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The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: Vanderlip, Frank Arthur Title: The allied debt to the United States Place: Boston Date: 1922 ^M- g-^? a-O ^t COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET MASTER NEGATIVE « ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD BuBlness D997 . 3 V28 Vanderlip, Frank Arthiir, 1864-1937. The allied debt to the Itoited States; an effective plan for its payment. Address be- fore the Economic Club of New York, November 28th, 1921. Boston, National Economic League, 1922. 43 p. (The Consensus, vol. VII, no. 2) Bound with his The need for a united nation. £l916a RESTRICTIONS ON USE: FILM SIZE: ^^^^^^ TECHNICAL MICROFORM DATA REDUCTION RATIO: \^>^ IMAGE PLACEMENT: lA (jIa) IB IIB DATE FILMED: I < ^^< "^ ^ INITIALS: TRACKING « : ivi^u oam FILMED BY PRESERVATION RESOURCES, BETHLEHEM, PA. (A) 3 3 0) CT OOM '«. '^ * 3 3 > o m CD O CO < N ISI 4t. '^ ^ '^* o 3 3 > s 3 3 ro Ol O Is Is Is Is re c> 00 b isj I Ol 1.0 mm 1.5 mm 2.0 mm ABCOCFGHIJKLMNOPQRSTUVWXYZ abcde C CO I TJ ^ 0(/) ; m 31 O m .A. *' V «.' « ■^^ •-• ro Ol o 3 3 5 5.0 •c :i |i if MCA si 8 Is f§ <* ss 8 <:^^*- #^^i' ^ Vol. VII. No, 2 OFTIOIAL OBOAS OF THS NATIONAL BOOKOMIO LBAGUX The Allied Debt to the United States An Effective Plan For Its Payment AddreM hj Mr. Frank A. Vanderlip Before The Economic Chab of New York, November 28th, 1921 HON. GEORGE W. WICKERSHAM "^ prcndiog ISSUED FEBRUARY 1922 PUaLISBXD QVAR'TERX.Y BY THE NATIONAL ECONOMIC LEAGUE 6 BEACON STREET, BOSTON Entered U Second CUai Matter, May 28, 191S, at the Post OflBce at Btuitmi, IbaMudinietU nnder the act of March 3, 1879 $• The purpose of The National Ecoaomic League is to create an informed and disinterested leadership for public opinion — a leadership that is free from partisan bias or class interest and that will be accepted as re- presenting the best thought of this country. Vol. VII. No. 2 Ck Consensua OFFICIAL ORGAN OF THB NATIONAL KCONOMIC LEAGUR The Allied Debt to the United States An Effective Plan For Its Payment Address by Mr. Frank A. Vanderlip B«fora The Eeonoinic Club of New York, November 28Ui. 1921 HON. GEORGE W. WICKERSHAM presiding ISSUED FEBRUARY 1922 'Y PDBLISHRD QUARTERLY BY THB NATIONAL ECONOMIC LEAGUE 6 BEACON STREET, BOSTON Entered as Second ClaM Matter. May 28, 191S, at the Pout Office at Boston. Mafearhnaetu under the act of March S, 1879 IPW «>(r»i J^Tt *<» t', c. CV :j- ^,'\ u- ««2iJrj=if: IKTENTIONAL SECOND EXPOSURE Vol. VII. No. 2 Cbe Coneerisua OmCIAL OKOAN OF TH« NATIONAL KCONOMICI LEAOUK The purpose ol The National Economic League U to create an informed and disinterested leadership for public opinion— a leadership that is free from partisan bias or class interest and that will be accepted as re- presenting the best thought of this country. The Allied Debt to the United States An Effective Plan For Its Payment AddreM bj Mr. Frank A. Vanderlip B«for« The Eeonomic Club of New York, NoTember 28tb, 1921 HON. GEORGE W. WICKERSHAM prrnding ■^ ISSUED FEBRUARY 1922 PUBLISHRD QUARTERLY BY THE NATIONAL ECONOMIC LEAGUE 6 BEACON STREET, BOSTON 4 Entered u Second ClaM Matter, May 28. 1915. at the Poat Office at Boston, MaaaachoaetU ander the act of March S, 1879 hi f-r/ •V. AddieM before The Economic Qub of New Yotk, November 28th, 1921 OK The Allied Debt to the United States An Effective Plan For Its Ptxyment Hem. George W. Wickersham, presidiiig Hon. George W. Wickersham: Gentlemen of the Economic Club and distinguished guests: The Economic Club has the repu- tation of starting its dinners on time, and of beginning its speaking at a reasonably early hour. Tonight I am happy to say we have lived up to our reputation. As a matter of fact, we are ten minutes ahead of time. The most interesting subject before the world today is the condition of Europe. Gradually we are coming to recognize that our interests are indissolubly united with the interests of Europe, and that until we have a reorganized, a sound, a normal condition of affairs in Europe, despite our great wealth, despite our pros- perity, we shall not have normal, healthy times at home. There has some conflict of voices come to us from across the sea, and it has seemed to the management of the club that nothing could be more interesting for the opening meeting of our year than to have one of the most trained, competent and experienced American observers tell us the results of a five months' tour through Europe, and give us his interpretations of conditions abroad, and his thoughts concerning the possible and the best lines of reorganization and of working back towards a normal condition in European countries. Mr. Vanderlip, who will speak to us this evening, needs no introduction to this club, of which he has been President and from its inception one of its most honored members. He is going to talk tonight on the financial and industrial conditions of Europe as he found them, and follow that description with his f.-v THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLIP btv' 1 1 ■' J -■^^ suggestions of a new plan for dealing with the Allied debt to the United States. He has asked me in advance to state that after he has finished his address, he will be very glad to answer any questions that may be asked of him by any of the audience for a reasonable time; indeed, he would welcome any inquiry, because he feels that perhaps he could make more clear what he has in his mind by answering direct questions than by the body of his address; but in whatever form it be, either his address or the answers to his questions, we can not doubt that what he has to say to us will be a valuable contribution to our knowledge and our thought on the subject. Mr. Vanderlip. (Long and continued applause.) Addctt«by Mr. Frank A. Vanderlip Mr. Frank A. Vanderlip: Ladies and Gendemen: Our Chairman very wisely said that there are conflicting voices speak- ing of the European situation. I have been greatly struck by the conflict of opinion we have among travelers in Europe. It goes through the whole range, from people who come back seeing Europe well on the road toward recovery to those who return terribly blue about the outlook, fearing even that civilization is in danger. One of the reasons for a conflict of opinion might be in the diff^erent ground covered. Some people who see London and Paris, and even possibly Berlin, still lack information about the whole situation. I have made an extensive trip. I have, as the Chairman said, been in Europe about five months, and none of that time has been a period of leisure. I have been in every country in Europe except Russia, Roumania and the Scandinavian countries. I have been in fifteen countries. I have seen most of the responsible government officials, a King or two — ^there are not so many kings any more (Laughter) — ^the Sultan, quite a number of Presidents and chiefs of state, chancellors, prime ministers, practically every finance minister in Europe, most of the Ministers of Foreign Affairs. I have seen the leading bankers in every capital. I have seen many industrial leaders and a great many of the union labor men, for I always feel that their opinion is a point to study. And I can see very readily why people come home with such varied notions. The superficial aspect of Europe today shows distinct improve- ment over anything that has been the case since the Armistice. That is true even of Vienna, true even of Warsaw, where there are still starving people. Europe is at work and the general conditions of life are better than they have been at any time since the Armis- tice. If that is true, and I am certain it is, an observer of those superficial conditions might very well go home feeling that he had seen Europe on the road to recovery. Take the situation in Germany. Germany is thoroughly hard at work, smoking chimneys everywhere. There are 6,000 more men employed at Essen than had ever been employed up to the outbreak of the war, and they are making things of peace. They are turning out a locomotive every day. They are turning out agricultural machinery, safety razors, scissors. I went into one great factory that used to turn out munitions, and the director, who was a guide, said: "Ach, Gott, cream-separators!" All Germany is at work and at work efficiently. I looked into that. The efficiency is up to pre-war standard in a good many lines. The cities are well kept, the roads are in order, parks are in fine shape, and the general aspect of the people is pretty satis- factory. They are not as well dressed as they used to be. If you observe conditions from the hotel lobby, the window of a taxicab, or from a table in a night restaurant, you will find in all those capitals a gaiety, an activity that might easily lead one to the view that Europe is well on the road to recovery. You will see that, as I say, even in Vienna, even in Warsaw, but that gaiety has been described as the flush on the cheek of a dying patient. -wW--*- Mpsm*?-^ 6 THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLIP .:^-1 I should not characterize it quite as strongly as that; neither would I take it as a Uue indication of the general situation in Europe. The truth is, as I see it, that superficial conditions have improved. There has been improvement in transportation, im- provement in the exchange of goods. People are fairly well at work, but the whole economic and industrial structure is on an insecure foundation. If one will look below the surface, study conditions, and not accept any mere superficial views, that situa- tion is clearly revealed. Among other things, among many other things, Europe has been afflicted with inflation. I thought I knew something of what inflation was. I have preached against it; I have tried to point out the evils, but no human brain is equal to imagining the hor- rors of inflation until you have seen it worked out in a great community. If I were a devil looking for the most eff^ective single instrument that could be put into my hands to wreck the human race, to bring cruel injustice upon people, to break down the morale, I should choose the printing press that prints money. It has been at work in nearly every country of Europe. It has been at work in a way that has wrecked the old order. The prudent man, the man who laid by something, who had an income, finds himself a pauper. The whole intellectual class in some countries are almost paupers. Those people with fixed incomes, those people on fixed salaries, have found their income an absurdity. The man who was wealthy finds a year's income sufficing for a day's need. This situation, leading to the creation of an amount of currency that has deteriorated the standard of value, has the most infinite number of ramifications. No one can make a future contract with any security. Industry, thrift, foresight become jokes. Business results in a profit or in a loss, not according to the industry, not according to the way the man has managed his affairs, but according to the way the ex- change market moves. I have had men of great affairs say to me that business has become a speculation, a speculation in exchange, and that as they must speculate if they did business they would rather engage in the speculation unhampered by any business transaction. It has put a paralyzing hand upon business. I have seen factories with a crowd of