83 39.62 13.40 16.70 10.70 11.37 14.78 26*42 3,56s 189 104 "7 47 aS eBelgium ^France . Greece . Italy . . Japan . ePortugal eRumania /Russia . eSerbla . United States CENTRAL POWERS # Austria-Hungary. (Bulgaria . . . . Germany . . . . eTurkey Military Other Special A War Direct rect ExCost pendi- Cost tures (OR 26,612 1,132 1,814 1,029 318 106 % Gross Cost S6.00 100.00 97.79 100.00 100.00 100.00 Gross Loans % to Gross Cost Allies Cost 4.330 14.00 ""41 87.71 100.00 92.05 100.00 100.00 100.00 100.00 100.00 08.73 100.00 75.48 536 87.06 40,865 866 24,513 326 13,719 527 538 997 7,654 228 35,231 62.39 00.71 38.31 00.31 41.66 70.24 76.40 87.70 7S-75 94.25 1,175 27,033 560 15,190 1.365 766 I.30S 8,737 300 37,379 I5.054 12.34 120,175 SO.31 134.555 7,137 806 33,858 673 76.74 76.04 03.37 59-oS 9,301 1,060 35.499 1.130 42,474 00.37 46,999 0.6c' 162,649 80.5S 181.554 1.43 3.158 28.56 90S 342 5.128 19.28 6,26 13-507 12.86 105,121 4 . 1 0 3 12.37 433 ISO 4.896 6.05 22.33 14.77 7,137 100.00 806 100.00 33,158 97.91 673 100.00 5. SOS 13.18 41,774 08.35 700 13.04 1 146.895 90.31 15.754 ' 37,118 64.02 4.102 100.651 6S.51 10.682 0A2 7.2S 1 to.ot 51 33.388 1,406 3,445 2.185 611 394 36.19 198 87.46 03.05 80.51 73J7 47.O0 32.05 23.90 194 4.371 12.29 866 22,565 326 13,719 527 538 997 7,557 228 26,593 6.5SO 30,942 1,132 1,855 1,029 318 106 35,576 194 100.00 31,205 3.483 78 1,809 228 177 9.24 3.21 Total ' Ex~Total pendiExtures pend. for for Period Period 1.948 97 7.OS 1.27 8.638 24.52 /70O 2.0 7 I.65 T A B L E VIII—OTHE COST OF T H E W A R — S E C O N D PART FISCAL YEARS 1 9 1 7 (OR 1 9 1 7 - 1 8 ) TO 1 9 1 9 (OR 1 9 1 9 - 2 0 ) INCLUSIVE (In " 1 9 1 3 " d o l l a r s — 0 0 0 , 0 0 0 omitted) Si NATIONS ALLIED AND ASSOCIATED POWERS British Empire Great Britain . . Australia . . . . Canada India New Zealand . . . cUnion of So. Africa Crown Colonies, Protectorate, etc. Total Empire . c Belgium jFrance . . . . . . Greece Italy Japan . . . . . . Portugal £ Rumania jRuasia cSerbia United States . . . Total Allies Public Debt. Int. & Man- rect age- Cost ment JJ.02 Other Special DiWar Direct Exrect Coat pendi- Cost tures % ,% Civil Govern mcnt % Direct Cost Direct Loans % Gross Cost Gross to Gros* Cost Cost Allies Cost Total Total ExExpendipend. tures for for Period Period 77.33 1.351 12.12 -237 -2.40 10,317 84.16 1.943 1584 12,259 8304 14.605 03-09 489 100.00 — 73 —14.03 489 64-00 763 96.88 0.82 -60 610 96.06 '"as 3-94 -0.8j 635 31.84 5 1.325 72 30.70 142 100.00 331 233.10 -266 -187.32 142 10.04 1,298 182 267.63 68 100.00 -126 -185.20 68 18.84 361 -8 37 -75.00 — 36 100.00 -55 - 3 6 -14.28 253 —JJ 153.78 -34 100.00 -34 -11.80 308 100.00 1.533 13.18 9.317 80.62 1.587 13.73 -871 -7.53 11,556 85.43 1,967 1455 13,523 71.96 1S.812 c> 374 100.00 274 too.oo 274 47 00 583 8.64 4*1 IH 76.64 600 11.17 I9t 3.55 5,373 89.92 602 10.08 5,975 7042 8,48S 36.23 26.0Q -23 2 —2.Q0 -28 40.58 - 6 9 100.00 — 69 -44.52 155 48 5.84 2,276 94-32 2,413 100.00 -2.15 -52 2,413 62.13 3.884 1.09 93.02 12.79 5 -3.81 -86 too.oo —11 —86 -13.19 653 139 100.00 139 100.00 139 36.68 379 -153 too.oo —153 100.00 - 1 5 3 -98.71 ISS 35.77 1,739 94.72 814 46.81 303 17.42 622 97 5.2S 1,836 63.H 3.909 c> 73 100.00 73 too.oo 73 „ 145 798 ' 6-53 8,847 72.45 3.64 2,122 445 17.38 12,212 73.25 4.459 26.75 16,671 88% 18,754 1.34 J 97 74 5 IA 19.84 J 2,1 J J J* 17.64 22.22 . . CENTRAL POWERS t Austria Hungary ^Bulgaria Germany cTurkey . . . . . . Military 7.98o 46S 59i 25,838 - J O 13.38 1,612 14.88 c1 Total Cen. Pws. C> Grand Total . . c' = 77.20 3,682 8,01 2.475 167.80 — 54 38.03 65.04 264 100.00 7.143 I >820 -J.ooo 1.218 11.25 859 5.44 33,471 -67J80 82.45 7.125 17.55 40,596 1,475 too.oo -142 100.00 48.59 7.93 10,831 96.99 /336 264 too.oo 73.95 54.913 1,475 40.33 3.639 -142 125.66 113 3.01 11,167 87.19 I3.8O8 264 36.16 730 9.827 79-07 I.2I& 9.80 — 2 JO —1.69 12,428 97.37 2.63 12,764 73.82 17.390 35.66S 77.70 3.900 8.50 86.02 7.461 13.98 53,360 73-02 73.303 r.6io 3.51 45,899 336 ua T A B L E I X — a l l O W T H E W A R WAS P A I D F O R — E N T I R E PERIOD COVERING THE SIX YEARS 1914 (OR 1914-1915) TO 1919 (OR 1919-1920) (In "Currency" dollars—000,000 omitted) o REVENUE IN EXCESS OF PRE-WAR BASIS NATIONS A T HOME % ALLIED AND ASSOCIATED POWERS British Empire 14,042 Great Britain 423 Australia . 403 Canada . . 530 India . . . 198 N e w Zealand Union of So. Africa (Crown Colonies, 297 Protectorate,etc. T o t a l British E m p. 15,97 (Belgium France . rfGreece . Italy . Japan Portugal . . (Po (Rumania . . Russia . . . (Serbia United Sates . . . . . 3 1,416 98 5,238 750 190 -66 745 War Receipts % War Receipts War Receipts 28,111 37.4S.403 23-3 1,144 63.3 162 13-0 3,140 84-3 46. 3 743 65.2 120 32.7 302 64.8 44.4 i6q 03-9 56 3 4.2 30.1 28.1 Q8.7 24.: -6.o 3-8 32 9.48s 10 48S 744 15.067 38.8 5.742 1,386 5.39 3S4 3.911 76.4 3-7 3O.0 J' 3 91 63.3 413 1,386 32,031 11.8 68.2 18.3 100.0 1.1 33S 3.528 . 38,063 106,68 a 63.2 31.681 12.S II.570 80.4 1,000 7.0 Grand T o t a l . 30-7 78 0-7 476 30-6 41.183 8?.? 12.3 -1.3 7IS 36.3 12-353.546 84.4 2.047 • • 45,889 160.228 -.20.9 21.0 T o t a l Allies . 7,826 3-3 87 1 76.2 61.6 T o t a l C e n t . Powers fiQ.O23.728 32 100.0 16.1 37-322.627 12.6 9-72 39,615 13,719 1,821 34,958 1,379 2,130 609 407 100 12,570 554 41,193 1,286 90.9 4T902 560 1,180 3,334 634 572 2,533 1,139 605 180 68.2 329 30.8 738 7 J -355,588 83.7 10,830 69-2 86.7 38.2 86.4 33.3 62.8 72.6 76.5 75.1 93.7 618 5.130 234 3.940 1.524 456 412 6.032 144 3.SS5 33.3 67-3 33-6 9-7 100. o 1,386 33,447 326 18,634 760 769 1,091 19,775 435 36,743 93-8 71-0 1-3 73-3 228 699 13,396 10 579 1,157 106.0 19,030 96.2 435 100.0 23,024 62.7 130,891 % Grand Total Grand Total 71.349,000 1,802 76.5 84.1 b RECEIPTS PRK-WAR BASIS % War Receipts 10.4 . 245 5,777 -17 2.9 -.08 -134-117 21.3 -114-18,8 31.1 -123-69.4 . CENTRAL POWERS /Austria-Hungary (Bulgaria . . . . Germany . . . . (Turkey . . . . 1.444 73 —2 9.0 00.3 32,699 TOTAL War Receipts 11.0 3.625 435 397 . OTHER FOREIGN FROM ALLIES 2S.7 28.7 TOTAL INCREASED OR WAR RECEIPTS BORROWING IN EXCESS OF PRE-WAR BASIS Hi 48.8 23.9 168,954 84.4 31.245 77-3 9-1 23.7 31-8 66.2 51.2 76.1 60.2 16.3 30.8 13.3 41-i 13.6 66.7 37-2 27.4 23-3 24-O 73 13-6 14,391 72.7 5.410 27-3 799 62.S 473 37-2 3.36o 6.7 93.3 87.746,970 1,269 930 42.3 37-7 101.3 86.2 10.173 13.S 84.0 41.418 13-r 87.4 60.3 T A B L E X — a H O W T H E WAR WAS P A I D FOR COVERING TIIE SIX YEARS 1914 (OR 1914-15) TO 1919 (OR 1919-20) INCLUSIVE (In " 1 9 1 3 " dollars—000,000 omitted) REVENUE IN EXCESS OF PRE-WAR BASIS NATIONS BORROWING IN EXCESS OF PRE-WAR BASIS A T HOME % Basis ALLIED AND British Empire Great Britain . . Australia . . . . Canada India N e w Zealand . . Union South Africa eCrown Colonies, Protect., etc . . Total British Emp. 4,521 55 -STF - U 5 1 -49 T o t a l Allies . . . 18.4 6.1 -s* -180.8 0.5 "5444 16,08a 65.4 3,009 706 78.4 113 1.158 104.6 61 416 295-0 347 117.1 76 118 IJ /I./ 66 JJ.O 15.6 69.7 —18.4 10.619 05.6 95.6 15.0 i.l 3,314 73.0 250.0 i — Q -150.0 135.6 -38.6 M36 «ai6 -107.4 - J ' J 7,633 102.1 ' 30.I 13,485 68.8 6.2 53.309 77.2 3.335 663 1.936 74 1.378 23.0 3,389 327 198 30.6 100.0 i.i 9,919 144 711 47 13.1 -20.7 H4.8 80.2 08.0 33.1 Total Cent. Pwre. -IM6 — 4-8 35.831 IOO.3 1,106 79.030 83.3 11,035 3,050 348 715 100.0 17.3 606 -107.2 -66 28.1 40 -27.O 6.341 40.5 -182 3.0 19,409 353 -5-4 . . 12.0 236 R,49I 20,058 845 1,165 396 210 58 t* -1400.0 -65 67.0 2.7 22,667 5.5 05-7 31 662 13,151 —3 4,592 - 9 276 216 10,157 227 12,683 2.2 64,619 6,952 —/35 19,418 701 9 0.0 43 9 0.0 26,936 11.7 1,500 ' 32.3 iJ TOTAL INCREASED os WAR RECEIPTS R< War Receipts 11.8 1,067 4.4 12.6 36 2.0 53 — 54 -4-9 — 20 -14.2 36.0 - 1 1 3 -53 6 733.3 — 136 -63 18,737 TOTAL EP War Receipts War Receipts CENTRAL POWERS /Austria-Hungary . -1,516 -92 (Bulgaria 398 Germany -36 (Turkey G m n d Total OTHER FOREIGN % War Receipts -32 4,296 % War Receipts 4,183 {Belgium -2,047 ^Greece -66 Italy —50 Japan . . . . . . 15 (Portugal — 102 -417 (Rumania Russia (Serbia United Sates . . . ' 5,458 FROM ALLIES 91,555 b RECEIPTS PRE-WAR BAMS R* R- Grand Total Graiul Total 81.6 24,579 83.4 900 6t.6 03.0 103.2 1,107 4U 141 280.8 5-9 211 00.3 23.0 9 1.6 644.4 4.90a 560 1,180 3.3 J4 634 573 38.4 31.6 94* 73.0 98.4 Grand Total Rcccipts for Period 39,481 1.460 3,287 3,375 845 581 67.0 -97 -13.1 738 113.1 641 84.4 26,850 71.3 10,820 28.7 37.670 100.0 118.4 4.4 662 11,104 101.1 4,542 16 174 -201 7,479 227 18,141 it.7 68.4 -4 4.5 60.7 0.4 27.6 -95.2 55.2 61.2 86.7 618 5.U0 324 3.940 1.534 456 41a 6,082 144 2.787 48.3 31.6 144.5 30.3 00.6 72.4 105.2 44.8 38.8 13.3 I.a80 16,334 155 7.483 1.530 630 311 13.561 371 30.938 -150.0 138.6 -107.4 135.8 100.0 69.9 -69 03.8 68,915 127.0 50.5 08.0 105.4 5,436 -227 19,816 665 68.9 50.1 -92.3 85.5 41.7 31.137 31.t I00.052 5,410 473 3,36o 930 40.0 102.3 Tt-S 58.3 z 0.846 246 33-176 1,595 104.8 25,690 71.6 IO.T73 28.4 94,605 69.6 41.310 30.4 3S.863 135.915 T A B L E XI—AHOW THE WAR WAS PAID FOR—FIRST PART FISCAL YEARS 1 9 1 4 (OR 1 9 1 4 - 1 5 ) TO 1916 (OR 1 9 1 6 - 1 7 ) INCLUSIVE (In "Currency" dollars—000,000 omitted) ^NORMAL RECEIPTS FOR PERIOD RECEIPTS FOR WAR FOR PERIOD TOTAL RECEIPTS FOR PERIOD NATIONS Borrowing Revenue ALLIED AND ASSOCIATED POWERS British Empire Great Britain Australia India N e w Zealand Union of South Africa . . . cCrown Colonies, Protectorates, e t c . . . . . . . . . T o t a l Empire eBelgium , France. . . . . Italy Japan . . . . . . < Portugal em Rumania . . . . . . . . . ^Serbia (United S t a t e s . , . . . . . . . T o t a l Allies CENTRAL POWERS eAustria-Hungary . . . . . {Bulgaria . . . . . . . . . . Germany eTurkey T o t a l Central P o w e r s . . . Grand T o t a l 2,695 100 23 30 126 - 2 At Home I3.73S 435 378 11 114 39 Total Total Receipts for War 15,551 631 654 26 127 71 18,246 731 677 56 253 69 —22 -22 26 1.173 1.153 17,038 20,058 318 4.949 530 647 i.ooS 789 520 9,211 4,145 346 3.499 1,374 741 330 "9 4.930 73 709 Other From Allies Foreign 672 163 173 71 95 48 3,020 14.713 -222 769 62 28 7.775 3.077 -72 113 3 10,087 -46 -tfllt 10 139 3,913 307 r.144 34 103 15 -58 -63 Revenue 3,451 40^ 1,050 350 320 Borrowing Total Revenue Borrowing All Receipts 15.551 657 838 93 194 137 39 30.697 I OIL 1.367 1.173 570 36 184 67 67 66 3.451 380 590 ILL 17 317 286 5.146 354 429 1.0 80 376 318 51 369 366 461 5,410 7.969 17.499 395 35.468 63 66 96 31 — 246 3.377 3,143 803 358 73 3.899 73 1,106 583 9.377 4.341 9 131 135 13.331 207 I.750 839 11.554 6,384 813 379 198 17.130 379 3,856 35S 331 123 141 13,231 207 1,738 520 8,989 4,914 50 151 95 12,210 207 2,135 13 309 3,565 1.470 763 328 103 4.930 72 731 3.173 46,342 49,329 15.859 701 16.560 IS.846 47.043 65.889 7,000 10 13,173 621 7,255 - 9 13,151 595 3.346 99 1.663 396 I20 18 69 3.346 319 1,680 465 3-501 120 1,640 370 7.000 90 13,191 69O 10.501 3IO I4.8U 1,060 —12 2 — l6 397 1,738 2,987 37.49? 