"Mr. Balfour," said Mr. McAdoo, "before we make any plans of financial assistance it is absolutely necessary that we know precisely where we stand. The all-important thing is the question as to how long the war is likely to last. If it is only to last a few months, it is evident that we need to make very different arrangements than if it is to last several years. Just what must we make provision for? Let us assume that the United States goes in with all its men and resources—that we dedicate all our money, our manufacturing plants, our army, our navy, everything we have got, to bringing the war to an end. How long will it take?"
Mr. Balfour replied that it would be necessary to consult his naval and military advisers before he answered that question. He said that he would return in a day or two and make an explicit statement. He did so and his answer was this: Under these circumstances—that the United States should make war to the full limit of its power, in men and resources—the war could not be ended until the summer or the autumn of 1919. Mr. McAdoo put the same question in the same form to the French and Italian Missions and obtained precisely the same answer.
Page's papers show that Mr. Balfour, in the early stages of American participation, regarded the financial situation as the thing which chiefly threatened the success of the Allied cause. So much greater emphasis has been laid upon the submarine warfare that this may at first seem rather a misreading of Great Britain's peril. Yet the fact is that the high rate of exchange and the depredatory U-boat represented almost identically the same danger. The prospect that so darkened the horizon in the spring of 1917 was the possible isolation of Great Britain. England's weakness, as always, consisted in the fact that she was an island, that she could not feed herself with her own resources and that she had only about six weeks' supply of food ahead of her at any one time. If Germany could cut the lines of communication and so prevent essential supplies from reaching British ports, the population of Great Britain could be starved into surrender in a very brief time, France would be overwhelmed, and the triumph of the Prussian cause would be complete. That the success of the German submarine campaign would accomplish this result was a fact that the popular mind readily grasped. What it did not so clearly see, however, was that the financial collapse of Great Britain would cut these lines of communication quite as effectually as the submarine itself. The British were practically dependent for their existence upon the food brought from the United States, just as the Allied armies were largely dependent upon the steel which came from the great industrial plants of this country. If Great Britain could not find the money with which to purchase these supplies, it is quite apparent that they could not be shipped. The collapse of British credit therefore would have produced the isolation of the British Isles and led to a British surrender, just as effectively as would the success of the German submarine campaign.
As soon as Bernstorff was sent home, therefore, and the participation of this country in the war became extremely probable, Mr. Balfour took up the financial question with Page.
To the President
March 5, 1917.
The inquiries which I have made here about financial conditions disclose an international situation which is most alarming to the financial and industrial outlook of the United States. England has not only to pay her own war bills, but is obliged to finance her Allies as well. Up to the present time she has done these tasks out of her own capital. But she cannot continue her present extensive purchases in the United States without shipping gold as payment for them, and there are two reasons why she cannot make large shipments of gold. In the first place, both England and France must keep the larger part of the gold they have to maintain issues of their paper at par; and, in the second place, the German U-boat has made the shipping of gold a dangerous procedure even if they had it to ship. There is therefore a pressing danger that the Franco-American and Anglo-American exchange will be greatly disturbed; the inevitable consequence will be that orders by all the Allied Governments will be reduced to the lowest possible amount and that trans-Atlantic trade will practically come to an end. The result of such a stoppage will be a panic in the United States. The world will therefore be divided into two hemispheres, one of them, our own, will have the gold and the commodities; the other, Great Britain and Europe, will need these commodities, but it will have no money with which to pay for them. Moreover, it will have practically no commodities of its own to exchange for them. The financial and commercial result will be almost as bad for the United States as for Europe. We shall soon reach this condition unless we take quick action to prevent it. Great Britain and France must have a credit in the United States which will be large enough to prevent the collapse of world trade and the whole financial structure of Europe.
If the United States declare war against Germany, the greatest help we could give Great Britain and its Allies would be such a credit. If we should adopt this policy, an excellent plan would be for our Government to make a large investment in a Franco-British loan. Another plan would be to guarantee such a loan. A great advantage would be that all the money would be kept in the United States. We could keep on with our trade and increase it, till the war ends, and after the war Europe would purchase food and an enormous supply of materials with which to reëquip her peace industries. We should thus reap the profit of an uninterrupted and perhaps an enlarging trade over a number of years and we should hold their securities in payment.
On the other hand, if we keep nearly all the gold and Europe cannot pay for reëstablishing its economic life, there may be a world-wide panic for an indefinite period.
Of course we cannot extend such a credit unless we go to war with Germany. But is there no way in which our Government might immediately and indirectly help the establishment in the United States of a large Franco-British credit without violating armed neutrality? I do not know enough about our own reserve bank law to form an opinion. But these banks would avert such a danger if they were able to establish such a credit. Danger for us is more real and imminent, I think, than the public on either side the Atlantic understands. If it be not averted before its manifestations become apparent, it will then be too late to save the day.
The pressure of this approaching crisis, I am certain, has gone beyond the ability of the Morgan financial agency for the British and French governments. The financial necessities of the Allies are too great and urgent for any private agency to handle, for every such agency has to encounter business rivalries and sectional antagonisms.