workmen at one door ready to go to work if they could only get the job, with, metaphorically speaking, a crowd of customers at another door ready to take the product; with the fires banked and the factory idle because the owner was not ready to take the chances of future prices in a currency that was deteriorating day by day, melting in its value like snow in the sun. The rapidity with which that goes on is startling. Now, I was not in Europe so very long. I did not go to Germany in the first instance, but when I went to Germany, I got 79 marks for one dollar. When I was there a few weeks later, I got 160, 180, 200, and within five days after I left the mark was quoted at 330 to the dollar. What provision for the future can a man make with that sort of foundation for his operations to stand upon? Is everybody mad? Is this running of printing presses an evidence of madness? Are finance ministers fools? I do not think so. I did not find them so. I found them all a very sensible, clear-eyed set of men. They knew perfectly the evils of the printing press; they saw the course they were all taking, taking into a vortex, but they said they were helpless, and I believe they are helpless. This smug advice that we have all been giving Europe to cut down its expenses, to increase its taxation, to balance its budget, to stop printing paper — is the classical advice of the economist; and it is just as impossible for those finance ministers to take that advice and act on it as it would be for a man who has been awake for a week with insomnia to be told to go to bed tonight, sleep soundly, and he will feel a whole lot better in the morning. They cannot do it. They are in the grip of a situation which makes further issue of paper inevitable. I made a proposal in regard to the formation of a bank which should be on the lines of our own Federal Reserve System, which should offer a uniform THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLIP % currency to Europe, a currency which is absolutely divorced from Government printing presses; and that is one principle that must be observed in any new currency to take the place of this mass of paper. I am not going to enter into that plan tonight. There is not much necessity for America giving it immediate considera- tion. As I told all of my friends over there, the initiative must come from the other side. We are not going to gather up a huge amount of capital and take it over there, ha^ in hand, and ask them to use it in this way. Something of the sort must be done. There is nothing curative working in the situation so far as their currency is concerned. It is steadily depreciating, and will keep on steadily depreciating, particularly in those Central European Countries, where all control of the situation has been lost. It will be necessary to take a radical step and create a currency, dis- associated from the printing press. But I am not going to enter into that tonight. Europe has a lot of diseases besides this currency disease, and a remedy for one of them will probably have little or no effect on many of the others. Don't look for any patent nostrum to cure Europe. It is too sick. It has got to many ailments of too varied a character. It will need a good many remedies, applied, I fear, over a considerable length of time. Among the other diseases is the disease of a budget deficit. Every country on the Continent is running with a deficit, most of them with huge deficits. Their expenses are too high, and very difficult to reduce. Their taxes are not high enough, and very difficult to raise. Finance ministers hold office at the will of the majority, and if they do unpopular things, they cease to be finance ministers. It is exceedingly unpopular to raise taxes to a point beyond which no one had ever dreamed in former times. Taxes are very high now. As a rule, they do not extend with great severity to the peasant, and they do fall with the greatest severity upon business, upon business men, upon people who once had fortunes. The difficulty of balancing budgets is an extremely great one, and it is not enough to say that responsible men are fools, that they are weak politicans, that they ought to take hold of the situation firmly. The situation is too complicated, it is too diffi- cult, to have the remedy built on the lines of classical economic advice. There is another disease, a disease of map-makmg, a disease engendered by cutting up Europe with a pair of sharp scissors and without any economic forethought whatever. This idea that people have a right to govern themselves, that the consent of the governed is necessary, that there should be self-determination by people as to what form of government they are to have, is a very beautiful idea. The theory of self-determination had in it much that was fine political doctrine. As it was worked out, it has proven one of the greatest curses that has fallen on Europe, among a host of curses. Little nations have been created without an economic possibility of continued life. Racial antagonisms have been fanned into a new and a white heat. The difficulty of doing business across these numerous borders is so great that it has become almost an impossibility. There was something in this idea of self-determination, but there was something lacking in its application. I have thought a good deal on that subject. You know that we have learned, I think, in the last century or two, something of what individual liberty is, and I think we have learned this, that individual liberty is not license \n do as we please. Individual liberty is a matter of restrictions. You and I can do as we please about our absolutely personal affairs. If we want liberty we must live in a community, however, that restricts us and our fellows, wherever we come in contact with our fellows. That I think is clear, that liberty is a matter of restriction. And I think that applies to the State, to the society of nations. I believe we have got to have a new concept of the State come into the minds of Europe, a concept that will reject this idea of supreme sovereignty for every state. Supreme sovereignty of every state means international anarchy. There have got to be ^1 •' < ] '>^ :-.:^.^ \ A- 10 THE ECONOMIC CLUB OF NEW YORK limitations where these nations come in contact with their fellow nations; and it is that which was lacking in the application of his theory of self-determination. You could carry self-determination to the nth power. You could have nations as small as you liked and have them conduct their internal affairs as they willed, if you had limitations in re- gard to their conduct one to another. That new concept of the State may be one of the salvations of Europe. It will be very slow in coming. There are a few men who see it. That young statesman in Czecho-Slovakia, the Prime Minister Benes — they pronounce it Benesch; it is spelled B-e-n-e-s — is one of the great minds of Central Europe. I think about the one subject I found everybody in Central Europe agreed on was that Benes was the ablest statesman in Central Europe. He is an advocate of federation, of limitation upon states, and there is a great number of men who see that something like a United States of Europe is the salvation of Europe. But that idea is a long way in the future. There will need to be education, perhaps, for a generation or two, be- fore that can be gripped, but unless it is gripped, there are people who must economically perish, if the idea of little nations, supreme in sovereignty, blind to the unity of society, antagonistic to all their fellows, persist in an attempt to exist. I got a view of self-determination from a little Turkish girl in a college in Constantinople that made me think. I will give it to you for what it is worth. She said, "I think the idea of self- determination as originated by your President, was in his mind a beautiful political theory. I think as grasped by Lloyd George and Clemenceau it was a theory by which Europe could be cut up into militarily defenseless states, so that there could be no great strength. The curse of self-determination has been wrought on us so as to destroy strong military powers." Now, I wish I could go into this European situation as I would like to. I am like a jug full of water, I don't know quite where to begin, but worse than that, I have got something long and rather ADDRESS OF MR. FRANK A. VANDERLIP 11 serious to say to you later on a single subject. If I could go into the difficulties more fully, if I did describe them more in detail, I think I would trace nearly every difficulty to one source, and it would be that poison treaty of Versailles. I have come to believe that that treaty was conceived in hatred and malice, in blindness and un- wisdom, and that many, if not all, of the ills of Europe today are traceable to the unwisdom of that treaty. I think Gladstone once said of the American Constitution that it was the wisest document ever struck off by the human brain, rd like to paraphrase that and say the treaty of Versailles was the most unwise document ever struck off by the human brain. (Applause.) There were atrocities committed at Versailles that are incomparably greater than any of the atrocities of the war. (Applause.) They are continuing to cut off people's hands; to cut off the hands and the legs of nations, and make millions of people suffer. Now, I am not speaking so much about the way the Versailles Treaty treated Germany. That is where one's mind turns first. Let us begin somewhere else — for example, Constantinople, Turkey. Look at the situation of Constantinople today, a city of a million and a half people, with that population augmented by two hundred thousand Russian refugees, and three hundred and sixty thousand Turkish refugees. A good part of the Rus- sian refugees have been distributed. The Turkish refugees are still there. Now, all there is left of the Turkish nation in Europe is enough for market gardens, around Constantinople. A gun on the Greek border can bombard Constantinople now. I am not speaking metaphorically. I am speaking exactly when I say there is no possibility of raising in Turkish territory for feeding Con- stantinople anything but garden truck. That is all the room there is. Then the Greeks were put by the Allies into Smyrna, and immediately started inland to conquer the Turks. The result is that all Asia Minor is aflame, and is utterly cut off from the old Caliphate, and Constantinople, with a million and a half people, plus its refugees, stands there on its bit of national island, and has 1.