6.677 255 21 -22 -26 6,000 -JO 13.163 374 1,000 228 I9.4Q7 1.347 10 20,764 20,992 5.403 307 5.6IO 5.631 30,971 36.602 3.215 56.809 8.03«T 2.181 67.106 70.321 21.363 008 22.170 34»477 68,014 93.491 347 -30 T A B L E X I I — a H O W T H E WAR WAS P A I D F O R — F I R S T P A R T FISCAL YEARS 1914 (OR 1914-15) TO 1916 (OR 1916-17) INCLUSIVE (In 1 1 1913" dollars—000,000 omitted) ^NORMAL RECKIPTS FOR PERIOD RECEIPTS FOR WAR FOR PERIOD NATIONS ALLIED AND ASSOCIATED POWERS British Empire Great Britain Australia . . . Canada India N e w Zealand . . . . . . Union South Africa . . . . cCrown Colonies, Protectorate*. etc Total Empire Borrowing At Home From Allies Other Foreign 9.6JI 309 303 S07 113 154 87 34 50 83 901 16 59 39 1,161 -39 — 98 60 -22 -37 CENTRAL POWERS c Austr ia-II u n gary (Bulgaria Germany . (Turkey . . . Grand Total 11,039 438 515 29 79 54 Total Receipts for Wat 12,200 438 476 Revenue -69 139 32 -63 "ST —51 —88 -58 3,451 354 406 i.oso 350 330 IO.363 907 833 12,103 13,128 —8355,156 -122 1.674 19 -S3 - r83j -99 Si -2,4055,973 388 370 491 388 6,017 388 5,182 346 3499 535 2,199 6 2,077 6 35 5,732 155 1,182 1.374 741 331 119 4.920 73 686 41 -13 -822 4.073 -14 - 7 0 -427 9,106 -31 191 -1,29413.300 —3,723 37.736 Borrowing 36 184 67 67 66 Total 3.451 3S0 59o 1,117 317 386 Revenue Borrowing All Receipts 3.612 354 367 953 310 198 11.039 464 699 96 146 130 14.651 718 1,066 1,048 456 318 SI 369 281 461 5.410 S.974 13.564 18,538 63 66 309 3.565 246 1,664 451 6,083 697 7.747 96 31 XI 1,470 763 338 103 4.930 72 697 1,252 760 178 so 2.515 73 737 3.395 8 85 35 8,137 155 1.152 3.547 768 263 55 10,652 337 1.879 699 16.536 13,408 30.96s 44.373 I20 18 69 3.346 219 1,680 465 3,424 85 1.335 365 4.784 50 9,133 503 7.308 135 10,368 867 -3 -16 381 1.981 155 I84 88 51 8,137 155 1,141 4.333 1.508 30,266 27,837 15,837 4,784 3,962 9,115 433 8,688 402 3.346 99 1,663 396 14,262 12,968 5,403 207 5.610 4.109 14.469 18,578 44.528~ 40,805 31.340 0O6 22,146 17.517 45.434 62,051 X.141 -2t42934,426 T o t a l Allies Total 318 4.949 1.025 cBelgium . France nGreece Italy Japan (Portugal . . „ , r»» Rumania Russia . . . . . . . . . . ^Serbia /United States Total Central Powers Revenuc RECEIPTS FOR PERIOD 711 343 9 953 9 5.38 s 1.517 -48 -70 -84 T A B L E XIII—aHOW T H E WAR WAS PAID FOR—SECOND P A R T FISCAL YEARS 1917 (OR 1917-18) TO 1919 (OR 1919-20) INCLUSIVE (In "Currency" dollars—000,000 omitted) 6NORMAL RECEIPTS FOR PERIOD RECEIPTS FOR WAR FOR PERIOD NATIONS ALLIED AND ASSOCIATED POWERS British Empire Great Britain . . . Australia Canada India New Zealand . . . Union of South Africa cCrown Colonies. Protectorates, etc . . Total Empire . . (Belgium. . . France . . . ^Greece . . . Italy . . . . Japan . . , (Portugal . . (Rumania . . oRussla . . . (Serbia . . . United States Revenue 11,347 324 379 500 72 82 Borrowing At Home 14.376 709 1.762 732 278 130 Other Foreign -181 -J03 58 -30 249 12,953 1,638 98 4,469 688 162 -20 1,766 17.987 6.408 22 375 743 4.980 13,322 20,889 69.190 CENTRAL POWERS ^Austria-Hungary. . - • (Bulgaria Germany (Turkey 1,566 224 5,799 9 5.570 107 38,020 441 Total Central Powers 7,598 34.138 -140 "36 -62 4.569 866 35,076 Grand Total . . . . . 42,674 300 39 54 . . . . Total Allies From Allies 103.338 4.7SO 384 2.843 Sr 274 713 338 397 476 _ . Total Revenue 19,407 748 1,476 583 280 29 30,754 1,072 1,855 1,083 352 111 2.451 254 406 1,050 350 330 54 303 318 22,577 35,530 866 Barrowing Total Revenue 13.798 578 785 I.5SO 333 303 Borrowing All Receipts 36 184 67 67 66 3,45i 380 590 I,H7 317 386 369 567 105 673 4.949 461 5,410 17.902 33.038 40,940 63 228 21,286 996 7,565 228 34,608 346 3.499 143 1.374 741 331 357 I.I63 73 2,138 36 309 2,56s 234 I.470 763 32S 309 1,162 73 2,164 346 4.137 341 5.843 1,429 393 337 2,928 73 I5.4SO 939 23,886 319 9.347 43 453 96A 5.799 338 31.333 1.175 37,023 560 15.190 1.473 846 1.305 8,737 300 36,773 84,549 119,625 13.903 783 14.685 48.978 85,332 134.310 5,570 583 28,020 665 7,136 807 33,819 674 3,164 114 1,662 396 141 18 69 3.164 355 1.680 465 3.730 338 7.461 405 5.570 724 38,038 734 9.300 1,063 35.499 1.139 866 •3* Total Receipts for War TOTAL RECEIPTS FOR PERIOD 22,820 228 9,251 22 456 1,016 5,799 24,458 326 13,720 710 618 66 91 96 31 —J -48 19.407 774 I,66o 650 347 95 33.20S 1.353 3.445 3,300 669 397 47,000 181.310 T A B L E X I V — a H O W T H E W A R WAS P A I D F O R — S E C O N D P A R T FISCAL YEARS 1917 (OR 1917-18) TO 1919 (OR 1919-20) INCLUSIVE (In " 1 9 1 3 " dollars—000,000 omitted) 6 NORMAL RECEIPTS FOR PERIOD RECEIPTS FOR WAR FOR PERIOD NATIONS ALLIED AMD ASSOCIATED POWERS British Empire Great Britain Australia Canada India N e w Zealand Union South Africa . . . . c Crown Colonies. Protectorates, etc Total British Empire . . ^Belgium France ^Greece Italy Japan ^Portugal cRumania oRussia cSerbia United States 3,360 55 —19 -157 -59 -27 CENTRAL POWERS ^Austria-Hungary cBulgaria , , . , Germany . . . . . . . . . ^Turkey . . Grand Total Borrowing At Home From Allies Other Foreign 6.45: 397 856 416 160 84 3.402 166 10 - i r j -49 9,019 407 650 367 131 4 —14 — 14 "03 ' * ' 36 -17 5 3,158 8.364 3.318 -1,2/3 -66 72 - 4 -49 5,463 — /I 1.640 4 154 165 1,660 1.556 74 753 —273 T o t a l Allies T o t a l Central Powers . Revenue 27i -118 115 -66 34 5,417 ' II,'34V 308 73 198 6,725 38,783 5.587 -694 -78 -35 -63 53 -17 2,168 —112 10.303 162 106 48 13,531 153 6,773 41.304 5.740 12,379 462 631 210 72 -23 - 9 Revenue 3.451 354 406 1.050 350 320 318 4.949 13,722 274 7,134 - 3 2,393 4 188 165 2,020 72 11,542 274 5,922 -69 2,465 139 —/5J 1,747 72 16,959 346 3.499 136 1»374 741 331 357 1,163 73 3,058 34,353 41,078 13,835 2,168 1,474 3,164 114 1,662 396 10,303 268 -17 Total Receipts for War 10,564 -65 47 825 —5 Total -143 11,128 263 Borrowing Total GRAJ*D TOTAL RECEIPTS FOR PERIOD Revenue Borrowing 36 184 67 67 66 3.451 2 Bo 590 1,117 317 386 5.811 309 387 893 191 193 51 369 33 3 461 S.410 8.107 63 66 88 96 21 309 3,565 334 33 1.470 763 228 309 1,162 73 3,090 346 1.387 70 1.446 737 183 39 889 73 7.475 11,574 583 8.487 155 3.935 763 367 156 2.909 144 19,049 776 14,601 30,550 35,139 55,679 141 18 69 3,164 355 I,68O 465 1.470 36 3.487 391 2,168 76 10,321 337 3.638 113 13,808 738 - J 9.OI0 433 834 434 198 All Receipts 70 37 H.025 337 7,200 85 3.489 35 185 117 2.020 73 14,830 743 1.221 1.337 389 263 360 19.133 12,674 12,722 4,336 328 4,S64 4.384 13.903 17,386 47,027 53,800 18,161 1,004 19.T65 34.934 48.031 73.965 T A B L E X V — N A T I O N A L D E B T S OF A C T I V E B E L L I G E R E N T S IN T H E G R E A T W A R STATUS AT CLOSE OF FISCAL YEAR 1916 OR 1 9 1 6 - 1 7 (In "Currency" dollars—000,000 omitted) INTERNAL DEBT aFunded 6Floating U.937 518 340 681 207 96 303 18 15.779 4j8t 10.566 33 4.761 531 443 8,993 3.921 53 1,406 15 208 443 9.634 14.487 75 6,167 546 594 886 18,637 I.OI5 267 1,283 4M96 20,328 6,349 ALLIED AND ASSOCIATED POWERS British Empire Great Britain Australia . . Canada . . . India . . . . New Zealand . . Union South Africa Other . . . Total Empire Belgium France Greece Italy Japan . . . . . . . Portugal Rumania Russia . . . . . . . Serbia United States (Apr. i) (Total Allied Powers CENTRAL POWERS Austria-Hungary . . , Bulgaria Germany Turkey Total Cent. Powers (Grand Total . . . 386 I 1.995 18,344 60,840 Total 17.959 539 643 699 307 113 EXTERNAL DEBT To To Foreign Foreign GovernMarments kets 671 333 181 X.I44 52 558 847 354 596 358 1.198 3.809 647 14 1.043 13 789 231 2S 68 j 185 3.6*29 3*308 62,824 6,543 8,030 4.916 160 4.451 4SO 12,265 160 16446 450 473 9.977 38,331 9M45 347 667 7.363 8,883 853 ^Includes debts maturing after one year. Mndudes treasure bills and all other debts maturing In or within one year. Issues deposited as collateral security for external debt* deducted. (Excluding Belgian and Serbian figures, as these countries were then in enemy hands. 336] T A B L E X V I — N A T I O N A L D E B T S O F ACTIVE BELLIGERENTS S T A T U S A T C L O S E OF F I S C A L Y E A R S ( I n " 1 9 1 3 " dollars—000,000 INTERNAL DEBT 1 9 1 6 OR IN Funded T o t a l Empire . 