shall spare no effort to restore world trade by international economic readjustment, but the emergency at home cannot wait on that accomplishment.
Franklin Delano Roosevelt Inauguration Speech, March 4, 1933
It is not the job of political leaders to adopt economic policies based on broad principles that appear to best serve the world as a whole. Voters expect heads of state to pursue the national interest. Far-sighted leaders may look to the long run rather than pursuing merely transitory advantages, and the long-term position no doubt is helped by growth in the world economy. But the means to such growth along the way must reflect a composite of calculated pursuits of national interest, not its subordination by some to the advantage of other economies.
No nation has shown itself more aware of this distinction between national self-interest and cosmopolitan ideals than the United States. This is partly because of congressional veto power over international policies. It is hard enough for the Executive Branch to mobilize U.S. policy even at the national level, answerable as it is to congressmen and senators representing their local interests. Politicians since the Civil War have set aside protectionist policies to pursue the goals of more open trade and markets, currency stability and the responsibilities of world leadership only when these policies have been calculated to support America’s own prosperity. When economic expansion at home has called for federal budget deficits, monetary inflation, competitive devaluation of the dollar, agricultural protectionism, industrial trade quotas and other abandonments of internationalist principles, the United States has been much quicker to adopt nationalist policies than have other industrial nations.
Also important in understanding U.S. international relations is the sheer size of its home market. U.S. economic policy traditionally has looked to this market as the mainspring of economic growth rather than depending on foreign markets for its major stimulus. This policy of self-reliance was what John Hobson had urged upon Europe as an alternative to its attempts to monopolize foreign markets through the colonialism that helped bring on World War I. In this respect American isolationism contained an element of idealism and even anti-militarism, at least as expressed by the American School’s economic theory. The Economics of Abundance of Rex Tugwell’s mentor Simon Patten went hand in hand with his distinction between private and national interest.1
European countries historically have been more internationally oriented. This has led them to formulate their policies in terms of symmetrical economic rights so as to provide a basis for nations voluntarily trading, lending and investing with each other in order to widen the overall market. To be sure, there has been a recognition that free trade favors the lead nations, just as free capital movements favor creditor powers. Taken in conjunction with the inflationary excesses of the debt-burdened 1920s, The shift of world economic momentum from trade to finance during the 1920s and early 1930s, prompted France, Britain and other countries to view currency stability as a precondition for stable trade and prosperity. Europe’s internationalist emphasis followed from the fact that trade represented a much higher proportion of its national income than that of the United States – 20 to 25 per cent, compared to just 3 to 4 per cent for the United States. Europe sought to achieve stability as a precondition for business revival.
The resolution of the Inter-Ally debt and its related trade problems was by no means implicit, although it seemed so to economists. There were strong party differences in the United States, reflecting regional as well as ideological differences about what position the nation should take. In fact, Roosevelt’s election signified an about-face in U.S. policy which had been on the way to making the economic accommodation with Europe that most economists – and certainly most Europeans – had believed was inevitable. To the incoming Democratic Administration nothing was inevitable, least of all a relinquishing of America’s creditor hold over Britain, France and the rest of Europe. Yet Roosevelt’s advisors were soon shown financial facts that indeed seemed to speak for themselves: “Up to June 15, 1931, we had received $750,000,000 on principal and $1,900,000,000 in interest.”2
Interest charges thus were nearly two and a half times as large as principal payments. Europe seemed to be on a financial treadmill as its debts mounted up, unpaid and indeed unpayable without access to U.S. markets and elsewhere to displace American exports, or a large-scale government intrusion into property relations by sequestering private European holdings to pay the U.S. Government. In fact, throughout Roosevelt’s twelve-year administration the United States put itself in precisely this “socialist” position of urging nationalization of the properties held by large corporations in order to turn them over to the U.S. Government. To be sure, the United States intended to sell off these enterprises to private-sector U.S. buyers. But the financial process was threatening to transform the world’s major property relations, shifting ownership from debtor to creditor economy. This was a structural change which Hoover and his Cabinet were not prepared to initiate.
An indication of Roosevelt’s willingness to break sharply from the traditional worldview is reflected in Moley’s sarcastic remark that “the collapse of the system of international economics which had, up to that time, prevailed” hardly meant the end of civilization.
Those to whom the gold-standard and free-trade ideals were the twin deities of an unshakable orthodoxy – the international bankers, the majority of our economists, and almost every graduate at every Eastern university who had dipped into the fields of foreign relations or economics – had undertaken to discover a remedy for it. By common consent they had settled upon the reparations and the war debts. If these were canceled (these particular debts among all debts – public and private) or traded for general European disarmament or British resumption of the gold standard or what not, we would root out the cause of our troubles, they had announced. And so ponderous were the arguments that buttressed this formula in the Atlantic states – in academic and presumably “intellectual” circles, at any rate – that it was actually unrespectable not to accept them. . . . Only their prospective dupes, the majority of American citizens, stubbornly refused to swallow them.3
Roosevelt and Moley certainly had no intention of being so duped!
Although Roosevelt was elected president on November 8, 1932, he would not take office for nearly four months, on March 4, 1933. This interregnum reflected one of the American political system’s distinguishing features, a survival from an epoch when rapid transportation had not yet developed to carry newly elected officials to Washington from as far away as California. (Even though air transport has become the norm today, it still takes nearly two months for the new president to take office after being elected.) This interregnum left the Hoover Administration in the position of being a “lame duck.” Not only European governments were concerned over what the change of party control would mean for U.S. attitudes toward the World War I debts, so was the Hoover Administration. An interregnum was at hand that threatened to disrupt the diplomatic negotiations in process. European diplomats and Hoover himself wanted to know how much of this was merely public posturing and what the intentions of the incoming administration really were.
The problem was so pressing in view of the British and French notes of November 10 that two days later, on Saturday, November 12, Hoover sent a telegram to President-elect Roosevelt asking for a meeting to discuss the foreign debt issue. The Moratorium to which Congress had agreed a year earlier had expired, and major payments were scheduled to due on December 15, headed by $95.5 million from Britain and $19.3 million from France.
Roosevelt and his advisors were surprised to receive Hoover’s telegram, as such joint meetings between the outgoing and incoming presidents seemed unprecedented. It was apparent that Hoover wanted to commit Roosevelt to a debt settlement that the Republicans had been negotiating out of sight of the voters. Roosevelt for his part did everything he could to avoid being saddled with responsibility for “the December 15th problem,” that is, the problem of what to do when Europe refrained from paying its scheduled resumption of Inter-Ally debts. He could not very well refuse to meet with Hoover, but he did not want to commit himself to being a part of the solution toward which Hoover seemed to be moving vis-à-vis Europe.
“We were profoundly certain that the foreign protestations of inability to pay were in large part untrue,” writes Raymond Moley, whom Roosevelt had invited to the meeting with Hoover.*