^ •4 12 THE ECONOMIC CLUB OF NEW YORK got to buy all its food in terms of foreign exchange, raises nothing, and must in some way supply the credit in terms of foreign ex- change or must starve. Well, it is starving. Do you know it is almost incredible how one can get used to starving people? Why, I walked by starving people and went in and had a good meal. You get callous to it. There are lots of starving people in Europe. It isn't a spectacular thing. Your starving person does not come out into the public square and suffer. He withdraws himself. He gradually fades away. There is nothing spectacular about it, but it is going on in many countries. There has been raised a problem in Constantinople that you are going to hear from. How those people can continue to supply the foreign credits to buy all their food is something that the best minds in Constantinople can not answer, and they look for a catastrophe. The placing of the Greeks in Smyrna, the giving to the Greeks of that great sweep of territory along the north of the Aegean Sea, Thrace, has furnished ground for the erection of a monument of failure. The Greek administration is a monument of failure. Nothing that the Turks were ever charged with has not been duplicated by the Greeks, and they have stirred up a situation in Asia Minor which will burn until they are burned out of there. I do not think there is any doubt of that. But it is not peace, it is not good administration and it was not a wise disposition of a very complicated question. In giving this territory of Thrace to Greece there was taken away from Bulgaria and from Jugo-Slavia every outlet to the Aegean Sea. They will never rest under that situation. Sooner or later they will demand an outlet to the sea. Jugo-Slavia now needs that, Bulgaria must have it; they have only got two very mediocre ports in the Black Sea, and there will be more map chan^inj^. Let us move on to Hungary. There was a kingdom a thousand years old that had stood solidly for a thousand years, and it was shorn right around by the map makers. To see an old map of Hungary makes you think of a molding board with some batter ADDRESS OF MR. FRANK A. VANDERLIP 13 on it and somebody cutting out the center with a cooky cutter; such a piece would be the present Hungary. All around it is territory that for a thousand years had belonged to the old Kingdom, and it is now ruled by Austria, by Czecho- slovakia, by Roumania, and by Jugo-Slavia; and Roumania, for one, is not a very good ruler. They compared it over there to taking New England from the United States and putting it under Mexican administration. (Laughter.) That piece of map drawing is not going to stand. And so one might go through with it, but I am dwelling too long on this part of what I have to say. Let us come to. Germany. Germany ought to have to pay in my opinion every mark that she is capable of paying in reparation of the damage that she did. (Applause.) But I would try to be wise and get as much as possible rather than to be too grasping and get none. (Applause.) Claims for indemnity weie laid upon Germany that anybody who could add 2 and 2 could see were impossible of execution. But the people who laid the terms could not add 2 and 2 when it came to talk about indemnity. (Applause.) Germany is going to fail to pay that indemnity. It is impossible for her to pay it in the terms that are laid. Well, what is going to happen then? I put that question to one of the greatest bankers in Germany, one of the wisest men in Germany — what is going to happen when you fail to meet your indemnity? "Well," he said, "nobody can answer that. The situation is too complicated to hazard a guess, almost. But, of course, I have thought of it; and this is the picture that I see. We will sooner or later, and pretty soon, fail to make an indemnity payment. France will invade the Ruhr Valley. That will make a political situation which will result in the Rhine Provinces sloughing off from Prussia and forming a Rhine Federation. I would then expect to see Bavaria cut off and join Austria and form the beginning of a Danubian Federa- Rfg^^^^ji^l Siid va^wi )^. KA l.r -/ 14 THE ECONOMIC CLUB OF NEW YORK tion. Prussia will be left where she was 100 years ago, isolated, alone, but with a Bolshevik Berlin in her heart" Not a pretty picture. It may not be true. It is worth thinking of. Let me give you another German picture. I will name the artist this time. It was Rathenau, the Minister of Reconstruction, a man generally admitted as the most brilliant man in Germany today. He said to me: "The German people are the most law-abiding people in the world. They follow the law. They are not revolutionary, nat- urally. But there is a weight of human misery going to fall upon Germany as this financial decay progresses, a pressure of human misery that may drive them to something out of the national character. "Observe," he said, "that for 2,000 years Europe has been divided into East Europe and West Europe; Western Europe, the land of progressive civilization; East Europe, Asiatic and Oriental civilization, a civilization without progress." That line, dividing east and west Europe, has wavered through the centuries. It went west and wiped out Greece. It was driven back by Rome. It came west again up to the very walls of Vienna, when the Turks almost captured Vienna. Again it was driven back and in modem times it has rested on the Vistula. Beware that it does not come to rest upon the Rhine, with 300,000,000 people east of that line; 300,000,000 people out of western civili- zation who might form a horde that might overflow and wipe out Western civilization." Now, he uttered that, not as a threat, but as an awful possi- bility. Let me give you another picture along that line, this time from a minister of the Government in Hungary. He happened to be a man I have known for 20 years, one of the most highly educated, one of the most cultivated men of my entire acquaint- ance, anywhere in the world, — a man who was educated in America by the way. He said to me, "I have been a protagonist of Western Civilization. I have believed in it. I have wanted my people to be a part of it, but I am through with Western Civiliza- ADDRESS OF MR. FRANK A. VANDERLIP 15 tion. It is bankrupt, in my opinion. It has been guilty of every- thing with which it has ever charged Eastern Civilization. It has been dishonest. It has been cruel. It has been lustful of power. It has done everything that Eastern Civilization was ever charged with, and we have lost faith. Hungary in the future will be the western boundary of Eastern Civilization, and not the eastern boundary of Western Civilization." I do not think that man spoke for his people, but he said, "There will be a Tourainian Union of the Tourainian people, and they will overflow Europe. They will make Attila look like a nursery maid." Now, that is too strong, but it is among the things to think about. Well, that Treaty is going to be rewritten. I doubt if it is re- written by the Allies. It is going to be rewritten by the march of events. The map of Europe is as unstable as quicksilver, in my opinion. It has been cut in a way that can not stand and will not stand. We will see a re-writing of the Treaty of Versailles. Now, one of the sad things about the European situation is that there is little, if anything, that is curative at work at the present time. Much that is bad is of a progressive character, and is get- ting worse. There is the greatest need for constructive states- manship. It is a grave situation, and it needs minds that are constructive, that will help build something new on this tremen- dous foundation. You know I feel as if I just discovered Europe. Going as I have, from one country to another, passing through 15 countries with my eyes open, I have been tremendously impressed with what you might call the plant of Europe: the vast agricultural areas; the splendid industrial plants; the wonderfully beautiful cities; the fine people. It must not go into decay. No matter how serious these financial obligations, no matter how complete the disorganization of the machine of commerce has been, it must be revivified. Things must be put together and started again. (Applause.) And so I think any one studying Europe should study it now a * i ^^ii^'^^^i^i^ifma^i^ 16 THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLIP 17 ■ V I' •■ -'i y\ not so much to diagnose, not so much to report — we all know more or less about how sick Europe is, — ^but study it construc- tively, to see if something helpful can not be proposed. And so instead of really telling you the story of Europe, and I have not pretended to do that tonight, I want to go on into a serious and, I hope, constructive suggestion. I want to talk to you very seriously about a plan for handling the inter-allied indebtedness. I am sorry to say that I am going to read that, not because I am unable to talk it, but because I want to present it to you with the auhority of the written word, so you will know that what I say is carefully considered. The Great War increased the internal debts of the European belligerents from $17,000,000,000 to $155,000,000,000, a nine-fold increase. The external debts of these countries, which before the War were insignificant, are now in excess of $25,000,000,000. A situation in which governments owe to other governments sums of such huge proportions is unparalleled in the financial history of the world. Internal debts may reach fantastic figures, but so long as a government has a printing press on which it can turn out legal tender it can always pay interest on its internal loans. Its debts to other nations are quite different affairs. A printing press will not pay these: nothing will permanently dis- charge them, when the sum ranges into such figures as these debts have reached, except excess of exports of goods. Such huge debts as these owed and owing to various nations make future financial calculations impossible. Thus far neither interest nor principal has been paid on these debts, and their weight has been psychological. They have not yet actively figured in international exchanges. They make a load of potential obligations, however, that has paralysed the minds of statesmen responsible for the conduct of many European governments. They turn hopelessly from this load of debt and see no possibility, while it is unadjusted, of a return to financial stability. Some settlement, therefore, of inter-government obligations seems an imperative prerequisite to future financial stability. I do not propose to enter into the nature of which may be termed stricdy inter-allied debts, that is, the debts between European nations. Those debts did not arise in anything, like the clean-cut way in which were created the obligations of the Allies to the United States. In some respects they were litde more than convenient War bookkeeping. Many counterclaims can be pleaded. The debts due from the Allies to the United States stand on a quite different basis from the debts that arose between the Allies. The debts due our government are specific signed obligations to repay. Our government placed dollars to the credit of the various Allies. It is true that these credits, gen- erally speaking, were restricted: they could be used only to pay for material or produce purchased in the United States. That restriction was not universal, however. Considerable sums arising from the credits granted to Great Britain were devoted by the British Government to stabilising the sterling market exchange. Loans so used found their way to pay for wheat in the Argentine, and to setde other international obligations than those due to the United States. When the United States Government loaned these sums of money to the Allies, our government expected repayment. At the time the loans were made there was never a suggestion that they should be regarded as part of our contribution to America's war effort. To provide the funds so loaned we sold Liberty Bonds and War Savings Stamps. The Treasury Department instructed those responsible for the sale of these securities to emphasize the fact that part of the money the Treasury got in from American investors