6.866 357 aos 5J3 137 68 frFloating r.981 IS 183 14 ta 8.165 Total 8,847 373 387 546 137 80 3rs 160 109 "47' 30 10,369 Total 889 196 Total Interest National Charge Debts 663 381 4S3 178 9.736 568 «J2 1.208 418 533 178 364 19 37 39 IS 25 9 3.443 3.104 13*473 498 411 IIS 743 133 411 542 226 35 3.276 7.481 160 2,110 975 625 256 9.485 750 130 47 31 15 317 16 slt 336 662 234 433 178 France Greece Italy Japan Portugal Rouraania Russia United States (April 1) 4.SH4 II 1,31? 421 359 ill 3.998 594 387 13 140 XIO 3.3II 156 6.738 38 1.699 433 399 331 6,309 750 T o t a l Allies . 18,785 8,071 36,856 4.096 3,173 60 3.903 394 7,268 60 TO,738 394 388 7.672 175 10,728 884 6,439 18.350 388 19.459 . . CENTRAL POWERS Austria-Hungary . . Bulgaria Germany Turkey . . . . . . . "7.835' Total Cent. Pows, eGrand Total . . 30.706 1.834 37 333 7 401 14 542 312 3,003 5.006 a. b and (.—See notes on Table X V . rfThesc figures without India would be 117.93; 4*41; 11.14; 2.73. Debt 211.63 113.60 104.00 406 53 Debt Interest Per Per C e n t Cent. PrePreInterest War War National Charge Wealth Income 4-05 418.00 S8.83 701 13.01 3Jio 6.60 337 3.68 .16 15.00 403 22.47 3 34 1.46 1.33 10.66 4.17 .34 1.78 I.30 5.00 312 .60 8.80 4.82 4*63 dl43 dg.62 d2.3t 638.71 18702 35.315 404 115 45.306 W A R PKR CAPITA (PRE-WAR) NATIONS CERTAIN ALLIED AND ASSOCIATED POWERS British Empire Great Britain < . . Australia . . . . . Canada India N e w Zealand . . . Union South Africa Other G R E A T omitted) EXTERNAL DEBT To To Foreign Foreign Govcra- Markets nents T H E 1916-1917 12.92 13.OO2.20 3.82 333 333 0.68 3.08 .89 837 3.04 26.04 104.16 5.17 13.02 4.38 36.57 2.14 I'3' 3.80 54-51 135 16.24 7.65 .16 •37 .05 46.04 i.7o 7.08 1.73 38.61 18.40 153.448.62 35.57 9.58 4.00 35.00 2.00 7.00 157.76 3.97 13.33 3.87 42.09 2.53 8.42 5.05 135.13 6.23 15.76 5.53 8.80 2.41 T A B L E X V I I — N A T I O N A L D E B T S OF A C T I V E B E L L I G E R E N T S IN T H E G R E A T W A R STATUS AT CLOSE OF FISCAL YEAR 1916 OR 1 9 1 6 - 1 9 1 7 (In dollars at Exchange on New York) INTERNAL D E B T NATIONS aFunded ALLIED AND ASSOCIATED POWERS British E m p i r e G r e a t Britain . . Australia . . , . Canada India N e w Zealand . . Union South Africa Other Total Empire France Greece Italy Japan Portugal Rumania Russia United States . . . T o t a l Allied Powers C E N T R A L POWERS Austria-Hungary . Bulgaria Germany . . . . Turkey T o t a l Central Powers (Grand Total . . . . 13.650 507 340 667 203 94 tFloating 3.939 20 303 17 16 17.589 527 643 684 203 no 671 232 181 71 43 Total Total National Debts 1,144 52 558 847 354 596 258 1.815 2S4 739 847 425 639 258 19.404 8N 1.383 I.S3I 628 749 258 15.461 4.295 19.756 1,198 3.809 5.007 34.763 9.344 22 3,403 544 203 266 5.396 I.0I5 3.468 53 1,007 15 109 266 5.780 267 X2.8I2 75 4»4*S 559 312 532 11.176 Z.2S2 647 14 I.043 14.248 330 5.483 1.242 509 671 17,113 1,28 3 35.659 15,260 9,142 12 789 231 25 683 185 3.629 2.308 1.436 245 1,068 683 197 139 5.937 50.9X9 6.543 8,030 I4.7J2 65,631 6.493 96 12.53S 370 473 186 473 186 3.353 270 347 667 x,OI4 6.966 383 13.535 1,384 12.801 6,593 x 9.394 820 853 1.673 31.067 48,460 21,853 70,3x3 7.363 8,883 16.385 86,698 3.659 a, b a n d c . — S e e n o t e s o n T a b l e X V . 338] Total EXTERNAL DEIIT To To Foreign Foreign MarGovernkets ments T A B L E X V I I I — N A T I O N A L B E L L I G E R E N T S IN D E B T S T H E OF G R E A T S T A T U S A T C L O S E O F F I S C A L Y E A R S 1 9 1 9 OR ( I n " C u r r e n c y " dollars—000,000 INTERNAL DEBT NATIONS ALLIED ANIJ ASSOCIATED POWERS British Empire Great Britain Australia . . Canada . . . India . . . . New Zealand Union South Africa Other t> Floating 24.24s 1.263 2,067 970 497 207 7,844 49 414 359 39 Total A C T I V E W A R 1919-1920 omitted) EXTERNAL DEBT To To Foreign Foreign Govern- Markets ments 32.089 1,312 2,48! 1.329 497 346 5.068 239 128 36 1.154 304 56I 937 354 564 365 Total Empire 29,349 8,705 37.954 5.471 4.239 Belgium . . . . Prance Grecce Italy Japan Portugal Rumania . . . . Russia . . . . . Serb, Croat, Slovene State United States . . . . 1,099 20,215 54 10,145 738 1,204 769 8,993 2,357 14.554 272 3,793 241 58o 869 9.634 3.456 34.769 326 13.938 979 1.784 1,638 18.627 242 5.397 33 3.900 83 1,084 265 II 653 177 512 2,308 4S4 3.006 484 24,298 64 Total Allied Pows. 03,758 138.253 18,840 CENTRAL POWERS Austria Hungary Bulgaria . . . . Germany . . . Turkey . . . . 10.624 t6 21,896 9.642 756 34,990 89! 20,266 772 46.8S6 891 Total Cent. Pows. 32,536 36,379 68,815 Grand Total . . . 126,294 80.774 207,068 103 2 3,629 357 202 667 10,558 a Includes debts maturing after one year. Mndudes treasury bills and all other debts maturing in or within one year; except issues deposited as collateral security for external debts. (Germany claims to have loaned £476 million to Bulgaria. Bulgaria also owes $434 million war indemnity under the Peace Treaty. [339 TABLE XIX—NATIONAL DEBTS OF ACTIVE BELLIGERENTS S T A T U S A T C L O S E O F F I S C A L Y E A R S 1 9 1 9 OR ( I n " 1 9 1 3 " dollars—oootooo INTERNAL DEUT NATIONS Funded ALLIED AND ASSOCIATED POWERS British Empire Great Britain . . . Australia Canada India New Zealand . . . Union South Africa Other b Floating 7.746 54 3 804 490 251 135 3,506 161 181 Total 10,353 563 965 671 351 149 3,333 103 64 Total Interest Total National Charge Debts 369 130 207 946 179 343 157 3,591 333 307 946 343 364 157 13.843 796 1,173 1,617 494 513 157 9,058 3.893 13,851 2411 3,330 4.741 17,593 Belgium France Greece Italy . Japan Portugal Roumania Russia Serb, Croat & Slovene St. United States 360 4.I5I 14 1.374 330 343 64 3.998 817 7»I39 83 I.75I 305 507 136 6.309 97 9.999 86 3.134 14 39 383 no 3 154 323 470 1.373 115 3,516 124 1,603 154 35 3 473 3.376 13 8.763 557 3,988 68 477 75 165 73 3.2II 97 1.337 933 9,655 306 3.354 459 859 608 9,485 109 9,999 T o t a l Allied P o w e r s 38,053 11.840 39.893 8.391 13.365 53.358 CENTRAL POWERS Austria-Hungary . . . Bulgaria Germany Turkey 3.541 I 3,971 3.314 65 3,391 131 6.755 66 6.362 121 917 19 7.673 85 6.363 855 6.513 6.791 I3.304 873 1,670 34-566 1 18.631 53.197 9.264 15,035 Total Empire Total Cent. Pows. Grand Total . . . 1,600 139 383 19 338 396 a. b and c.—See notes an table X V I I I . dThese figures without India would be 153 60; 7.31; 14.51; 4-46. THE GREAT WAR omitted) EXTERNAL DEBT To To Foreign Foreign Govern- Marments kets IN 1919-1920 616 37 49 47 20 43 438 6 176 26 43 36 303 6 451 Debt 270.10 150*30 146.50 6.63 13-30 7.40 6.13 18.35 0.25 8.03 404.00 73.28 4.13 20.00 2.86 .31 26.56 10.26 1.37 dS0.5S d2.2Q 116.50 341.37 41.20 03.17 8.66 143.17 86.86 34.51 21.80 102.03 5.37 10.95 1.20 68.28 431 5 371 51 Interest Debt Per Cent Per PreCent. War PreInterest War National Charge Wealth Income PER CAPITA (PRE-WAR) .10 d 12.55 16.21 16.67 7.40 15.38 306 35.70 17.37 16.24 4.74 5.00 4.89 .49 7.17 5.14 1.74 1.20 4.60 2.98 9.80 153*44 17.00 8.62 40.71 2.43 8.14 5.26 3.34 13,12 1.00 03.56 3.0S 35.57 3.40 7.90 IO.83 T A B L E X X — N A T I O N A L D E B T S OF A C T I V E B E L L I G E R E N T S IN T H E G R E A T WAR STATUS AT CLOSE OF FISCAL YEARS 1919 OR 1919-1920 (In dollars at Exchange on New York—000,000 omitted) INTERNAL DEBT NATIONS ALLIED AND ASSOCIATED POWERS British Empire Great Britain . . Australia Canada India . . . . . . New Zealand . . Union South Africa Other Total Empire 6FloataFunded ing . . . . 19.328 1.007 1.891 977 396 16 5 6,253 39 379 361 Total EXTERNAL DEBT To To Foreign Foreign Govern- Markets ments 5,o68 239 31 25.581 1.046 2,270 1.338 396 196 128 36 Total Total Narional Debts R.154 304 561 937 354 564 365 6,232 543 561 937 483 600 365 3*.8 03 1,589 3.831 3,375 878 796 365 . . 33.764 7.063 30,837 5.471 4.239 9.710 40,537 Belgium France Greece Italy Japan . . . . . . . . Portugal Rumania Russia Serb,Croat &SloveneSt. United States . . . . 529 9.529 33 3.107 711 279 69 5432 1.663 16,390 192 4.269 943 413 148 11,352 97 24,298 242 5.397 33 3.900 83 1,084 265 II 653 177 512 2,308 21,292 M34 6,86i 160 1,162 333 134 79 5.S20 97 3,006 , 335 6,481 39 8 3.911 653 279 514 S.937 64 1,988 23,871 490 8,ISO 1,596 692 662 17.189 161 24,298 Total Allied Pows.. 64.744 25.748 90,492 18,840 9.333 28,172 118,664 CENTRAL POWERS Austria-Hungary . . . Bulgaria . Germany . . . . . . Turkey . . . . . . . 393 I I.396 357 69 1.479 204 750 70 3.775 304 500 C 357 202 857 202 571 667 1,238 1.607 272 3.775 M42 Total Cent. Pows.. 1.690 2,109 3.799 1,071 1,226 2,297 6,096 Grand Total . . . 66.434 27.857 94.391 I9.9II 10,558 30,469 124,760 102 3 3.639 64 ot b and c.—See notes on Table X V I I I . [341 T A B L E X X I — N A T I O N A L D E B T S OF A C T I V E B E L L I G E R E N T S IN T H E G R E A T W A R STATUS AT CLOSE OF FISCAL YEARS 1922 OR 1922-23 (In "Currency" dollars—000,000 omitted) EXTERNAL DEBTS INTERNAL DEBTS CERTAIN OF THE FORMER ALLIED AND ASSOCIATED POWERS British Empire Great Britain . . . Australia Canada India New Zealand , . . Union So. Africa Other Total Empire Belgium . . France Greece Italy Japan Portugal . . Rou mania . United States aFunded 35.832 1,468, 1,935 996 539 212 6 Floating 6,552 14! 440 369 30,982 . . . . . . . . . . CERTAIN OF THE FORMER CENT. PWS. Bulgaria Germany Turkey 2,597 31.652 606 U.599 1,088 2,530 904 16,872 3,377 37.406 715 6.935 275 1.745 2.508 5.478 Total To | To Foreign Foreign Total Govern-j Marments | kets 32.384 1.4S2 3,375 1.36S 539 331 5.354 445; 38.476 5,874 59.058 I.32I 18,534 1.363 4.375 3413 32,350 S09 825 ,969,14211.984.475 79, 79 5.62s S4 Zi 542 547 1,168 1,168 6.000, 3.424; 9.424 7Q7J 6,105 72! 4.372; 1271 758, 250 IO 677 172 834 6,863 323 4.383 677 267 893 648 '648 143! 