after all, preferring to focus single-mindedly on the debt that is owed. Roosevelt’s main concern was the U.S. economy in any event, and he decided that no further meetings with Hoover, Stimson or others were necessary regarding the debt issue prior to his taking office in March.
Led by the Morgan partner Russell Leffingwell, the internationalists tried to promote Norman Davis, a State Department Democrat, to a position of influence. Moley “was sure he wanted to get the debts out of the way to facilitate reviving private lending to Europe.” His fate was sealed when Roosevelt let him tag along with Moley and Tugwell on January 20 to meet at the State Department with Stimson to compose a reply to the British regarding the agenda for the Economic Conference planned for London in the summer. After Davis sided with Stimson’s position, Roosevelt henceforth chose to dispense with his advice.
With regard to the prospects of negotiating a quid pro quo with Europe at the January 20 meeting, Tugwell repeated Roosevelt’s argument that U.S. economic recovery did not really need tariff concessions from Britain or France. What was needed was a revival of confidence at home. To concede that German reparations could not be paid would open the door for the Allies to claim that this would deprive them of the money to pay their World War I debts. They would demand U.S. concessions on their own debts in return so that their debt service should be brought within their ability to pay. (In fact, Stimson’s diary for that day reveals that in a talk with Owen Young in New York, Britain hoped “for an independent settlement of the debt question without any concession in return.”)
Deliberate blindness as to the financial dynamics at work was thus the position dictated by U.S. self-interest – that is to say, the interest of its government as creditor, which the Eastern banking interests had come to realize was antithetical to their own private ambitions. Tugwell and Moley refused to authorize a statement acknowledging that America would address the debt problem at the London conference. They also insisted that Stimson’s reply to the British note would have to reject the idea that concessions on the debt issue might form the basis for currency stabilization. The major internationalist U.S. newspapers might agree with public opinion in Europe not to pay the war debts, but Congress was not about to let Europe off the hook. On the other hand, tariff and trade matters affecting the local interests with which voters and Congressmen were concerned might be dealt with at an international conference. Roosevelt’s advisors wanted to narrow the agenda to this area alone.
In a huff, Stimson accused Tugwell of “trying to tear down everything I have been working for in my whole term,” and said he would “leave a memorandum in the State Department files registering his mature judgment that another course would have been preferable.”19 Moley records that he didn’t give a hoot. The liberal internationalist wing of the Democrats was shunted onto a political siding. Hull’s position as Secretary of State served as little more than protective coloration for the New Dealers.
On January 24, having been apprised of the stalemated State Department meeting, Chancellor of the Exchequer Neville Chamberlain gave a speech taking “the position that the settlement of the debt to the United States must be both small and final.” This time Britain did not seek a quid pro quo. A showdown was clearly in the making, and Roosevelt’s team for its part did not intend to give an inch.
When Britain’s ambassador Ronald Lindsay was called back to London for consultation, Roosevelt suggested to Stimson that it might clarify matters if Sir Ronald first came to have a talk with him in Warm Springs where he was resting up. On January 28, Lindsay arrived and was treated to a discussion outlining the U.S. logic that Europe could pay if it would cut back its military spending, and that in any event “the nationals of both England and France owned vast amounts of securities and other property in this country which could have been utilized, within limits, in making the transfer.”20 As the next chapter will show, U.S. diplomats were still making the latter point in 1940–41 when they were negotiating Lend-Lease and U.S. support of Britain and the rest of Europe against the Nazi aggression that ultimately drew the nation into World War II.
Moley brusquely dismissed the fact that selling sterling on the foreign exchange market to buy dollars to pay foreign debts was quite a different matter from buying arms for domestic currency. In the former case sterling’s exchange rate would fall, but this would be the response to domestic arms spending only if 100 per cent spilled over to buy foreign products – something unlikely given Britain’s large-scale unemployment. This Transfer Problem had been the basic point Keynes had made in the 1920s, but neither Moley nor the President was well versed in economic theory. “I doubt that either Roosevelt or I could have passed an examination such as is required of college students in elementary economics,” he reminisced. “Both of us were bored and confused by long, learned memoranda with which so many people had inundated us over the year since the campaign started in 1932.” Perhaps “the limitation of our economic expertise was an advantage,” for at least they had not been indoctrinated by the internationalist orthodoxy “that things would automatically right themselves in the fairly short run.” The problem with Republican policy was that “the advice sought by Stimson and Mills came mostly from the New York banking community and . . . these gentlemen not only were grossly ignorant of causes and effect in agriculture and industry, but in the crisis they could not supply a remedy for their own derelictions.”21
Moley recognized that “future payments on the debts would be small and far between,” but nonetheless believed that “they should remain on the books. So long as they were alive, their presence would be a warning, however slight, that the European debtors should not look upon the United States as a source of new help.” He later sought to justify his actions in 1933 by depicting Lausanne as “a minor Munich,” as “the cut in German reparations had been nothing less than an invitation to the Germans, who looked upon France and England as ‘paper tigers,’ to dedicate themselves to rearmament in anticipation of another war.” It followed that “To make what Tugwell called ‘the grand gesture’ of reducing or canceling the debts would seem ironical to the people of the country, who were themselves sorely burdened with private indebtedness – impoverished and mortgage-laden farmers, small businesses that could barely borrow enough from the banks to stay alive, big businesses that were depressed for lack of customers. For a Presidential candidate who had so seriously planned to attack the problem of debt on the home front to make international concessions after election would be resented.”22 Left out of account was a recognition that foreign economies no more could pay their international debts than American farmers, consumers and businesses could pay their domestic debts.
The European delegates hoped that the Allies, Germans and Americans might settle among themselves what had been left unresolved at Lausanne. Matters moved toward a head on the eve of Roosevelt’s inauguration when Britain presented a seven-point memorandum on “British Policy on Economic Problems.”23 “The depression cannot be effectively remedied by isolated action,” it stated, hoping to ward off U.S. isolationism. Hence, solutions must be sought through “international action on a very broad front,” toward which the Preparatory Commission of Experts established at Lausanne provided a useful basis for discussion.
In keeping with Roosevelt’s own ideas, the note’s first objective endorsed “a rise in the general level of prices, especially of farm commodities.” It also endorsed a coordinated monetary policy in both Britain and the United States “to ensure the provision of cheap and abundant short-term money.” The implication was that debtor countries should be freed from having to pay their debts to the United States, and to keep their interest rates high so as to attract foreign loans to provide the dollars to make these payments.
A third objective was currency stabilization – something that could not be done without alleviating the debt burden, for the major factor destabilizing currencies was debt service. And only an alleviation of this debt service would promote the fourth objective endorsed by the British note: abolition of the exchange controls that were threatening to restrict world trade. A related fifth objective was to relax trade barriers such as quotas, as well as a general agreement to reduce tariffs. This ran counter to the agricultural protectionism advocated by U.S. farm interests and soon written into law by the New Deal’s Agricultural Adjustment Act of 1933.
Hopes by Western U.S. senators for bimetallism –