was being reloaned to European governments; that those loans would be repaid, and that the interest burden upon our tax- payers would be lightened by interest payments we were to receive from the European debtors. With the close of the War, there began to arise in Europe con- fusion of thought and irresolution of purpose in regard to the repayment of these loans. Their total had become so huge, the debtors had become so impoverished, that the weight of the bur- - II iA 18 THE ECONOMIC CLUB OF NEW YORK i : m ii U^ hH '»\- --.. i i ADDRESS OF MR. FRANK A. VANDERLIP 19 den seemed in the eyes of Europeans to be intolerable, and, being intolerable, to be unjust. In the minds of our European debtors the argument ran in this way: We had all, Allies and Associates alike, been engaged in a common purpose. It was as important to America as it was to the Allies that the War be won. Rightly or wrongly, America had come into active participation only toward the end of the struggle. No matter how essential American help may have been, it was their feeling that America performed in the field no great military feat before hostilities ended. Our debtors argue that there had been a long period prior to our entry into the War, during which we sold to the Allies billions of dollars' worth of produce and military equipment. We had charged high prices; presumably we made great profits. The close of the War found the Allies financially impoverished, horribly hurt by loss of man power, and facing the necessity for vast expenditures for recon- struction. The outlook for reimbursement of these expenditures from German indemnity rapidly grew more and more nebulous. With such considerations in mind it was easy for debtors to argue, with a logic that convinced their own minds, that America had come into the War late, had largely profited financially before she entered the War, had sustained no direct material war damage, and had lost comparatively few men. It was easy for them to argue that as America had emerged from the war the one really solvent nation, it would be not only a matter of good sense on the part of a rich creditor, but as well a matter of sound justice, if we should cancel these obligations of the Allies so far as these obligations are measured by financial indebtedness to us. That opinion has come to be held generally in Europe. There is growing irritation because it is felt that we are again exhibiting the same cautious slowness when we hesitate about cancelling these obligations that we showed before we determined to come into the War at all. In their own counsels at least nearly every nation blankly ad- mits inability to pay. Great Britain takes a somewhat different attitude. There are owed her by other nations a sum exactly equal to the amounts she owes the United States. Why should not her credits cancel her debts? Many Englishmen are slow to say they do not owe this debt, but on the other hand there are many people in respon- sible positions in England who hold that the debt should not be considered on the same basis as «m ordinary relation between debtor and creditor. The foregoing is a fair picture of the situation today. The total weight of international obligations has become so great that it menaces all future financial stability. It promises to make the recovery of general financial stability in Europe impossible unless some means for adjusting these debts be found. All debtors would like to see a general clearing of these obligations. Most of them have argued themselves into a frame of mind in which doubt is raised as to the justice of an attitude by the United States looking toward the enforcement of the obligations. In any event, it is believed both by statesmen and financiers that it is impossible for Europe to stagger back to stability under this enormous load of international debts. England would be quite willing to pay what she owes if she could be paid what she is owed; failing that, the feeling there is general that her obligations should be cancelled if she cancels the obligation due her. The French have the least objectivity in their point of view of any people in Europe. Their patriotism and nationalism are so intense, their belief that France is a sacred repository of world culture is so complete, that the examination of any subject what- ever in France starts with this axiom: "France has been dam- aged; that damage must be made good; France must be restored." No matter how remote a subject may be from the forces which involved France in this damage, it is never considered except upon the postulate of this axiom. France has been injured; her injuries must be repaired. Unless the conclusions in regard to any prob- \l\ m\ 20 THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLIP 21 I/' l^i [^ A I -l lem square with that axiom, the conclusions are set down as wrong. Europe feels it is today gripped in the jaws of pinchers, the handles of which are two sets of financial obligations, impossible of discharge. One handle of those pinchers is the war indemnity, the other the inter-government debts. By everyone outside of France it is admitted that the indemnity as laid is impossible of execution. Furthermore, England sees that if the indemnity could be paid, its fulfillment would for the time being ruin English industry. Outside of France there is unanimity of opinion that unless the terms of the indemnity are materially altered, Germany will go into financial collapse. Impossible as the terms of the indemnity are admitted to be, the Allies find their initiative for its alteration paralysed, because they see that if the indemnity was so altered as to become a tolerable burden for Germany, the Allies would still find themselves facing a burden of inter-Allied indebtness as intolerable to them as are the existing terms of reparation to Germany. To ease the burdens on the back of Germany only to find themselves crushed by the weight of inter- allied debts that is hopelessly heavy, paralyses their purpose to deal with the indemnity situation. And so thus far Germany has been left to drift rapidly on a course that seems likely to end in a financial debacle. In England there is a sharp awakening to the economic sig- nificance of receiving great international payments such as those involved in the figures of the indemnity, or the figures of the inter-Allied debts. Such totals can only be paid in goods. Goods exported by one nation come into competition, either in the home markets of the creditors, or in neutral markets where they arc disposing of their own products. It is seen that the export of goods sufficient in amount to meet claims of such magnitude as the indemnity, or the inter-government debts, cuts new channels of commerce that may hurt the nation receiving payment as much as it burdens the nation making payment. These considerations lead to a search for some means of at least passing the inter- government debts through a clearing house and reducing their total volume. Such a process would help those nations who both owe and are owed, but it would leave the strictly debtor nations still in an intolerable position. By all odds the largest total among the inter-government debts is the sum owed the United States by the Allies. The economic incidence of the debt due us is complicated by the fact that the United States is solely a creditor. We owe no other nation. In a general clearing of debt, no one could offset any of our claims by a credit which would reduce the amount that others owe us. In view of these considerations, it is not surprising to find that European statesmen are unfavorable to the full recognition of the American debt. That sentiment is variously manifested. In many minds the fundamental justice of the obligation is questioned. In England there is a strong feeling that some way ought to be found to off'set English debts by English credits. In the mind of prac- tically every European experienced in financial matters, is the belief that it is as impossible for the Allies to pay America as it now seems to be for Germany to pay the Allies. The subject is one that is being given profound consideration, not only in those nations which are debtors, but in all other European countries. Those countries who are neither interna- tional debtors or creditors, see, nevertheless, that their futures are involved in the future of the debtor nations. In view of these facts, an investigator of economic conditions in Europe must give much consideration to the subject of inter- government debts. On the side of purely inter-Allied obligations, that is debts owed by one European nation to another, I do not propose to enter. America may well keep out of that field. It will be necessary, however, for America at an early date to do some clear thinking in regard to the obligations of the Allies to our government, amounting as they now do to $11,000,000,000. To this subject I have given a great deal of consideration. I have discussed it with the leading responsible government ministers and financiers of Europe. My conclusions are these: i;i;i| i 22 THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLIP 23 So far as America is concerned we should do nothing which will stimulate quibbling as to the basic fact of the obligations. We loaned American dollars. They were raised under the greatest pressure from our people. It was at the time regarded by no one as part of our war contribution. That contribution was made in full measure and in ample amounts when we spent directly, as we did, $18,000,000,000, and when we moved 2,000,000 men over 3,000 miles of water to the battlefields. The loans are matters of honor between our associates and the Treasury of the United States. At the time these loans were made, not the slightest suggestion was raised casting doubt as to the nature of the ob- ligations which were created. They were unequivocable obliga- tions to repay. I believe we should repulse with vigor any sug- gestion on the part of our Allies that these advances were not actually loans. I believe that we should sharply repel any theory that these loans were contributions toward the enemy's defeat, and were only ostensibly in a form contemplating repayment. Another consideration, somewhat apart from the question as here stated, has to do with the effect on future financial relations which would result from repudiation by European powers of their obligations. America for many years to come will be the sole world reservoir of capital. If our first great adventure in granting international credit were to have the unhappy conclusion of repudiation by our debtors, that reservoir of capital will be sealed in the future to any further flow in the direction of Europe. It would be inconceivable that American investors, should they find that foreign obligations are so lightly regarded as to be repudiated when their payment becomes onerous, will again go into their pockets to find funds for future international loans. That is a point to which European debtors may well give thought. In the rehabilitation of Europe there will be need for American capiul. No action should be now taken by European nations which will cut them off from their only important source for the future sup- ply of international loans. I should then lay down as the first postulate the principle that the allied debt is a just debt, legally and morally, and