58; 95 536 641 36s 192 a Includes debts maturing after one year. ^Includes treasury bills and all other debts maturing in or within one year. Issues deposited as collateral security for external debts deducted. On account of the many territorial changes since the Pcacy Treaty it has been impossible to make these tables entirely comparable with those for the war and pre-war dates. Index numbers and exchange quotations have also been lacking in some cases. 342] TABLE XXII NATIONAL D E B T S OF A C T I V E B E L L I G E R E N T S IN T H E G R E A T STATUS AT CLOSE OF FISCAL YEARS 1922 OR 1922-1923 (In "1913" INTERNAL DEBT CERTAIN OF THE FORMER ALLIED AND ASSOCIATED POWERS British Empire Great Britain . . . Australia Canada India New Zealand . . . Union South Africa Other . . . . . . 0 Funded 6 Floating Total . 16,559 941 1.159 550 . 311 . 165 . 4,300 9 363 304 Total Empire . . . 19,685 4.769 34.454 Belgium 638 France (July 1,1923) . . 7.739 Italy 3,043 Japan (March 31. 1932) 541 Portugal (Dec. 31,1923) 195 United States 11,027 805 6,701 1,331 137 135 3.581 1.443 14.440 3,363 678 330 14.608 33 403 33 406 CERTAIN OF THE FORMER CENTRAL POWERS Bulgaria . . . . . . . Germany # *3 93 30,759 950 1.433 754 311 358 To To Foreign Foreign Govern- Marments kets Total Total Interest National Charge Debts Debt Debt Interest Per PerCent. Cent. Postwar Interest Postwar National Charge Wealth Income 180 63 338 645 327 501 157 3.744 347 338 645 304 SOI 157 34.S03 1,297 1.750 1.399 615 750 157 1,017 69 So 56 5 6 11 3,926 2,IOO 6,OA6 30,480 1,344 c83.62 C3-40 C20.46 C6.23 333 4,701 3,365 40 584 0263 5.385 3.273 338 439 1.705 19,735 6.536 1,006 &769 14.608 63 799 310 243-57 505-77 163.40 17-96 128.17 134-02 8.86 20.40 3.23 .73 2.J3 6.13 6.80 11.41 6.18 2.05 10.80 6.65 .61 3.564 385 77 156 328 383 cThese figures minus India would be 366.80; 10.90; 25.31; 7.33. PER CAPITA (Post-WAR) EXTERNAL DEDT NATIONS WAR 40$ 41 67% 37 521.34 25940 194-44 5.69 613.00 108.43 3.92 21.64 13.80 8.80 • 23 3.00 8-37 .28 33.00 14.41 11.67 4.00 30.73 12.63 1.31 34-10 34-07 30.76 6.71 33.04 10.17 3-31 3-33 1.60 1.39 0.67 0.73 6-35 2.16 -74 .33 T A B L E X X I I I — N A T I O N A L D E B T S OF A C T I V E B E L L I G E R E N T S IN T H E G R E A T W A R STATUS AT CLOSE OF FISCAL YEARS 1922 OR 1922-23 (In dollars at Exchange on New York—000,000 omitted) INTERNAL DEBTS EXTERNAL DEBTS NATIONS CERTAIN OF THE FORMER ALLIED AND ASSOCIATED POWERS British E m p i r e G r e a t Britain . . . Australia 6FloataFunded ing 5,354 445 US 3X.XS6 1.395 2,333 880 519 3*9 29.524 7,108 36,632 896 10.050 36 2.671 1,031 Z20 34 16,872 1,131 8,701 43 I.S97 361 82 94 5.478 2.027 18,751 79 4,268 1,292 302 128 22,350 0 71 28 9.107 13 28 9,178 13 I92 24.876 1.382 1,901 642 5I9 204 6,310 13 432 238 . Italy Japan . . . . . . . . Portugal Rumania . . . . . . United States . . . . India . N e w Zealand . . . Union South A f r i c a . Other T o t a l Empire . Belgium France CERTAIN OF THE FORMER CENT. POWERS Bulgaria Germany . . . . . . Turkey Total a , b and explanatory n o t e . — S e e T a b l e X X I . 344] TO To Foreign Foreign Govern- M a r kets ments Total Total National DebU 277 97 547 I.I68 393 583 365 5.631 542 547 1,168 536 641 365 36,817 1.937 3.880 2.048 I,O55 960 365 6,000 3,430 9.430 46,062 707 6,105 72 4,272 127 758 250 10 677 172 834 6,863 322 4,282 677 267 893 2.861 25.614 401 8.550 1.969 469 1,031 32,350 192 648 648 220 9.178 661 *43 58 95 T A B L E X X I V - I N T E R - N A T I O N INDEBTEDNESS A T NEAREST DATES TO ARMISTICE D A Y NOVEMBER II, 1918 (In "Currency" dollars—ooo omitted) LENDERS m T, (M B O R R O W E R S EI5F* British Empire Great Britain Canada New Zealand Union of South Africa . British Sou tit Africa Co. Crown Colonies Great Britain to Allied Governments 238,920 •214.133 144,146 80,023 693,434 443,796 0431.376 6152,314 Russia 1,365,160 United States Argentina 3,696,000 93437 431,376 152.314 1,265.160 176 78.051 3,737.005 90.715 36 220,406 955,157 297.413 9.307.490 444,008 2,007,322 93,437 6,775.507 10,000 4.180,853 245,317 3,210,075 1,031.000 932 932 61,273 61,373 8,369 3,148,237 364,280 398,457 187,730 10,605 6,972 382,719 •Canadian figure. Great Britain's figure is $352,337. a 1393.162.000 (gold). frlSo.674.ooo (gold!. 6.082,073 338,920 314.133 144,146 80.933 1.128,659 11.933 10,000 1,970,000 96.625 154.979 171.577 3,696,000 171.780 534.610 11.923 90,338 Total 1.946 4.433 443.796 3,114,228 . . . . Italy 8,933 422,269 . . . . . Greece . Italy Montenegro Portugal Roumania . . . . . . . Russia . . . . . . . . . Serbia United States . . . . . . Grand Total France Including Supplies 8.933 1,946 4.433 . . . . Total British Empire . Belgium Belgian Congo Cuba . . . Canada 1,265,160 7,077.115 4,886,900 398.733 391.088 93.427 21,599,717 T A B L E X X V - I N T E R - N A T I O N INDEBTEDNESS^, 1 9 2 0 d u e t (In "Currency" dollar,_HXX) omitted) GREAT BRITAIN CANADA LENDERS To For Allied Relief Govern* and meats ReconIncluding strucMaterials tion BORROWERS British Empire Great Britain Australia Canada N e w Zealand South Africa British South Africa C o . Newfoundland . . . . Crown Colonies . . . . T o t a l British Empire . . Austria Belgium Belgian Congo . . . . Cuba Czecho-Slovakia . . . . Esthonla Finland France French Polack . . . . Greece Germany Italy Latvia Lettonia * . Liberia Lithuania Poland Portugal Rou mania Russia Serbs, Croats ^ S l o v e n e s Ukrania United States Other Int.-Allied Comm. on Danube Grand Total To Allied Govts. Including Materials Total /171,209 350,998 350,998 ' 144,145 76.738 9492 1,946 4.433 144,145 76.738 9.493 1,946 4»433 487.753 487,752 171.309 18,463 456459 #35,790 17,375 18,463 483.349 17,375 1.154 973 V.I54 973 .505,3X1 (.505,3X1 6,333 FRANCE To For Allied Relief Governand ments ReconIncluding strucMaterials tion 430,031 T o Allied ( Govem_ . i 1 ments Total l n d u d t ing Materials 430'03: 430,031 43°'°F- 6534.6x0 For Relief and Reconstruction To Allied Governments 4,261,000 133.788 g r e a t W A R e ARGENTINA 4.361,000 For Relief and Reconstruction Total 16,000 4,377.000 16,000 4,377.000 URUQUAY To To Allied Allied Govern- Governments ments 93437 93.427 38,973 38,973 GRAND TOTALS To Allied Governments 84,764 42,65:' I.3SI3«- 34.843 105,374 105,374 ' 3,747 155,558 '.325,562 ,335,562 65 6,004 171.577 iVV,s7r 3,854.340 2.443 364450 349.3X4 61,256 10,000 61,356 144.145 76,738 9.493 1,946 4.433 144.145 76.738 9.492 1,946 4433 6,861,329 x,083,066 17.375 X 0,000 ""83 4.S84 'V.8i8 6,131 83 4.584 90,736 106,500 3.737,005 108,949 ' 965 335,367 19.443 36 330,406 955.157 397.4X3 5461.675 15,000 15.000 " 3*78,706 1,6x5,338 16,000 1,631.338 4,018481 193 <19,826,874 65.079 9,891,953 211,172 & 3 . I 3 7 , 4 6 I VL',387 36 36 35,000 35.000 187.739 36,780 13,698 33.583 383.7X9 39 "•"it335,26*' * SSJ 750 337 336 8 187.739 X.34X 393,360 3 4 3 0 , 8 3 ^ 275.884 IX4.IO4 £9.039,413 25,539 90,726 371.113 4,886,899 404.633 385469 551.408 9.580,830 16,000 6 , 8 7 7 . 3 3 9 81,097 390,340 139,906 2,334 X43.I37 3.997.477 93437 Total 16,000 d6,389,577 350,998 1,158 90,726 98,683 3.737.005 103,838 Relief and Reconstruction 6,373,577 350.998 63,634 96,624 37 155,S5i' 65 t h e UNITED STATES 133,788 534.61** 43.653 X,35i 386 5.50O ITALY q 81,097 1^72,306 17.275 10,000 139,906 3,334 386 386 5,604,8x3 2,443 278,706 5 S 16,000 4,034.481 65 65 1*158 X.X58 36 36 1.047 1,047 253.549 253.549 90,736 33,8x8 2 3 7 4.887.136 32,089 436,712 143.137 2443 1 8 11,387 39 8 385469 11.387 29 28,972 33,868,363 1 , 0 3 3 , 9 5 1 2 4 , 8 9 2 , 3 1 3 . "Wit** reference to the matter of interest payable on the loans made b y the British G o v e r n i n g wo™. interestto the Allies the following statement was mSde in the House of Commons on March 8, 1920, W the Chancellor of the Exchequer: 5 , f5»a^edj°t?r?8t:, , , _ p „ t " I n the case of the Belgian W a r D e b t no interest is charged, and it has been agreed that t h i s t o t a l i s t h e sum of f 1,365,160.000 lent b y Russia to Great Britain, viz.: M i e d and Associated governments shall accept German gold bonds in discharge o ^ p r i n d ^ 9 ^ ^ ^ ^ ^ o f « e d i t s and loan of 5393^60.000 gold See text page 137. f r o m o p e r a U . o n a . f r o n > August. 1914. of the debt. Further, no interest has been charged down to the Armistice on loans to Serbia a c j 'This R ? t ^ A j Montenegro. In the case of the other Allies, interest is not actually paid except in the case ^ f l Ma is the Canadian net figure. British Finance Accounts give the net amount due Canada one special transaction, but the amount, in some cases, at 5 per cent., and in others at Bank R a t ^ mimon. is added periodically to the principal outstanding/* 346] TABLE XXVI—INTER-NATION INDEBTEDNESS IN 1923 DUE TO THE GREAT WAR (In "Currency" dollars —000 omitted) GREAT Canada BRITAIN ITALY FRANCE LENDERS For To Relief Allied and GovernReconments Including struction Materials * BORROWERS British Empire Great Britain Australia . Canada New Zealand South Africa British South Africa C o . Newfoundland Crown Colonies . Total British Empire . . Total 69,731 439,831 67.198 143.459 57.827 9,681 1.946 3,719 439.831 67,198 143,459 57.827 9.681 1,946 3,719 723,661 723,661 Armenia . . Austria Beleium Belgian Congo 17,275 Czecho-Slovakia Esthoma . . Finland France . . . 2,927,604 Franco Polish Germany . . Greece . . . 108,996 Hungary . . . . . . . . Italy Latvia Liberia Lithuania . .