peace through threats of war.”10
Having failed to win Roosevelt’s support, Hoover felt obliged to reject European requests that its debt payments be postponed. On November 23, the day after he met with Roosevelt, Stimson replied to the French and German notes of November 10, explaining that only Congress, not the President, had authority suspend the December 15 payments, and that “reparations are solely a European question in which the United States is not involved.” The notes reminded the European Allies that their debts “must be treated as entirely separate from reparation claims arising out of the war.”
As the U.S. Council on Foreign Relations summed up the situation, “in Great Britain, Yugoslavia, Finland, Greece, and other debtor nations, an additional increase has occurred in consequence of currency depreciation. With the pound sterling at par, the British Treasury needed £20,000,000 to purchase the dollars required to pay principal and interest falling due in December, 1932. With the pound sterling at $3.22, it needed nearly £30,000,000.”11 In sterling, Britain’s debt to the United States increased as it threw sterling onto foreign exchange markets for dollars, forcing down the value of its currency. The effect was to make Britain’s debt transfer an infinite function, much as Germany’s had been a decade earlier.
To such arguments U.S. diplomats replied coldly that if the debtor countries only would reduce their armaments expenditures, they would have that much more money to honor their international obligations. The debtors replied that they could not take steps to stabilize their currencies until their war debts had been reduced to workable levels. On December 1, a week after receiving Stimson’s reply, Britain informed U.S. officials that it deplored their demand to be paid in full, and “and concluded with the veiled threat that if war-debt payments were to be resumed the United Kingdom would have to strengthen its exchange position through measures further restricting British purchases of American goods.”12 The effect of this warning was much like that of Third World countries arguing today that if the United States insists on payment of dollar loans, it must open its agricultural, textile and steel markets to debtor countries and let debtor countries protect their markets from U.S. suppliers.
On December 11 a follow-up note from Britain said that it would make the scheduled payment due on December 15, but would view it “as a capital payment of which account should be taken in any final settlement.” Stimson replied that the United States could not accept conditions imposed outside of the original payment agreement. Britain paid anyway, but insisted on the right to bring up at a future conference the idea of counting its debt payment as reducing the principal. This would have converted the debt effectively into an interest-free obligation. This is what friends traditionally do amongst themselves, so the idea hardly was out of the question anthropologically speaking. But what was at issue was power politics, not friendship.
France defaults and Britain pays only a token amount
Britain paid in full on December 15, but France defaulted, claiming that suspension of its payment was “the normal, equitable and necessary sequel” to the Hoover Moratorium. What infuriated U.S. officials was that, unlike Britain, France had the money and could have paid in their view, but chose not to as a matter of policy. Britain had never made the debt issue so categorical. It had asked politely hat in hand for debt forgiveness, not insisted on this imperiously as if it were a matter of obvious common sense. The Chamber of Deputies “authorized payment only if the United States would join an international conference designed to adjust all international obligations.”13 Britain, with its “good behavior” which had been so pleasing to the Americans, exemplified precisely what the French wanted to avoid. Yet Premier Herriot paid a steep price as his government fell when he failed to persuade the Chamber of Deputies to follow the British course. Yet another step was being taken on the path leading toward World War II.
On December 16, Moley and Tugwell were presented with the Williams-Day Report which had been prepared for Hoover’s intended follow-up to Lausanne. Moley was “alarmed” to see that it took just the opposite position from the priority Roosevelt and Congress wanted to give to the domestic market. It “indicated that out of the meetings of experts was going to come an internationalists’ agenda – a program for a return to an international gold standard, for the sharp writing-down of international debts, and for measures of international ‘cooperation’ wholly incompatible with the inauguration of the New Deal’s domestic program.”14 Roosevelt believed that domestic recovery must take precedence over international concerns. It was not a revival of foreign trade that would cure the depression, but economic restructuring at home – the restructuring that the New Deal promised to bring about.
Moley was made “sick at heart” by hearing from Geneva that “Professor Williams had said that he personally believed that a debt settlement was the chief contribution that the United States could make to the Conference.” This attitude made him worry that Europe might succeed in bamboozling America at any such international meeting. “The more we’d considered what might come of the Conference, as a matter of fact, the less importance it seemed to have to the United States.” For the agenda for the conference “offered no real prospect of substantial benefits to this country.” Why, then, bother with it at all? Why not simply demand continued payment? “In the winter of 1932–33 our problem was to make them understand plainly that we saw what was up and refused to be out-traded. And our immediate task was to resist the efforts of their sympathizers in this country to persuade us that there was an inseverable relation between debts, world economic recovery and disarmament.”15
On December 17, Hoover sent a lengthy telegram to Roosevelt pointing out “that the debts could not be dissociated from the other problems that would come before the Economic Conference, and that the conference should be assembled as soon as possible.” Picking up the arguments he had made at their November meeting, he once again urged Roosevelt to join with him to select a delegation to make progress in reducing the level of intergovernmental debt.16
But Roosevelt would not go along, so two days later, on December 19, Hoover found himself obliged to announce in a special message to Congress that the government had declined to grant Europe the requested postponements, “as we considered that such action world amount to practical breakdown of the integrity of the agreements; would impose an abandonment of the national policies of dealing with these obligations separately with each nation; would create a situation where debts would have been regarded as being a counterpart of German reparations and indemnities and thus not only destroy their individual character and obligation but become an effective transfer of German reparations to the American taxpayer; would be no relief to the world situation without consideration of the destructive forces militating against economic recovery; would not be a proper call upon the American people to further sacrifices unless there were definite compensations.”17
Roosevelt replied to Hoover’s message that day, reiterating that he “looked upon the three questions of disarmament, debts, and economic relations as requiring selective treatment,” and that there was no reason to submerge the Economic Conference “in conversations relating to disarmament or debts. There was a ‘relationship, but not an identity.’” As Moley put matters, the British “wanted to establish, if possible, the theory that unless debts were settled there could be no possibility of agreement on other economic questions. But we could take in good part this natural attempt of the British to out-trade us without falling for it. And what was there to be gained by rushing into a conference with people who had championed the substance of the British proposals even before the British had made them?” All negotiations should be put on hold until after March 4, when a strongly Democratic Congress would be put in place, immune to such internationalist Anglophilia.18
Hoover recognized that affairs were surging ahead in Europe regardless for America’s political schedule, and on December 20 suggested that Roosevelt pick as an advisor someone knowledgeable about international affairs, such as Owen Young, Colonel House or, presumably, nearly anyone other than Moley. Roosevelt granted that “the British were probably entitled to special consideration because we had been less lenient with them than with any of our other debtors in the debt settlement.” But he insisted that any debt negotiations would have to be conducted by officials appointed by himself, after March 4. And as for the Economic Conference,