whether it can be paid or not, it should be frankly acknowledged as a just debt. Then comes quite a different point to consider. What would be the effect upon America if this debt were acknowledged and paid? The merest tyro in international economics now under- stands that large international obligations can only be discharged by paying in goods. It is true that small balances may be settled by the payment in gold; that pressing obligations may be con- verted into funded debts running over a long period; it is con- ceivable that a diebt owed by one nation to another might be converted into the ownership of properties or investments ac- quired by the nationals of the creditor country from the nationals of the debtor country. Broadly speaking, however, obligations running into such amounts as are contemplated in the German indemnity and in the figures of the European international debts can only be discharged by the payment, directly or indirectly, in goods. If that is admitted it may well give us pause while we consider the effect upon our industrial life of a situation and policy which, if carried to a logical conclusion, may result in the influx into the United States of a heretofore undreamed of total of foreign im- portations of competitive goods. It will not do for us to erect tariff barriers against such an influx, if we admit that it is only by the inflow of goods that the debts can be paid. We must make up our minds to receive the goods, and in receiving them accept the consequences. The full consequences would be profound if the payments could be made and were made with any degree of promptness. We need not look further than to contemplate merely the receipt of $500,000,000 a year of interest. If that came in the form of goods, our industrial situation would be upset in a way and to an extent we have not heretofore experienced. The effect upon our labor situation and the consequent social problems which would be raised, would be menacing. itllll 24 THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLJP 25 In the end we would be hurt, I am inclined to believe, as much by the rapid receipt of payment in the form of goods as our debtors would be harmed in making the payment. It would appear then that we had erected a paradox, if we take this view of the situation. To insist that the debts are just ones and should be paid, but to admit that the receipt of payment would be disastrous to us, and therefore should be avoided, is an apparent contradiction. That view must be considered apart from any question as to the ability of the debtors to pay. If they cannot pay, it may well be said that there would be small use in insisting upon a "Confession of Faith." If they can and do pay, one is left with the belief that debtor and creditor will alike be seriously harmed. What is to be done with such a paradox? In some quarters in America I find a disposition to meet the situation in this way. Feeling a growing apprehension that our debtors, or at least most of them are insolvent, it is admitted that the cancellation of the debt, or at least its scaling may be in- evitable. There is, therefore, a groping for some point of advan- tage to be gained, against the disadvantage of enforced cancella- tion. If cancellation is inevitable, whatever our opinion of the justice of the claim may be, it is asked if there is not some better way than merely to wipe out the debt. If we should wipe out the debt we may be sure that our late debtors will show very little appreciation. They will in many cases feel that we have been slow about taking an inevitable action. Some of our people who hdd the view that we should exact some advantage in return for cancelling the debt still have a large measure of altruism in their attitude toward the situation. Others give it quite practical consideration. But all unite in feeling that prosperity in America is largely related to prosperity in Europe. They agree that our interests are firmly bound up with the future of European civili- zation. There is a feeling on the part of those who would exact some- thmg in return for cancellation, that Europeans have generally badly mismanaged their affairs; that Europe has brought upon herself, and upon the world, profund confusion. They believe that we have, in the Allied obligations, a certain amount of ad- vantage, even though it is admitted that these debts are an un- certain instrument of power. They argue that if we must forego payment the least we might get for the cancelling of past debts is some guarantee of better future behavior. So it has occurred to many people to wonder if it will not be possible, instead of blankly surrendering our $11,0CX),000,000 to surrender the debt conditionally, — to surrender it only against some guarantee that in the future European behavior will be improved, to the end that European civilization may be rescued from the grave dangers which it is facing. A project such as this needs examination of the conditions which might conceivably be proposed as prerequisites for can- celling the debt. That leads to an enquiry in some detail as to just how Europe is now misbehaving. It raises the question as to whether or not it is conceivable that the particular nations owing us can now give guarantees which would be of value for future good behavior. The first thought in such an enquiry would probably be directed toward a reduction of excessive armaments. There is naturally an obstacle in the way of our showing complete sympa- thy with France, for example. It will be difficult to agree to the cancelling of France's debt to America, while France is of her present mind and continues to maintain an army of seven to eight hundred thousand men. Let us examine then the suggestion of proposing to France a remission of our war indebtedness claim provided France will in turn substantially reduce her military expenditure. Her answer will undoubtedly be: "Yes, we will gladly reduce our military expenditure to any point you name, provided you in turn guarantee our national integrity.*' France might feel, with a good deal of reason, that we should agree with her that it would be national folly for her to reduce the ill I THE ECONOMIC CLVB OF NEW YOBK ADDRESS OF MS. FRANK A. YANDERLIP 27 l! strength of her army, unless she first obtains some outside guar- antee for her future. France is neighbor to a far larger nation which to a man now feels that it has been unjustly treated Ger- many may be ever so war-sick at the moment, but it is not only conceivable, it is quite probable, that the day wiU come when Germany will seek by force to retrieve losses imposed by what she believes to be a thoroughly unjust treaty of peace. If we found that the reduction of armanente in France could not be purchased, not alone by the remission of the indebtedness of France to us, but that we must in addition pay with a guarantee which will insure France from future invasion, pay in a guaran- tee that the national integrity is to be permanently upheld we might as well regard the cost of her reduction in armaments, if purchased at that price, as footing too much. What then is a further bill of particulars of European misbe- havior that we might make up.' At least, what other misbehavior IS there that any of our debtor nations, should they have the pur- pose, could themselves correct and could guarantee permanently to stand corrected, in return for our surrendering our debt? I assume that in any proposal of this type we would be aiming at general European recovery. One of the obstacles in the way of such general recovery is that extent and the terms of the claims of the Allies for reparations. These claims may be far too small to offer material compensation for the damage which Germany has caused; nevertheless they are far too large to make it conceivable that Geririany can pay them. I put to one of the most distinguished English statesmen of the presfent day this general problem of war cancellation. I asked him what, m his opinion, we ought to ask for cancelling our claims agamst the Allies, as he strongly felt we should do. His reply showed the objectivity of the British mind. In America we seem still to be nearer to the War than England. If an American were to propose what this English statesman did propose, it would lay him open to attack as being pro-German, and to charges that he was a paid German propagandist, and yet the sUtesman who made the proposal was as high-minded and righteous a man as can be found in the British Empire. This proposal was that the American government should say to the Allies that the Allied indebtedness will be cancelled pro- vided the Allies will in turn reduce by the same amount tiieir demands upon Germany for indemnity. Such a proposal seems to me to be one that proceeds without sound principle to escort it. If the indemnity is too high, if its terms are impossible of fulfillment, the Allies have it quite within their power to reduce it. No more futile proposal could be made to America from a political point of view than to suggest the pur- chase by the cancellation of our debt of a reasonable attitude on the part of the Allies toward Germany. It would be to purchase something which is obviously in the interests of the Allies to adopt; failure by the Allies to adopt such a course promises to be followed by such contagious financial decay that the Allies must act promptly, or quickly feel the heavy weight of the conse- quences. Why then should we purchase this wiser attitude at the expense of cancelling our just claims. Recasting the terms of the indemnity would undoubtedly be a helpful factor in European recovery. The objection to the in- demnity as it is now laid is a double one. First, the indemnity is larger than Germany can conceivably pay. The consequences of such a burden, if the Allies persisted in binding it upon her shoulders, will be a financial debacle. Financial breakdown in Germany will inevitably involve other countries in Europe. The other evils that follows from the present terms of the indemnity attaches directly to the allied creditors. So far as payment is made it is bringing disturbance into their domestic industrial life. That applies particularly to England. Only a fraction of the indemnity is payable to England, but she experi- ences to the full the false conception, in which Germany is forced to engage, in order to provide the equivalent of gold payments which the terms of the London Conference compel her to do. >> : u JL:i 28 THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLIP 29 tlllil '\- 'f \\ ?^l ll|| l!l!