• . . . . . . Nicaragua . . Poland 436 Portugal 99.593 Roumania 114,589 Russia 04,321,976 Serbs, Croats & Slovenes . . I27461 Ukrania . . , United States Grand T o t a l To For To Allied Relief Allied Govts. and GovernIncludReconments ing Including strucMatetion Materials rials 11,010,182 4487 62,308 43,794 6,715 1,221 4487 62,308 43,794 17,275 6,715 1,231 «33.788 69.731 359,823 6,291 C7H.0I3 359,8AI 96 110,782 2,026 133,788 133.788 133.788 9* 711,013 62,634 110,781 3.026 34,843 96,624 2,927,604 5.730 7.530 98 108,996 636 3,568,591 98 82 83 1,158 30,659 99,593 11,297 135,886 4,331,976 10,389 137,850 303,808 166,173 " 166.17: 193 "163,857 * 3.219 20,223 37 To Allied Governments To Allied Governments /I,265,160 4,661,000 STATES For Relief and Reconstruction GRAND Total TO Allied Governments TOTALS For Relief and Reconstruction 4,661,000 6,489,493 439,831 439,831 110,906 16,789 9,000 3,847,521 1 4 3 . 1 3 7 67,198 67,198 143.459 57.827 143459 57.837 9,681 1,946 i.itf 13.698 13,698 3 3 582 6,973 337 33 582 7.209 3.14* 236 3.377 8 3,750 375.884 114,104 389.988 7.313,153 18,750 907.316 17.275 110,906 16,789 9,000 3.990,658 6 , 8 7 7 . 4 7 9 153,424 308,244 263.346 20,036 9,000 143.137 3,443 5 16,500 1,989 6,032 3I 5,978 176 8 14.263 28,386 454463 3.719 7.213.153 5 2,015,079 203.80^ 3,704,387 759.357 3463.744 4,661,000 14,363 28,386 190,013 264,450 182,471 15,507 336,726 28,292 Total 4,661,000 6,489492 3.443 163,8s: 3,3 Ij' 337,931 20,449 227.9 33 55 DI,073,080 9 3 , 6 4 0 1.165.72* 2,509 346.435 348.944 109,766 1,265,160 34.843 37 2.750 161,240 I t , Z 7 I 4 3 2 62,634 96,624 3,443 5 626 Total UNITED 1,946 3.719 cProbably Includes some money for relief and reconstruction. 359.833 RUSSIA 9,681 ^Include $973 million interchange of credit. 3 4 8 ] $359,833 Total To Allied For Govern- Relief ments and Includ- Reconing strucMatetion rials 16,500 299,216 1,989 2,015.079 4 . 7 4 7 , 5 3 7 6,032 31 5,177 43.799 341.903 61,587 61,587 411,060 5.638,809 30,036 9,000 7,020,616 3.443 5 2,808 8,349 31 4.747,537 8.349 31 420,200 7,218 176 420,636 30,589 99,593 450,649 176 436 99.503 263,246 299,216 2,808 7,218 5.978 176 182,471 18.750 153434 1,2 X 5,560 17.275 133.HI 98.054 5 , 7 3 6 , 8 6 3 551.758 418,647 8 8 3,750 2,750 1,365,160 10,982,346 878,664 I I , 8 6 L , O I O 2 6 . 3 4 T . 7 3 S 1 . 9 1 3 , 3 6 5 2 8 , 2 6 1 , 0 9 0 ^Including $192,000,000 paid the Bank of France for discounting Russian Government bonds. million gold. /Included $973 million for interchange of credit. Balance is gold. e$8o (349 TABLE XXVII—WHOLESALE PRICE INDEX NUMBERS AND I N T E R N A L P U R C H A S I N G P O W E R OF C U R R E N C I E S Taken as percentages of 1913 values GREAT BRITAIN CAHAPA lb II 1914 January April July October 1915 January April July October 1916 January April July October 1917 January April July October 191S January April July October 1919 January April July October 1920 January April July October 1921 January April July October 1922 January April July October 1933 January April FRANCE UNITED STATES o sz t* 2 1G 0.3 21 ITALY P a* l l Price Index No. Purchasing Power 96 96 103 104 104 95 99 loo 100 xox 107 100 100 99 93 96 104 100 98 loo 99 xoo 103 100 xox xoo 1 0 0 too 1 0 0 xoo 1 0 0 1 1 7 85 113 134 135 129 89 81 80 77 91 124 135 143 158 81 74 70 63 133 75 99 100 101 xox xox xoo 99 99 135 141 X49 145 80 7i 67 69 14s 157 153 166 69 63 65 60 179 190 186 198 56 74 50 xxo XX7 XX9 X34 91 85 84 75 X48 148 159 153 67 67 63 187 203 203 212 53 49 219 223 227 333 224 217 98 los 264 135 sis 53 54 51 150 171 185 X80 67 58 47 248 268 284 239 265 304 350 56 X56 6 4 X63 63 X7I 58 199 50 46 45 44 43 206 313 333 337 360 33 30 39 28 367 407 435 443 185 190 198 304 54 53 5i 49 203 50 303 49 206 49 333 43 45 46 4l 38 213 206 218 223 348 333 349 383 39 337 30 330 39 3 6 3 36 399 303 303 218 233 49 49 46 45 263 38 286 35 33 9 39 563 18 3t 248 365 362 225 40 37 38 44 X.256 X.567 1.367 1,466 7.9 6.4 7-3 X*439 X>326 X.438 3460 6.9 7.5 7.0 4-* 3,665 6*355 10*059 56,601 48 177 348 56 49 289 313 399 282 33 26l 33 35 256 234 487 588 496 502 232 199 lS6 163 43 50 54 61 203; 187 176 169 407 347 330 331 34 39 5 8 4 3 0 530 30 599 177 154 143 150 56 65 68 66 156 158 157 153 4 S 6 3 166 4 166 S 6 5 162 168 314 314 335 337 33 138 X43 155 154 73 70 64 64 163 387 153 157 147 66 47 40 37 35 34 17 30 20 504 664 604 659 643 33 31 29 577 537 558 601 26 575 X56 159 34 5 8 8 566 131 68 35 October^ ISO 6 7 163 431 34 563 X53 See page 319 for explanation of table. oSix 000,000 3 5 ° ] GERMANY 65 64 168 166 415 407 378476 64 53X,X58 63 6 6 7,478,700 07*100 65 omitted. 6.8 2.7 1.6 .99 .177 .036 .019184 .001337X3 .0000014X TABLE X X V I I I — P A Y M E N T S DUE ANNUALLY BY GREAT B R I T A I N A C C O U N T OF D E B T T O T H E U N I T E D S T A T E S (In "Currency" dollars—00,000 omitted) Year 1923 I924 1925 1926 I927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 194O I94I 1942 1943 1944 1945 1946 1947 1948 I949 1950 1951 1952 1953 Principal Interest 23,0 23.0 24,0 25,0 25,0 27,0 27,0 28,0 28,0 30,0 32,0 32,0 32,0 32,0 37»o 37,0 37,o 42,0 42,0 42,0 42,0 46,0 46,0 46,0 51,0 5*,o 51 »o 53,o 55.0 57.o 6o f o I38fO 137.3 136,6 135.9 135.2 134,4 133.6 132,8 131,9 I3M 151,9 150,8 149,7 148,5 147,4 146,1 144,8 143,5 142,1 140,6 139,1 >37,7 136,0 J34.4 132,8 131,0 129,3 127,5 125.6 123,7 121,7 Total Year I6l,0 160,3 160,6 160,9 160,2 161,4 160,6 160,8 159,9 I6l,l 183,9 182,8 181,7 180,5 184,4 183,1 181,8 185,5 184,1 182,6 181,1 183,7 182,0 180,4 183,8 182,0 180,3 180,5 180,6 180,7 181,7 1954 1955 1956 1957 1958 1959 i960 1961 1962 J963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 Principal Interest 64.O 119,6 "7,4 64,0 64,0 67,0 70,0 72,0 74,0 78,0 78,0 83,0 85,0 89,0 94,0 96,0 100,0 105,0 110,0 114,0 119,0 123,0 127,0 132,0 136,0 141,0 146,0 151,0 156,0 162,0 167,0 175,0 175*0 112,9 "0,5 108,1 105,6 103,0 100,2 97,5 94,6 91,6 88,5 85,2 81,9 78,4 74,7 70,8 66,8 62,7 58,4 53,9 49,3 44,6 39,6 34,5 29,2 23,8 18,1 12,2 6,1 Total 4,600,0 6,505,8 Total 183,6 181,4 179,1 179,9 180,5 180,1 179,6 I8l,0 178,2 180,5 179,6 180,6 182,5 181,2 181,9 183,4 184,7 184,8 185,8 185,7 185,4 185,9 185,3 185,6 185,6 185,5 185,2 185,8 185,1 187,2 181,1 11,105,8 t35I ^ W t/) [ i j 5S ^ u us n H Z A * S a. 01 0 fa o w P S c/3 W U S W £ Q Q cq £ H el ^ £ p w ^ W E fx, o ffi S < W > X 1—*J a iS 352] U g u t 3 c U 3 -rf ^ . ..i: JS * s & • . os . O . ^ c rt o P J4 s « ^ t n - d - w r^vo m t j t o o N H • " P rJ CJ-U.S S - i ^ U Q « ci^ t o ^ a g c > c c • £P Tt c § s c ON ~ GO 0* ©^ tCo" t>*0 o a rC O O s tfJO J-CO • o • ' C.2 I^vjO O f^ O Om «o cT t o " t CN C« u^ao oo - o • g s - S ^ S ^ S S o a S « »0\0 W030 fOvO C« l O ^ f C I » f O to r^ n x ^ r^oo to T? t ^ c o o O * - * r o w o C« W »n Tj-aq^ c^ C j r«co^ t o t o oo «-T cT rT -^f C* « g * O O O O X ^ a * - a > * w o Ost^VTiQ . C£ . , ~ ri Is tO tO tOvO t o rr « o O r t c^ CNVO cT r o « ti" C^ t o i o TF r< ONO O n o «o ci oo « O o o oo m g \ i ^ l O C N f ^ i r n n r O N O l O C N C N N O O t o N vo t o t o ro CN 5 < 00 ^ O tt l O r ^ CO Tf CJ^O i ^ o o t ^ t^^O O r^ao, ^ CN rf < w r f ^ M ^ t - T ^ r C r o t i ^ w t o N vo o c T o o t ^ f ^ ^ to O * ONtOClOO tt C\C» CN t o ro CI NVOOO «-> Q CN00 Tj- r f r»CC M Ofc r o o^ cs « \ o vo ^ o o n oo i o ^ o^ c^ c^ t o t o ^ <o «-T cT t o r o J-T cT t o "-T rToo" o ^ o t o t o f f t o c f t-Too* cC ci tA IX Ci Hi mm Tf t-t TfCO M O H W I N i - N U^O t o Q OO HI <TM>.TJ-0 O LOOO O ^ O n ^ t o ro t o r^ rf i n ^ H ^ to ^ « n « to ^ H ^ ^ M (i « c^ H ^ £ g o u « • L O O 1/3 »-< v0 00 O d O t^*-* t o O t o t o r>* ** O »-• H O O O r>. O ^ ^ ^Tvo t^ to ci TM"^ CMTJOO to co r^-oo G\ uo Tf LQ MM vo" ^f cfocT M to SoO ^\ No Wi o n^ ( ^ Or - Oo n ^o - O O Oi -O O OO.O O O W •s •5S 1= II >s Index Accord of 1915, British, French and Russian, 121 Allied Wheat Executive, 174 Allies Advances to Belgium, 226-228 Finances—Grave c o n d i t i o n 1917, 152, Income,National—Pre-war,261, 265; post-war, 264, 265. Loans between, 120, 150, 189, 208, 232, 233, 237 (See also Inter-Ally Debts) Wealth, National—Pre-war, 261, 263; post-war 262, 263 American Army—Organization in 1918, 209 American Expeditionary Force— Expenses, how financed, 112 American Foreign Securities Com* pany—Makes loan to France, 1916, 100 American Relief Administration, 9» 186 American Revolution—French aid, 99 Argentina—French internal bonds sold there, 103; loans to France, 215 Armenia—Debt, internation, 188, 348, 349 Australia— Debt, Public, 324, 336-344 Expenditure, public, 13, 322, 325-329 Fiscal burdens vs. those of other countries, 265, 273, 337, 340, 343 Receipts, public, 323, 33°-335 Wealth, national, 263,272 Austria, 188 Austria-Hungary— Debt, public, 324, 336-34*; apportionment to successor states, 257 Austria-Hungary, Continued Expenditures, public, 13, 325329 Fiscal burdens vs. those of other nations, 26, 337, 340 Germany, loans from, 149 Income, national, 265 Receipts, public, 323, 330-335 Wealth, national, 263 B Bachi, Prof. Riccardo, 29, 52 Balfour, Arthur J., Earl, 171, 189, 194, 208 Bankers Trust Company, New York, 101 Banks— Bank of Algeria, 96 Bank of England, 81-86, 123, ^ 133-135, 137 Bank of France, 95,96, 141, 142 Bank of Italy, Bank of Naples, Bank of Sicily^ 148 Bankers Trust Company, New York, 101 Canadian Banks, 147 Guaranty Trust Company, New York, 101 Germany—Imperial German, 115; loan banks, 117 Italian—Three banks of issue, 104 Japan, Bank of, 144 National City Bank, New York, 100, 145, 146 Russia—Bank of the State, 107, 108, n o , 137, 141, 142 Yokohama Specie Bank, 143, Barings (Baring Brothers & Co., Ltd.), 135 Bark, Pierre L., Russian Minister of Finance (1914-1917) 105, 122, 136-138, 216 Baruch, B. M. f New York, 175 [3S3 IZO ] BANKERS TRUST COMPANY Belgian Congo, debt, 346, 349 Belgium, 1914-1923, 217-236 Advances from Allies, 226 Borrowing, post-armistice, 229 Budget, post-armistice, 234 Central (National) Committee for Relief and Feeding, 219, 221 ^ Commission for Relief in, 221; creation and persistence, 222; accounting and auditing, 222; financing, 223, 225, 226; organization, 223; personnel, 224; philanthropic side, 224; provisioning side, 224; receipts and expenditures, table, 226 Cost of German invasion, 229 Debt — Foreign — 1914-1923, table, 232; October 31, 1922, table, 233; Canada, 232, 233; France, 216, 228, 232, 233; Great Britain, 228, 231, 232, 2.33; Holland, 233; reconstruction loans, 231; United States, 188, 228, 231, 232, 233; prearmistice war debt, 228; public, 324,336-344; status a t close of 1922, 234; table, 236 Expenditures, public, 234, 322 Exports, pre-war, 218 Financing—post-armistice, 229; war, 227 Fiscal burdens vs. those of other nations, 26, 27, 337, 340, 343 Food from England, 220 Food supply, 219, 220, 222, 224 Foreign Investments—in Russia, 300, 301 Foreign investments, pre-war, character of, 266 German invasion, 1 9 1 7 , 2 1 8 , 2 2 6 Germany to reimburse prearmistice war debt, 227, 228 Imports, pre-war, 218 Income, national, 265 Industries^ pre-war, 217 Belgium,—Continued Invasion by Germans, 218, 219, 226 National Relief C o m m i t t e e — See Central Committee for Relief and Feeding Needs for war, 125 Physical conditions at armistice, 228 Population, pre-war, 217 Public debt, table (1913, 1918, 1922), 236 Receipts, public, 234, 323 Relief, 217 Reparation — Priority rights, 253; receipts, 235, 249 Russia—Investments in, 300 Wealth, national—Pre-war vs. post-war, 263 Belyaeff, General, Russian Chief of Staff, 1916, 138 Bonbright & Company, New Y o r k — E x p o r t s credits for France, 101 Bordeaux—American loan, 1916, 101 Borrowing, National—See Statistical Tables and under each Nation: Debt a n d R e c e i p t s Borrowing Bradbury's—See Great Britain, Currency Notes British E m p i r e — Cost of the war to, 22 Expenditures — Pre-war basis, 22; war time, 22 Income, national, 1903, I9'3» 1923, 265, 273 Loans—From Allies, 22; to Allies, 22 Wealth, national, 1903, I9I3« 1923, 263, 271, 272 Brookings, Robert S., 175 Brown Brothers & Company, New Y o r k , 101 Bulgaria— Debt, public, 324, 336-344 THE INTER-ALLY DEBTS[161 Bulgaria, Continued Expenditures, public, 13, 322, 325-329 t Germany, loans from, 149 Income, national, 265 Receipts, public, 323, 33°-335 Wealth, national, 263 C Canada— Debt, Expenditures and Receipts, 322, 323, 324, 336-344 Foreign Investments, post-war, 281,282; in the United States, 266 Great Britain, Advances to and from, 205 Income, national, 265, 273 Wealth, national, 263, 272 Central P o w e r s — Income, national, 261, 265 Wealth, national, 261, 263 Certificates of Indebtedness—See United States, D e b t Chamberlain, R t . Hon. Joseph Austen, Chancellor of the Exchequer (1919-1921), 201 Conferences and Missions, Financial— 1915 — France-Great BritainRussia, 121, 122, 127, 135, 137, 142; Great Britain-Italy, 148 1916 — F r a n c e - J a p a n , 1 4 3 ; France-Great Britain-Russia, 138 1917 — France-Great BritainItaly-Japan to the United States, 170, 171 Cost of the W a r — S e e War, Cost of Council of National Defence, 175 Credits, Foreign—How made possible, 79 Crosby, Oscar T . , Assistant Secretary of Treasury, United States (19I7)I 175 Crown Colonies (British)— Debt, public, 324, 336-344 Expenditure, public, 13, 322, 325-329 . , Income, national, 265, 273 Receipts, public, 330-335 Wealth, national, 263, 272 C u b a — D e b t to the United States, 9, 181, 345 Cunliffe, Lord, G . B. E.» Governor of the Bank of England (19141918), 122, 171, 189 Currency ( M o n e y ) — "Currency" dollar defined, 319 " 1 9 1 3 " dollar defined, 14, 319 Depreciation of the purchasing power since 1913, 14 France, 50, 95 Germany, 115, 116, 118 Great Britain, 81 Italy, 104 Purchasing power of, during war period — France, Germany, Great Britain, Italy, United States, 36, 350 Russia, pre-Soviet, 107 United States, 73, 114 Currency Notes—Sec Great Britain Czechoslovakia— Debt, inter-nation, 346, 349 Loans—from France, 216; from United States, 188 D Dawes, Brig.-General Chas. G., 112 Deane, Silas, 165 Debt, public, 324, 336-344 France (See France, Debt), 9799, 101-103 Germany (See Germany, Debt), 115,118,324,336-344; reparation debt, 242-253 Great Britain (See Great Britain, Debt), 80-95, 324» 336344 IZO ] BANKERS TRUST COMPANY Debt, public, Continued Great Powers, The, 1923, 256 Growing up to the debt, 73 How affected by changing purchasing power of currencies, 72 Inter-Ally—General survey, 4; April, 1917, 121; November, I9i8» 345; 1920, 346; in I 9 2 3»348 Interest burden, 73 Interest charge per capita vs, income per capita, 256, 337, 340, 343 Italy (See Italy, Debt), 103, , 3 2 4 . 336-344 Market loans, 71 Per capita vs. wealth, 256, 337. 340, 343 r Repudiation of, 257 Russia (See Russia, Debt), 105, r 324, 336-344 Stated, pre-war, mid-war, postwar, tables, 75 1923, table, 255 United States (See United States, Debt), 112-115, 324, 336-344 foreign, revolutionary. 311 Versus wealth and income 1923, table, 255 Dollar " C u r r e n c y " dollar defined, 14 " 1 9 1 3 " dollar defined, 14 Purchasing power (1914-1923), table, 350 Eliacheff, Dr. Boris, 3 1 , 1 0 6 , 1 4 0 England—See Great Britain Esthonia—Debt, inter-nation, 188, 346,349 . Exchange, foreign— British and French transactions with the United States government, 191 Stabilization of, 91 Exchequer bills—See Debt, Public Expenditure, public— British Empire, 13, 22, 322, 325329 France, 13, 25, 26, 28, 322, 325* 329; in United States, 210 Germany, 13, 36, 37, 38, 322, 325-329 Great Britain, 13, 23, 24, 322, 325-329; in United States, 190 Italy, 13, 29, 30, 322, 325-329 Russia, 13, 31, 32, 322, 325-329 United States, 13, 33, 34, 35r 322, 325-329 Expenditures for war—(See also War, Cost o f ) — Classified, table, 16 In United States, 150, 151, 176, 190, 210; How paid for, IM; supervision of, 174; War industries Board, 176 Export Credits for France, 99-103 Federal Reserve Board—Anxiety re foreign loans, 153 Financial Commissions—See Conferences and Missions, Financial Finland—Debt, internation, 188, FiUgekl<?, 4 John J., M . C., 160, 165 Food—Scarcity in Europe, surplus in the United States, 1918, 237~Sec also Relief—Belgian; Relief—Loans for Fordney, Joseph W. f M . C., 179 Foreign Indebtedness (general)— French, 287 Italian, 291 Russian, 293-304 United States, 311 Foreign Investments— Canada, 281 France, 284; in Russia, 299; sold for war, 7 German, 314; in Russia, 301 THE INTER-ALLY DEBTS Foreign Investments, Continued Great Britain, 274; in Russia, 300 Italy, 290 United States, 306; in Russia f 302 France— American attitude toward, 164 American securities, borrowing of, 130 Assistance to United States in Revolutionary War, 164, 165, 168 Cost of war to, 25; table, 26 Credits for war, Foreign, 77, 79; American, 99, 213, 214; British, 102, 127-131; gold shipped in exchange for, 128; other, 215 Currency, 95 Debt, 324, 336-344— Floating, 95, 98; bank loans, 96, bills of national defense, 97; treasury bills, 97 Foreign, 99-103,121, 345-348; French cities, Bordeaux, Lyon, Marseilles and Paris, l o x ; in Argentina, 103; in Great Britain, 102, 103, 127-131; in Japan, 99; in Netherlands, 99; in Spain, 99; in United States, 99, 102, 188, 208-210; in Uruguay, 99 Funded, 98 Expenditures, public, 13, 26, 28, .322, 325-329 Fiscal burdens vs. those of other nations, 26,27, 255, 256, 337t ^ 34?, 34.3 J . J Foreign indebtedness, general, 287 Foreign investments, character of, 264; pre-war, 7, 284-286; post-war, 266, 287; sold for war, 7, 287; in Russia, prewar, 299 Income, national, 265, 283 [ 161 France, Continued ^ Inter-Ally (nation) loans, 26, 131, 215; Argentina, 215; Belgium, 131, 216, 228, 232, 233; Boulogne Gold Agreement, 135; Conferences of 1915,122, l27t I35» 137; Conference of 1916, 138; Conference of 1917, 171; Czechoslovakia, 1921, 216; Great Britain, 102, 127-131, 213; Greece, 1921, 131, 216; Poland, 1921, 216; Roumania, 1921, 216; Russia, I3i. # 132, 141, 142, 216; Serbia, 131; Serbs-CroatsSlovenes, 1921, 216; status, April 1, 1917, 131; United States, 99, 208, 213, 214; Uruguay, 215 Military expenses, 26 Munitions—Allies cooperative purchases, 126 Occupation b y Germany, 125 Public debt charge, 26 Reconstruction expenses, 26 Receipts, borrowing—See Credits, Debt, Inter-Ally Loans, 323, 33°-335; revenue, 13, 48, 50, 323, 330-335 United States, Revolutionary loans to, 99 War purchases in foreign markets, 78 Wealth, national, 263, 283 Wealth vs. Debt, 268 Franklin, Benjamin, 165 French-Pylack Debt, 346-349 G George, Lloyd, Chancellor of Exchequer (1908-1915), Minister of Munitions (1915-1916),Prime Minister (1916-1922), 120-123, 127, 134, 1 3 6 , 2 1 6 Germany— Borrowing in foreign markets,77 Cost, of the war to, 36; table, 37 IZO ] BANKERS TRUST COMPANY GoldBorrowed by Great Britain from France, Italy and Russia, 6, 133, 136, 139, m 8 ; • Shipments, manner in which made, 139 Used in financing purchases in United States, 136 Graham, George S., Si. C., 166 Grain Corporation, 9 Great Britain— 322, 325, 329 t Fiscal burdens vs. those of other Advances to Dominions and nations, 26, 27, 255, 256, 337, Allies—See Loans to Alliance—Financial with France ^ 34?,343 f f and Russia, 120-126 Foreign investments, 314; ItalAmerican dollar securities mobiian, 292; geographical distrilization, 91 bution in 1913, table, 315; preBanker for the Allies, 6, 8o, 120 war, character of, 264; postwar, character of, 266, 316; Borrowing, 13, 47, 80-95, 323, Russian,301; use of to finance 330-335 war, 315 Foreign—Allied, 