| 11 I should, then, certainly reject such a point in a bill of par- ticulars of Europe's misbehavior. We should leave to the Allies themselves the readjustment of their claims upon Germany, and not undertake to purchase by the cancellation of our debt a wiser and more reasonable attitude of the victors to the vanquished. It is quite clear that we should also reject a possible corollary of such a theorum. Under no circumstances should we become the Allies' collection agent, and trade our claims for the uncertain claims which the Allies have imposed upon Germany. If we examine one after another the possibilities for making out such a bill of particulars of misbehavior as I have suggested, if we undertake to find ways in which we might direct European political policy under the threat of enforcing our financial claim, or under the bribe of relinquishing it, I believe we would find this whole field of exploration a fruitless one. Any attempt seriously to enter it would result in involving us in meddling with European political policy. To become so involved is opposed to every American national sentiment. I should abandon, then, the theory that we might cancel the aUied indebtedness in exchange for the privilege of imposing certain rules of political conduct upon our debtors. I should likewise reject at once, and with vigor, the suggestion that in exchange for cancellation we ask to be given certain trade concessions, that we demand special commercial privileges. The genius of our foreign policy has long been the open door, equal rights, a fair field; if we should, through the cancellation of this indebtedness buy special privileges for our commerce, if we should obtain discriminatory treatment favorable to American business, we would buy something which we ought not to have, and some- thing which would in the end plague us infinitely more than it would ever prove to our advantage. The paradox then persists. I would have the Allies acknowl- edge the justice of the debt, and would insist upon its payment; and at the same time I would recognize that its payment in goods would bring about such confusion in our domestic aflFairs that we will be more harmed by its receipt than we will be to forego it. What then shall be done? Is there some way in which the integrity of national promises may be kept, some way in which our faith in national obligations may be left unshaken, some plan under which our future international relationships may not be darkened by repudiation? Can we, while accomplishing those objects, at the same time avoid the consequences on the one hand of ruining our debtors, and the danger on the other hand of ruining ourselves? All that is possible. America can, if she will, shrewdly choose the road out of this difficulty. Such a road would, I believe, lead to greater material gain for civilization in general while for America it will lead to a great moral and vast material gain. For America it will mean the most substantial material advan- tage that has ever flowed from any single political act. More im- portant than the material gain — ^however immeasurably great that would be — ^there would be spiritual gain which would give us a moral leadership so far-reaching that the responsibility of it should make us humble rather than vainglorious. I repeat that I would demand the full acknowledgment of this debt. It is a just debt, and ought, if possible, to be paid. Next I would want America to be both an intelligent and lenient creditor. Terms of payment ought to be adapted to the means of our debtors. In that respect we shouM take the action of the Allies in fixing the terms of the indemnity as an example to be avoided rather than followed. The crux of my plan would lie in the disposition of the pay- ments. I would have America make a beau jeste, a grand gesture in international relationships. While demanding that the payment be made, I would have America say that she is prepared for the present to forego the receipt of it. That is how the consequences of the paradox may be avoided. What then shall we do with it? I would like to see every dollar that can ever be paid to us by our debtors for years to come I •3SCI 30 THE ECONOMIC CLUB OF NEW YORK M. y^j devoted to the rehabilitation of European civilization. It is only through the rehabilitation of European civilization that these debts can ever conceivably be paid. It is only through the rehabilitation of European civilization that America can ever conceivably realize in full measure her destiny, or can expect a full measure of prosperity for our people. What do I mean by this generalization about the rehabilitation of European civilization? Why do I believe that America has the special wisdom which will warrant her undertaking such a work whatever it is? Why, if Europe is indirectly to pay the bill herself, should she not be left alone to handle in her own wisdom the problem of reconstructing European civilization? Let us examine these questions. By undertaking to rehabilitate European civilization I mean in the first instance that I would bring a spirit into the affairs of distressed Europe which would promise a revival of hope, a renewal of courage, a stimulation of industry. There is today a pall of cynicism, of national hatred, and of disbehef m the sincerity of friend and foe alike, which make the start towards rehabilitation almost impossible. Towards the close of the War, President Wilson put into words of high spiritual meaning the very essence of the best of American aspirations of peace. His words influenced all Europe with a passionate hopefulness that there had come into the world of international relationships a new note of fairness and goodwiU Such a wave of idealism swept through the common people of Europe as had never before been witnessed in all history Those ideals were hopelessly crushed at Paris. Not' one of them remamed when the treaties were written, and Europe fell back into something far worse than its old-time cynicism. The voice of America, uttering beautiful doctrines of brotherhood through its chief magistrate, sounded to Europe like a sacred gospel; and then America, along with her associates, abandoned that gospel. Hope turned into despair, belief into cynicism, and faith was burned up in new fires of racial hatreds. It is a common- ADDRESS OF MR. FRANK A. VANDERLIP 31 place to say that the greatest opportunity to benefit humanity that ever came to any man lay at one moment in the hands of Woodrow Wilson. The opportunity passed. Hopes were not realized. Today that same opportunity lies at the feet of America as a nation. Its fate no longer rests in the hands of one individual; it is the responsibility of a whole people. Having in our hands the opportunity to do an incalculable service to mankind it re- mains to be seen whether, as a nation, we will rise to that oppor- tunity, whether we will perform the service that is before us, or whether as a nation we too shall fail. Let us now soberly examine what it is that we might do. Large sections of Europe are backward, judged by our stand- ards. Backward though they may be, they are bursting with latent possibilities for development. A study of eastern Europe has aroused in my mind a vivid program. I believe a plan for the development of eastern Europe could be laid out which might well be compared to the vision our forefathers had when the latent possibilities of our great West were unfolded to their minds. I do not mean that eastern Europe is a wilderness. In oppor- tunity for development it is vastly richer than any wilderness. There is everything at hand there except education, economic organization, the aplication of enlightened methods to production, and the harmonizing of blind racial antagonisms. Everything the War has cost, everything an unwise peace is costing, can be recompensed, and beyond that a great economic margin created, if eastern Europe can be put in order, can be helped and led wisely to handle its own problems, if the peoples of eastern Europe can be made to comprehend their economic unity, if they can be brought to understand that in the welfare of all nations lies the highest prosperity of each. You may ask how can I soberly imagine that America can largely contribute toward that end, suppose she had in hand, and was ready to devote to such a purpose, the interest and principal ! '' ■iife»*- ill 32 THE ECONOMIC CLUB OF NEW YORK iV\ aW !ll K t"- ^''" " *" '""^ ^^^^ be, it would, after aU, be small compared to what Europe is already spending for government. How then is it likely that we could make much of an impression upon European civilization, even with such a sum wisely spent? the^St' '' ^^Tr^'''' "'" ^'^"'^^^ ^ ^'« ^^^^d and time, they find it impossible to make expenditures for those very ob- jects which would be of the greatest possible value in imping mhzauon. Moved as we are, governed as we are, it is possibk fre T2\'\ ""' ^?^ '^"^'^"" ^"^^ ^"-^' P^--ded those sums are devoted to certam purposes. Without much grumbling a nation will tax itself to build at frequent intervals a WOOO,bOO a S>tl. ''^ '''''' ^" "PP^^^ ' ''''' --y' ^- --tain a too numerous civil service. As a matter of course European nations tax themselves vast sums to pay for the costs of past war and to provide agamst the possibilities of future wars th^^llTT ""f "^^ ""'"^'''^ ^^"^^' ^P^^^ ^^-^y ^^ those hings which have furnished the chief items of national budgets for a thousand years, it will at the same time refrain from doing an endless number of things which, if done, would profoundly affect for the better the nation's future, an. profoundly influent for the better the course of civilization. Most of such admirable projects are now left to be worked out m a puny way by an occasional philanthropist, or the more aw^k "^ '"'''" "f °°'- ^"^""^ ^''^ ^^^ -P-ience and awakened imagination knows that it would be possible to make expenditures of a character now rarely, if ever, sanctioned by the tax payer the return upon which, in terms of the welfare of man- orlTe . ^^^^"^t'll" ^"^^" ^'^'^ '' ^^^ -turn from most of the objects upon which government incomes are lavished It IS to such a program that I would devote for many years every dollar that we can get of this debt. I believe if the money was thus wisely expended, one of the results would be such marked economic impr^emen't in Europe that m time every dollar of these debts could be paid. Although ADDRESS OF MR. FRANK A. VANDERLIP 33 our claim would for a time have been expended without coming directly to us, the indirect result of the expenditure would many times over materially compensate us for the direct loss. It is now a claim we are never likely to realize, or at least to realize in but small measure. If we would relinquish our claim to its receipt, if we would spend with purposes of high nobility what was paid us, we would indirecdy get it ^11, and much more than all. Ultimately we would get it in fact. If such a program as is here indicated were undertaken I would hope that little, if any, of the funds would be expended in strictly welfare work. The last thing we ought to do is to pauperize anyone. There is still perhaps some welfare work that will have to be done, but in the main the expenditure should be made with great vision of the future, rather than as a palliative to ease the distress of the moment. There is a situation at present in Europe in which the old machinery of commerce, by means of which goods were inter- changed, and the life of Europe's vast population made possible, is now so out of gear that a resumption of old commercial rela- tionships promises at the very best to be but slowly brought about. Those old relationships must promptly be resumed, or much of what we call the civilization of Europe will perish. One of my first concerns would be to help to do that; but helping to put in order the old machinery of commerce would not be enough, nor would that accomplishment be really the ultimate aim. A considerable part of what we received might well be used as a revolving fund of credit. It could be loaned to nations to help them accomplish specific purposes, purposes which we had carefully ana- lysed and believed to be economically sound and for the general good, purposes which would accomplish substantial and perma- nent economic and social results. The funds so loaned could in time be repaid; if the purposes for which they had been used were economically sound they could be repaid without difficulty, and could then be similarly reloaned over and over again and ulti- mately paid back to us. i^^k ^'^ro^J'^' 34 THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLIP 35 ■V. < E,5nn^ Z "'*' transportation. We could help provide it Europe needs a great development of its ample hydroel«:tric power m order that it may have cheaper motive power, ^^" econom.