147, 17 *» Income, national, 1913, 1923, 189, 206; market, 88-95; 313 table, 90 Loans to Allies, 37, 149 Internal, 80-88; currency Mark, purchasing power, 1914 notes, 81, 83; exchequer to 1923, 36, 350 bills, 84; floating debt, 83Military expenses, 36 86; treasury bills, 84,86; war Public debt charge, 37 loans, 86, 87; ways and Receipts, borrowing, 13, 70, 77, means advances, 83, 86 115-119, 323, 330-335; revCanada, advances from and to, enue, 13, 62-70, 330-335 205 Reparations— Cooperation with France and Debt, per Reparation ComRussia in purchasing supmission, 246 plies, 126 Payments — comparison of Cost of war to, 13, 23, 325-329 German and Reparation Currency notes, 81, 83 Commission statements, Debt, 80-95, 324, 336-344 251; distribution of, 249; Currency notes, 8i, 83 German official statement, Floating, 83-86; treasury bills, 250; Reparation Commis84; ways and means adsion statement, 248 vances, 83 States of, relation to Imperial Foreign—Oovernment, 121, 189-206,345,346,348; from government changed, 38 United States, 189-204; Wealth, national, 313, 314 table, 190; market, 88-95; Giffen, Sir Robert, 271 table of creditor nations,90; Glass, Carter, Secretary of the United States, loans from, Treasury, United States (191891-95; table of loans from, 1919), 179, 181, 183-186 Germany, Continued Currency, 115; amount outstanding, 118, 119; purchasing power of, during war period, 36, 350 Debt, 115-119, 324f 336-344; floating, 115; reparation, 246, repudiated, 256; status, 1923, 255» 256; table, 118 Expenditures, 13, 16, 19, 37, 38, THE INTER-ALLY DEBTS Great Britain, Continued 92; settlement with 257260; table, 351; table of creditor nations, 204 Funded—Exchequer bonds, 87; national war bonds, 87; short term, 86; war loans, 87 Dominions—Loans to and from, 147 Expenditures, public, 13, 23, 24, 322,325-329; in UnitedStates, table, 190 Financial Commission to United States, 189 Fiscal burdens vs. those of other nations, 26, 27,255,256, ^ 337» 340. 343 , J r £ Foreign credits required for financing imports, 125 Foreign Exchanges—American — J . P. Morgan & Co. stabilize, 93 Foreign investments—History of, 274-281; income from, 279, 281; pre-war, 7, 274; character of, 274-279; post-war, 266, 275, 280; sold for war, 274, 275; in Russia, 300 France-Financial arrangements with, in 1915, 127 Gold — Boulogne Agreement, 135; loans of, from France, 128-130; Italy, 148; Russia, 133. 136, I37» 138, Guaranties for other nations to United States, were any given? Income, national, 265, 273; savings from, 279 Income from foreign investments in 1923, 281 Income tax, 45 Inter-Ally loans—Conference of 1915, 121, 122, 127, 135, 137, 142, 148; Conference of 1916, 138, 143; Conference of 1917, 170, 171 [ 161 Great Britain, Continued Loans from Allies, 23; Canada, 147; France, 132, 213; Italy, 148; Russia, 133, 136, 137, 138, 139; United States, 189206 Loans to Allies, 121, 206, 345, 346, 348; Belgium, 228, 232, 233, 236; France, 130; Italy, 148; Russia, 132-141 Loans to and from dominions, 147 Military expenses, 23 Public debt charge, 23 Principal on which the war was financed, 45 Receipts— Borrowing 43, 47, 189, 297, 323, 330-335 Revenue, 43, 45, 48, 323, 330335; Principle upon which laid, 45 Taxation, 45, 46, 47 Russia purchases supplies for, in United States, 194 United S t a t e s — Advances from;—first loan, 192; silver for India, 201; table, 190; used t o meet obligations incurred before b e l l i g e r e n c y of U n i t e d States, 194; vital, 193 Votes of credit, 23 War purchases in foreign markets, 78 W a y s and means advances, 83 Wealth, national, 263, 272; vs. debt, 255, 256, 268, 337, 340, 343 Greece— Income, national, 265 Loans from Allies—France, 215, 216; United States, 188 Wealth, national, 263 Guaranty Trust Company, New Y o r k , 101 BANKERS TRUST COMPANY IZO ] H Harding, Warren G., President of the United States, 182 Helfferich, Dr. Karl, Director of the Deutsche Bank, 313, 314 Hoover, Herbert, 217, 222, 238 Houston, D. F., Secretary of the Treasury, United States (192a1921), 180, 190 Hungary, loans from United States, 188 I Income— From foreign investments — France, 284-287; Great Britain, 275-281; United States, 3<>7, 309 National — A u s t r i a - H u n g a r y , 265; Belgium, 265; British Empire, 265, 273; Bulgaria, 265; France, 265, 283; Germany, 265, 313, 314; Greece, 265; Italy, 265, 290; Japan, 265; Portugal, 265; post-war. 262, 265; pre-war, 261; Roumania, 265; Russia, 265, 293; Serbia, 265; Turkey, 265; United States, 265, 305 Indebtedness (General)— Foreign, 79; American, 3 1 1 ; French, 287; Italian, 291; Russian, 293-303 Inter-nation— Status 1917, table, 121 Status 1918, table, 345 Status 1920, table, 346 Status 1923, table 348 India— Debt, 324, 336-344 Expenditure, 13, 322, 3 2 5~3 2 9 Income, national, 265, 273 Receipts, 323, 33°*335 Silver, requirements supplied b y United States, 201 Wealth, national, 263, 272 Inter-AIIy Council on W a r — Purchases and finance 175 Inter-Ally (Nation) Debts, 4, 16, 120-150 Amount due 1923, tabic, 241 Armenia, 348 Australia, 121, 345*349 Austria, 346-349 Austria-Hungary, 149 Belgian Congo, 12 i t 345-349 Belgium — General discussion, 226-233; 1917, 121; 1918, 232, 345;1920, 346;1923, 233, 348 British Dominions, to Great Britain, 206 British E m p i r e — 1 9 1 7 , 121; I9i8» 345; 1920, 346; 1923 348 British South Africa Company, 121, 345, 346-349 Bulgaria, 149 Canada (also see Canada), 121, „ 205, 345;349 Crown Colonies (British), 121, ^ 345-349 Cuba, 9, 345-349 Czechoslovakia, 346-349 Esthonia, 346-349 Finland (see Note C, table, 188), 346-340 France (also see France), 26, I 2 i , 345-349 French Polack, 346-349 Germany (also see Germany), 149. 346-349; loans to her allies, 37 Great Britain (also see Great Britain), 23, 121, 260, 345349; Canada, 10, 205; United States, 257; tables, 260, 351 Greece, 121, 345*349 , Guarantees, 194; not demanded by United States, 197 Hungary, 346-349 Italy, 121, 345-349 Latvia, 346-349 Lettonia, 346 Liberia, 346-349 Lithuania, 346-349 Loans, actually of munitions, 6 [ 161 THE INTER-ALLY DEBTS Inter-Ally (Nation) Debts, Continued Loans for relief, 237; table, 241 Montenegro, 345 Newfoundland, 345-349 New Zealand, 121, 345-349 Nicaragua, 346-349 Poland, 34 6 *349 Portugal, 121, 345*349 Post-armistice loans, amount, 9 P o s t - a r m i s t i c e l o a n s , raison d'etre, 8 Purchases 01 Allies in United States, 197 Roumania, 121, 345-349 Russia (also see Russia), 121, ^ 345-349 Serbia, 121, 345 Serbs-Croates-Slovenes, 346-349 Silver, loan by United States, 201 Summary statement for entire period of war, 17 Turkey, 149 Ukraina, 346-349 Union of South Africa, 121,345* 349 United States (see also United States), 345-349; banker for Allies, (1917-1920), 7, 150; loans discontinued September, 1920, 240; loans to Allies, 34, 150; post-armistice loans, 240; settlements, 9, 10, 188 Inter-Ally Loans—See Inter-Ally Debts Inter-Nation Debts—See InterAlly Debts Investments, Foreign—See Foreign Investments ItalyCost of W a r to, 29 Currency, 104 Debt, 103, 188, 324, 336-344; floating, 104; foreign, 105; funded, 105 Emigrants — Remittances of, table 291 Italy, Continued Expenditures, 13, 29, 30, 322, 325-329 t Fiscal burdens vs. those of other nations, 26, 27, 255, 256, 337, ^ 34?, 3^3 l j Foreign indebtedness, 291 Foreign investments, 290 Income, national, 290 Inter-Ally financing, 29, 148, 188 Liberated territories—Expenses for, 29 Lottery, state, 53 Military expenses, 29 Monopolies, 52 Public debt charge, 29 Receipts, government, 54, 55, 323.330-335 Taxation, new forms created for war, 52 Wealth, national, 263, 289 Japan— Debt, public, 324, 536-344 Expenditure public 13, 322, 325-329 Foreign investments in China, 266 Income, national, 265 Loans to France, 99 Receipts, public, 323, 33°-33? Russia, credit operations with, 143 Wealth, national, 263 Joffre, Marshal, 208 Josyer, G . R. f M . A., 272 K Kenyon, William S., M . C. f 168 King, W . I., Professor, 305 Kitchen, Claude, Chairman Committee of W a y s and Means, 1917, 158, *59» 161, 162 Kroupensky, M., Russian Ambassador a t Tokio, 144 IZO ] BANKERS TRUST COMPANY Kuhn, Loeb & Company, Y o r k , IOI New L Lane, Franklin K. f Secretary of the Interior (1914-1920), 156 Latvia— Debt, inter-nation, 346-349 Loans from United States, 1S8 Law, Andrew Bonar, Prime Minister and First Lord of the Treasury (1922-1923), 194 Lawrence, John, 165 Leffingwell, R. C., Assistant Secretary of United States Treasury (1917-1920), 162, 197 Leon, Maurice, 9^ Lettonia—Debt, inter-nation, 346, 347 , Lever, Sir Hardman, Financial Secretary of the British Treasury, 1916, 189 Liberia— Debt, internation, 346-349 Loans from United States, 188 Lithuania— Debt, inter-nation, 346-349 Loans from United States, 188 Loans for R e l i e f — 1918-1923, 237 British advise intention of stopping food purchases from United States unless loans are continued, 237 Foreign post-war food purchases in United States, 240 Hoover advises continuance of, to insure market for American surplus food, 238 Lenders—Borrowers, 240 United States — Distribution, 237, 240; right to make, questioned, 237 Lovett, Robert S., 175 Lyon—American Loan, 1916, 101 Mann, James R., M . C., 162 Marseilles—American Loan, 1916, lox Mason, George, 165 McAdoo, William Gibbs, Secretary of Treasury of United States (1913-1918), 171, 182, 185, 192, 196 McCumber, Porter J.T M . C., 167 McKenna, Reginald, Chancellor of the Exchequer (1915-1916), ^ 136, 139, 148 Mellon, Andrew W., Secretary of Treasury of United States from March, 1921, 195 Millerand, Alexandre, Minister of War (1914-1915), President of France from 1920, 128 Money—See Currency Montague, Andrew J., M* C , 164 Montague, Rt.Hon. Edwin Samuel, Financial Secretary, British Treasury Department (19*41916), 122 Moore, J. Hampton, M . C., 163, 164 Morgan & Company, J. P., New York, 93, 100-102 Munitions— Foreign, how paid for, 79 Surplus, disposition of, 9 N National C i t y Bank of N e w York, 145, 146, 190 National Debts—See Debts, Public National Defense Council, 155 National Wealth—See Wealth, National New Z e a l a n d — Debt, public, 324, 336-334 Expenditures, public, 13, 322, T M Madden, Martin B., M . C f 163 325*329 . Income, national, 265, 273 Receipts, public, 323, 33<>-335 Wealth, national, 263, 272 THE INTER-ALLY DEBTS[161 Nicaragua— Debt, inter-nation, 348, 349 Loans from United States, 188 P Page, Walter Hines, Ambassador to Great Britain (1913-1918), 156, 193, 217 Pans—American loan, 1916, 101 Pershing, Gen. John J., 208 Poland™ Debt, inter-nation, 216, 346-349 Loans from United States, 188 Portugal— Debt, public, 324, 336-344 Expenditure, public, 13, 322, 325-329 Income, national, 265 Receipts, public, 323, 330-335 Wealth, national, 263 Prices—See Currency Prohibition— Effect on Revenue—Russia, 55; United States, 58 Public Debts—See Debts, Public Pupin, Rene, 283 R Raffalovich, Arthur, 140 Railroads—Russia, 294, 297 Rainey, Henry T . , M . C., 163 Rathbone, Albert, Assistant Secretary of Treasury, United States (1919-1920), 180 Reconstruction— Belgium—Expenses for, estimated, 229; foreign loans for, 230, 231 Italy—Expenses for, estimated, 289 ReliefAmerican Relief Administration, 9 Belgian, 219-226 Loans for, 9, 237 Reparations— Amount, 242; how determined, 244»245 Reparations, Continued Belgium's priority rights, 247, 253 Germany's obligations, per Reparation Commission, December 31, 1922, 246 Payments—Apportionment of, 247; comparison of German and Reparation Commission statements, 251; distribution of, to June 30, 1923, 249; German official statement, 250; Reparation Commission's statement to June 30, 1923, 248 Purposes underVersaillesTreaty, 243 Terms, of under Versailles Treaty, 242 Revolutionary War, American— Foreign debt for, 311 French aid for, 99, 164, 165, 168 Ribot, Alexandre, French Minister of Finance (1914-1917), 100, 122, 127, 129, 130, 141, 216 Rothschild, N , M . & Son, London, 102, 127, 213 Roumania, 2 1 6 — Debt, public, 324, 336-344 Expenditures, public, 13, 322, 325-329 Income, national, 265 Loans from United States, 188 Receipts, public, 323, 33°-335 Wealth, national, 263 Rubini, Italian Minister of Finance, 1914, 51 Russia— Borrowings from Allies, 31 Boulogne Gold Agreement, The, 136 Commercial investments in, tables, 298 Cost of war to, 31 Credits for purchases in England, 135 Credit high, pre-Soviet, 105 Currency, pre-Soviet, 107 BANKERS TRUST COMPANY IZO ] Russia, Continued Debt, 324, 336-344 Floating—Treasury bills, 108, Foreign, 112, 132; loans— from Allies—credits of 1915 137; credits of 1916, 138; gold abroad vs. intangible credits, 137; from Great Britain, 132,133, 140; from France, 216; from Italy, 132; from Japan, 132, 143; from United States, 132, 145,188; repudiation of,302 Guaranteed, 106 Interest charge, 31 Internal, 105, 113. Pre-war, 105; wide distribution, 107 Public, 324, 336-338 Repudiation by Soviets, 257, 302, 303 Russian merchants financed, 135 Table, September, 1917, i n War, 107, 109 Expenditures, public, 13, 31, 322, 325-329 Financing, foreign, 132 Fiscal burdens vs. those of other nations, 27 Foreign investments in, classification b y industries, 298 G o l d — L o a n s of, to Great Britain, 133, 136-138 Income, national, 265, 293 Loans to Allies, 31 Military expenses, 31 ^ Munitions—Cooperation with Great Britain and France in purchasing, 126 Railroad — Construction, 294297; financing of, 106 Receipts, public, 323, 33^335 W a r ended for her October 8, 1917. 31 W a r purchases in foreign markets, 78 Wealth, national, 263, 293 S Sabath, Adolph J., M . C , 161 Saunders, Edward W . , M . C., 167 Serbia— Debt, public, 324, 336 Expenditures, 13, 322, 325-329 Income, national, 265 Needs for war, 125 Receipts, 323, 330-335 Wealth, national, 263 Serbs, Croats and Slovenes (Yugoslavia)— Debt, inter-nation, 346-349 Inter-Ally loans, 216 Loans from United States, 188 Services, Public—See Receipts Shaler, Millard K . , 220 Simmons, F . M . (Senator), 167 Simon, M . , French Inspector of Finance, 1917, 171 Silver Indian requirements supplied from United States, 201; Pittman A c t , operations under, 201 Solvay, Ernest, President of Central Committee for Relief and Feeding in Belgium, 219 Spring-Rice, Sir Cecil Arthur, Ambassador from Great Britain (1914-1918), 193 Switzer, Robert M ; , M . C., 166 Switzerland—Foreign investments pre-war, character of, 266 T Thery, Edmond, 283 Treasury B i l l s — S w Debt, Public T r e a t y , Versailles— Financial Sections, summary, 242 German obligation to Belgium preferred, 235 Turkey— Debt, public, 324, 336-344 Expenditures, public, 13, 3 2 2 » 325-329 THE INTER-ALLY DEBTS[161 Turkey, Continued Germany, loans from, 149 Income, national, 265 Receipts, public, 323, 330-335 Wealth, national, 263 U Ukraina—Debt, inter-nation, 346349 Union of South A f r i c a — Debt, public, 324, 336-344 Expenditure, public, 13, 322, r 325*329 . f Income, national, 273 Receipts, public, 323, 330-335 Wealth, national, 272 United Kingdom of Great Britain and Ireland—See Great Britain United S t a t e s — Allies, loans to Authorized by Congress, 158 Belgium, 228 Debate in Congress, 158: foreign market issues, should they be retired with proceeds? 161; limited to Allied Powers and to duration of the war, 160; " M o n e y should be spent in United States," 161; our attitude toward France, 156, 164, 168; " T h e Allies fighting our battles," 162 Expenditures—Of Allies in United States, 176; supervision of purchases, 174 First loan made, 171 France, 208, 209, 210, 213, 214 Great Britain—Advances to, table, 190; silver, 201; expenditures for war in United States, table, 190; guarantees for loans to Allies not required b y United States, ^ 194 Guarantees, 162, 194-201 United States, Continued Interest account, table, 181; on miscellaneous loans, 182 Interest arrangements, 177 L e g i s l a t i v e action—April, I 9 I 7» 153-169; September, 1917, 169; March, 1918, 170; June, 1919, 170; March, 1920, 170 Loan policy defended, 153 Making the loans, 170 Post-armistice, 182 Russia, 145 Status, November 15, 1923, table, 188 Was policy justified? 186 American Expeditionary Force, how financed, 112 Cost of the war, 33 Table, 34 Debt, 112-115, 324, 336-344 Expenditures, 13, 33-35, 322, 325-329 Military, 34 Public debt charge, 34 Fiscal burdens vs. those of other nations, 27, 255, 256, 337, 340, 343 Foreign investments, 266, 302, 308, 3 0 9 , 3 " Income from, 307, 309 German ships seized in April, 1917, 154, 155 Income, national, 265, 305 Investment securities of, owned abroad utilized for war credits, 6, 7 Loans to Allies and others, 34; 1917-1920, 150 Munitions— From, important source of supply from beginning of war, 33 Sales, 1914-1917, 150 How paid for, 151 Receipts, 323, 330-335 Revolutionary debt abroad, 311 BANKERS TRUST COMPANY IZO ] United States, Continued Revolutionary aid from France, 99 W a r declared against Germany, April 6, 1917, 7, 154 War, official end of, July 2, 1921, 182 Wealth, national, 263, 305, 352 Wealth of the States, December 31, 1922, 352 Uruguay— Loans, foreign—to France, 215 Villalobar, Spanish E n v o y to Belgium, 219 Viviani, Rene, Minister of Justice, 1917. 171,208 W WarCost o f — British, 2 How paid for, 3 Cost of the Great, 1, 12, 13, 16 \9f 325;329 , Allocation of, 15 Annually, table, 19 Battle deaths per cent, population, table, 21 British Empire, table, 22 Civil government expenses during the war, table, 16 Compared with cost of government in Great Britain since 1688, 2 Compared with cost of government in United States since 1791, 3 Compared with national wealth of Great Britain, 1 Compared with national wealth of France and Italy, 2 Compared with value of United States railways, 1 Definition of term as used in book, 12, 15 War, Continued Direct, 12 Expenses classified t table, 16 First part, 18; relative burden of each nation, 18 Food for civilian population, 17 France, table, 25, 26 Great Britain, six years, table, 23 In currency dollars, 12; term defined, 14 In " 1 9 1 3 " dollars, 12; term defined, 14 Indirect cost, 11 Inter-Ally loans, table, 16 Interest on war debts, 15, 16 Loans to Allies, table, 16 Military expenses, 15, 16 Per capita, tables, 19, 21 Per cent of national income, tables, 19, 21 Per cent of national wealth, table, 21 Relative cost to Great Powers, table, 21 Second part, burden bearers, 20 United States, 33 Yearly cost to each group of belligerents, table, 19 See also under each nation How paid for, 330, 335 Borrowing — A t home, 71; foreign market, 77; Allies, 77, 78; German borrowing, 77; Inter-Ally, 72 Financial methods used, 40 France, 48 General discussion, 40 War Industries Board, 175, 176 W a r Materials—See Munitions Washington, George, President, 165 Wealth, National, 261, 263, 271, 272, 283, 289, 313, 3 1 4 — ^ also under Names of Countries THE INTER-ALLY DEBTS Wealth—Redistribution caused by the war, 267 Whitlock,' Brand, United States Ambassador to Belgium (19191921), 219 161 Wilson, Woodrow, President, United States (1913-1921), 239 Wirth, Doctor Joseph, German Minister of Finance, 1920, 62 Wood, William R., M . C , 162 REG. COM. (SEINE) NO. i35940 [