^e ,ts far too small fuel supply. We coufd aid irrnitiat- mg such projects. There are cities in eastern Europe that need better systems of sanitation. Such provision would be of grt« economic .mportance. We could give impetus to it ^ po tirifT'""^' J,-''""''' 1-y before you a much fuller ex- posmon of the poss.b.hues of economic development. I would emphasize what might be done for Italy and Austria n develop^ ■ng great hydro-electric possibilities If we to«lr „nl„ • ^^^°^, :l'Z £Z-^ »"-- • •»- — ^ T.rs:^ If we would devote the income for a few months toward equio- would have conferred a material blessing on eastern oeasantT,! 721 Zrr '"'•^' ^'^-""'"'"^ Production^rrv of?ommer« '"' '° '"" ^^''^^"^ ''''''' -*° » -"t stream' of'ilfrectpttT.i: "'; "'T ""'" ^'' ''«^*- ^' — debt aTd sho d b^pa'^" A Z "'JT ^f '!^''^* "^ i"« debtors cease TT.. A- , . ^ '°* °"' '*'"■*'"« ^^^h the aebtors cease. The expenditure of the money we received should be made where and how we wiIIaH i», j- ""'"^^ snouia affair n^, »k a- , ^^ ^'"*<*- It* expenditure wou d be our altair, not the affair of the debtors. Some part of what we received, however, would probablv be spent without possibility of direct return, if such exS^diture! were wisely made, d,e indirect return would be enormo^ ^e " nr W 1"""."*° " *""°"*' P^°^P''«"' °f what might be accom! the most'f "'" T""^ °' *''«»'«» '^ y«" w'hich w<^Td be the most fascmatmg financial document that was ever prepared Admitting for the moment the possibility of devising a sound and wise plan for such expenditures in Europe, expenditures so well calculated that they would bring quickly the blossoms of ^ promise, and later the fruit of fulfillment to European civilization, you may still ask why do I think that America has the wisdom, the experience, the temperament, the freedom from unwise politi- cal interference which would warrant the hope that we could, even with the best motives in the world, successfully conduct such a great experiment. A most impressive reason for believing this to be within the range of possibility can be pointed out. It is the work which Americans have done, and are doing in Europe. I have seen something of that work this year. I have studied with care in many countries the administrative ability which our countrymen are showing, and I have rarely seen anything that made me prouder of being an American. I know something of the work which the American Relief Administration, operated under Mr. Hoover's direction accom- plished. I have met many of the men who are doing that work. It is a small staff, but it is made of as capable a group of vigorous, efficient and high-minded men as were ever brought together for a common purpose. While the work which has been done by a number of American organizations, such as the Red Cross, the Y. M. C. A., the Quakers and the Near East Relief is quite different work from that which I would hope to see undertaken under this program, the character of management of these organizations, the ability which they have displayed in working with foreign people and training them to a large degree of self-helpfulness leads me to have great confidence in the American genius for work in foreign fields. I would not, by any means, have the work which these organizations have been doing duplicated under this program but I would feel confident that the type of work which I have in mind could be accomplished with as signal success as has been the other type of work which Americans have been doing in Europe. il 36 THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A, VANDERLIP 37 \'* I have had the opportunity to observe also in the near East a work which has extended over a far longer period than the American Relief Administration. It is a work less picturesque than that done by some of the American organizations working in Europe but it has had the advantage of time to prove its sound- ness. I refer to the results accomplished by such institutions as Robert College and the Woman's College at Constantinople, as well as to the general educational activities of various American religious groups,— activities, I may add, that have risen far above a desire for religious proselyting, activities in which men and women have whole-heartedly given themselves to service, and have had for their aim the sound building up of human character, and have been very little hampered by eflForts to propagate doc- trinal beliefs. No one can travel through the near East and meet the men who are today responsible for the administration of aflfairs with- out in the first place being impressed by the number of such men who are graduates of Robert College; and then further being enormously impressed with the profound influence which the training in such a college of a comparatively few men has accom- plished in the political and social life of the Near East. It is no overdrawn statement to say that the most potent single influence for good in Near Eastern affairs can be directly traced to the invigorating spirit of sound manhood which has emanated from Robert College. I saw evidences of this in every country in the Balkans. It may be answered that such influence has not yet brought about a millenium, and that is true; but it has certainly saved millions of people from immeasurably more unhappy conditions than those which they have actually encountered. If I single out Robert College it is only because I saw more first-hand evidence of its influence. In its way, Constantinople College has performed the same sort of service, and I have no doubt that other American institutions of learning, — and there are some thirty now, — have had considerable careers of usefulness. All the way from the Baltic to the Black Sea, in Poland, Czecho- slovakia, Hungary, Yugo-Slavia, Bulgaria and Turkey, there is a newly awakened passion for education. Men are coming to see that democracy can survive only if there are soundly educated leaders. A work of helpfulness and stimulation can be accom- plished in education; a work which will receive enthusiastic sup- port from these various nations. They would cheerfully accept high-minded direction. Such a work would cost, in the light of figures we are now dealing with, but a trivial sum. It will pro- foundly influence the future course of civilization in Europe, and the future welfare of the world. I do not believe this is an impractical dream but rather that it is a most materially practical project. The fruit of it would come to quick maturity. Lessons of mutual racial respect and consid- erations are being learned in the schools, colleges and universities where numerous races, bom to blind antagonism, are being edu- cated side by side. Multiply the opportunity to learn such lessons, and a profound influence toward softening the world-old hatreds of Europe will be set in motion. Believing, as I profoundly believe, that the real fundamental solution of Europe's difficulties is a spiritual one, believing that with a continuance of these blind racial hatreds peoples must economically perish, I am convinced that to multiply such institu- tions as Robert College, and other equally efficient institutions with similar aims, would be a great and fundamental step in the regeneration of Europe. I believe too that America has men of the high purpose and broad vision which will make them sound leaders for such a movement. I am confident that enough work of this sort has already been done to create a prestige for America, which will make a larger effort of this character a wel- come one. We would not have to carry it on single-handed; we would only need to start, organize and direct. The means for the enlargement of its scope and the adaptation of its growth to the national genius of the different countries, would come from local sources 38 THE ECONOMIC CLUB OF NEW YORK /?i K and in most of these countries there would arise at once generous springs of local self-helpfulness. All this is not merely a spiritual ideal, although spiritual ideals are, after all, the granite rocks upon which material well-being is built. I can see the quick economic response that these countries will make to influences of this character. The effect of the program I have in mind would not be confined to eastern Europe. The restoration of the economic stability of such countries as England, the restoration of the economic stability of all those countries that have become so highly industrialized that they must sell the products of their labor in the form of manu- factured goods to obtain the food upon which their existence de- pends, lies outside of themselves. If they are to continue to live with their present numbers, they must have solvent steady cus- tomers for their goods. No greater service could be done those countries nor America than to help build up into economic sound- ness the customer nations which are today stagnating, because of mental and economic backwardness, and racial hatreds. If mar- kets were opened, industrial nations which are now facing star- vation would quickly be able to render a service to world society, against which the worid will provide them with ample food. Let us look at the matter from another angle, the angle of food production. No one who has travelled in eastern Eurc^e with open eyes can avoid the impression of tremendous latent agricul- tural possibilities. Take the illimitable grain fields of Roumania and South Russia, for example. There is no better land in the worid. No lands are more beautifully adapted to the possibilities of almost unlimited improvement of productivity if scientific methods and modern machinery are brought into play. These wonderful grain fields of South Russia, now plowed in a way that but scratches the surface by the diminutive ponies, which in the main compose the working farm animal population, produce on an average six bushels of wheat to the acre. Intelligent in- struction, better seed and better breedr of farm animals, the intro- duction of modern machinery, and an arrangement by which 5^*.^w^:- ADDRESS OF MR. FRANK A. VANDERLIP 39 small holdings are united under cooperative associations so that the full benefit of motor driven farm machinery can be realized, will easily result in producing three times their pre-war product. A work can be done in educating the peasants of eastern Europe to better agricultural methods, which will compensate most of the losses of the war; to do that will require only a little capital, and a large amount of high-minded unselfish service. Such an undertaking as I propose could readily accomplish that. Is this a plan that would build up diflftcult competition for our own farmers? Not at all. It is a plan which would help feed a Europe which may otherwise be but partially fed, and help restore to Europe the economic power which will make her a greater customer of America than she has ever been before. I would not plan to take from England, France, and Italy, the last dollar that could be forced from them to pay their debt to us, and then spend it all in eastern Europe,— great as the indirect recompense of such an expenditure would be in benefiting those western nations. On the other hand, I would not presume to impose our ideas of culture upon those already highly cultivated nauons. So far as they were ready to accept grants for purposes for which they are, for the time being at least, incapable of pro- viding by direct taxation, purposes that they themselves would recognize will work out for their ultimate great benefit, I would let a portion of the money they paid us be expended within their own borders. I would propose to England the establishment of great scientific laboratories. With her genius for sound scientific research she would, through a stimulation of technical education and scientific investigation, give to the world new knowledge of incalculable value. I would give to Italy, if she agreed to have it, the means for establishing great schools of applied art, so that the tremendous genius for handcraft which the Italian possesses may be turned into channels which will produce goods to enrich the world. I admit that it would be more difficult to plan such contributions 40 THE ECONOMIC CLUB OF NEW YORK for France. I have memories of service as a Dirertor of the Society for Aiding French Orphans. France rests in the belief,— and with no small amount of sound reason,— that her culture is already so perfect that she would not accept such expenditure if it came with a touch of American direction. In that field we ought to proceed with caution and modesty and good taste; but even France might agree that some of the money she paid us could, in turn, be expended upon objects in France that would work out for the benefit of mankind. I would not make the expenditure on such a program as I am trying to outline wholly a matter of American direction. Remem- ber there must be no relation between the payment of the debts and the expenditure. The debts are just and should be paid. But I would draw upon the culture, the training, the special knowledge, the high purpose of the best of Europeans to aid in formulating the program and in administering it, always keeping the control of the situation, however, in our own hands, for it would be our money that was being expended. How to administer such a trust as I am suggesting, would form a chapter too long to include in this outline. Perhaps I can visu- alize what I have in mind in regard to administration in a sentence. If the administration of the whole project of expenditure were placed in the hands of a Commission, headed by Herbert Hoover, I think we could all safely go about our domestic affairs and find nothing but satisfaction as we read the report of the work. Our history is not wholly devoid of adventures in altruism. When, after the Boxer Uprising, America in common with several European nations was, somewhat to America's embarrassment, awarded an indemnity of some $20,000,000, we promptly declared that while it was probably just that China should pay us that mdemnity we did not propose to receive it for our own enrichment. So we have in all the years since devoted the payments on account of that indemnity to the education of Chinese students in Ameri- can institutions. The result of that magnanimous act was to give America a prestige in China such as no other nation enjoyed. ADDRESS OF MR, FRANK A. VANDERLIP 41 That prestige would have been translated directly into commercial profits, had not the government of China fallen upon such evil days, and had not the commercial opening of China, which some day will be a certainty, been for the time delayed. I should have no hesitation in arguing the merits of this plan with the coldest of American materialists. All I would ask is that such a man have imagination enough to look ahead a few years for results. Never was there a greater fallacy than to say there are no friendships in business. The very warp and woof of business is friendship, confidence, mutual trust, belief in honest and not too selfish purposes. As a matter of fact, I believe that if we were to look selfishly at the situation over a period of, say, twenty years, there is no proposal in regard to this Allied debt which would begin to give America the material results that such a proposal as I have suggested will bring. To the mind that hesitates over such a project as this, I would like to put a question. If this plan is not acceptable, what plan then would you propose? To insist upon the payment, and fully to accept all the payment that we could force our debtors to make would certainly result in two things. In the first place, we will get very little; in the next place, we will create a general European atmosphere of antagonism. The debtor never loves the creditor. If the debtor is seriously impoverished, if the creditor is rich and powerful, if there are circumstances concerning the debt which permit the debtor to argue, to his own satisfaction at least, that there are palliative circumstances which would throw doubt on the full validity of the debt, the relations between debtor and creditor must neces- sarily become strained. Under the plan here proposed, it seems to me that the sting of our insistence would be taken away even from the minds of those who today see with the least clearness their moral obligation. If we convert the debt due us into a debt due to humanity the whole world will want to see it paid. Each national neighbor of our debtors will be even more insistent than we that the obligation 42 THE ECONOMIC CLUB OF NEW YORK ADDRESS OF MR. FRANK A. VANDERLIP 43 be discharged, because they wUl have hopes of improving their own situations with the aid of some of the funds so realized. World sentiment would be favorable to this debt being paid if the purposes to which the accounts were to be devoted were clearly seen to be wise and sound purposes for European re- generation. We need not make an irrevocable decision when we embark on this program. For a good many years, I believe it would be wise for us to devote all we receive to such purposes as I have sug- gested. It is entirely probable, however, that there would come such economic restoration that in the end a considerable part, conceivably nearly all, of the principal might be paid to us. Interest money that we loaned and reloaned for economic de- velopment would be converted from the original obligation of the Allies to obligations representing material properties which we created, and probably backed by the obligations of the govern- ments of those countries where this economic development took place. The time might come when we would cease to make these sums revolving credits for European economic development be- cause there really would not be further need for us to do so. Then the money would come back to us. I am firmly convinced that in the great catastrophe the War has brought there has been created an opportunity which could never otherwise have arisen. The obstacles which have arisen in the path of European civUization can be turned into stepping- stones leading to a position vastly better than anything Europe has ever known. The War has made a great awakening in mil- lions of dormant minds. It is possible that newly awakened im- pulses, if they can only be harnessed up to the machinery of production and distribution, can result in a great actual improve- ment of civilization. That awakening, those impulses, are now disconnected from any machinery of commerce, and they may all be lost in a decaying civilization. We can help turn them to account. The possibilities that there are in society for realizing better conditions for all humanity are undreamed of. The oppor- tunity has arisen to make those possibilities realities. If we insist to the letter upon our claim, our claim will in all probability never be met. If we insist upon it selfishly, we realize in hatreds but not in cash. If we are generous, and wisely gen- erous, those claims can all be paid, and I believe will all be paid, and the good we do with them will mean more to us materially than anything we would conceivably be parting with. "For whosoever will save his life shall lose it; but whosoever shall lose his life for My sake and the GospeVs, the same shall save %t. it ''^l^ ^ THE TAXATION PROBLEM OF THE UNITED STATES Stated in a series of questions drafted by a special committee of Tlie National E^conomic League and voted upon by its National Council. 1. Should tha Income Tax b« retained as one of the principal sources of Federal revenue? 2. Should the present minima of taxable income be retained? If jour answer is no, should the present minima be (a) Raised? (b) Lowered? 3. Should the present rates of surtax upon incomes in excess of $5,000 be retained? If your answer is no, should the present rates of surtax be (a) Increased? (b) Diminished? 4. Should the Excess Profits Tax be retained as a source of Federal revenue? 5. Should the Federal Estate (commonly called Inheritance) Tax be retained? 6. Should a direct tax be levied by the United States upon the site value of land: i. •., the portion of the value of land due to the presence and activ- ities of the community and to natural advantages, mineral deposits, harbor frontages and the like? 7. If your answer is yes to the preceding ques- tion, should the Federal Constitution be amended so that such a tax could be levied at a uniform rate throughout the United States, instead of being ap- portioned among the States in proportion to popu* lation as at present required? 8. Should tha policy of the United States with respect to a tariff on imports be (a) A tariff for the protection of home {ndustriet? (b) A tariff for revenue only? (c) Free trade (i. e., no tariff what* ever) ? 9. Should Congress undertake a survey of the ultimate effect of ▼arious kinds of taxes to determine (a) What taxes involve adminis- trative expenses disproportion- ate to the revenue collected? (b) What taxes, if any, directly or indirectly increase the cost of living by an amount materially in excess of the revenue col- lected? (c) What taxes, if any, couULbe levied that would directly or indirectly reduce the cost of living? 10. Is it advisable for the United States to pay off its bonded indebtedness as rapidly as the bonds mature? 11. Should the Federal power of taxation be used as an indirect means of imposing regulations in behalf of the public health, morals or safety which Congress would have no power to impose directly? Yei 453 237 No 46 2^ 60 128 182 277 17 178 130 368 362 138 162 317 117 28 260 188 84 441 51 206 154 242 300 MADDIH'PARDKL MI«» JAMAICA rLAIR i ■\ \ COLUMBIA UNIVERSITY LIBRARIES This book is due on the date indicated below, or at the expiration of a definite period after the date of borrowing, as provided by the library rules or by special arrangement with the Librarian in charge. DATE BORROWED OATK DUE DATE BORROWED DATE DUE i • i i i 1 C28< IO-S3)IOOM i '^Sffl?l!l';lt''VERS,TY ,V'B«AR/ES w D997.3 V28 997.3 Vanderlip V28 The need for a united nation. \ . . ^y^5« Oil IB NE m m SEP 011994 TWe- '*f*''***"n'>< MAR 11 1955 END OF TITLE