College & Education: French Debt to the United States

June 17, 1925

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APAThe French debt to the United States. (1925). Editorial research reports 1925 (Vol. II). Washington, DC: CQ Press. Retrieved from http://library.cqpress.com/cqresearcher/cqresrre1925061700

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Report Outline
History of French Debt to the United States
"Political" and "Commercial" Debt
French War Expenditures in the United States
Proposals for Pooling War Debts
Discussions of Funding and Repudiation
The French Debt and the Dawes Plan
American Revolutionary Debt to France

Definite negotiations for the funding of the French debt to the United States are expected by the Treasury Department to follow the balancing of the French budget. The progress thus far made by M. Caillaux, the new Finance Minister, and the evident desire of the French government to float additional loans as soon as possible in the American money market, have led to a belief that a French mission will be sent to the United States to meet with the World War Debt Funding Commission soon after its negotiations with the Belgian representatives in July are concluded.

While clearly stating the intention of his government to open direct negotiations with the United States at an early date, M. Caillaux has made no announcement of the principles upon which he believes a settlement should be based. All other French finance ministers since the war, down to and including M. Clémentel, took the position that the debts contracted among the nations engaged against Germany constituted an international problem, the solution of which could not be found in separate negotiations with individual creditors. They have been joined by other French statesmen in asserting that the amount of the debts should be readjusted in accordance with the sacrifices of each nation, and that payments should be made to hinge upon the amounts received as reparation receipts from Germany.

In the presence of France's present need for additional foreign loans the theory that war debts should be pooled for payment appears to have been abandoned by M. Caillaux. To what extent he is prepared to insist upon the various claims for reductions in France's debt put forward by his predecessors probably will not be made known until the actual negotiations are opened at Washington.

In the following report an attempt will be made to set cut the present status of the French debt, the purposes for which it was contracted, the attitude heretofore held toward the debt by both France and the United States and in general to indicate the nature and the basis for the arguments likely to be advanced on both sides in the forthcoming funding negotiations.

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History of French Debt to the United States

The French debt to the United States amounted on November 15, 1924—six years after the armistice—to $4,137,224,354.57.

Next to Great Britain, whose debt (funded in 1923) amounted to $4,577,000,000, the debt of France is the largest owed to the United States by any foreign power. Italy stands third with a debt, principal and accrued interest, of $2,097,347,122.82.

Amount of the French Debt

The status and amount of the French debt to the United States are summarized in the following table:

French obligations received by U. S. treasury under Liberty Loan acts	$2,997,477,800.00
Less repayments made in adjustment of accounts	64,306,127.52
	$2,933,171,672.48
Demand obligations (unfunded) held by U.S. treasury, November 15, 1924	$2,933,171,672.48
Accrued interest to November 15, 1924	796,711,537.08
Bonds received by Secretary of War in payment for surplus war supplies	407,341,145.01
(interest on war-surplus bonds has been regularly paid)
TOTAL DEBT	$4,137,224,354.57

Treatment of Interest

No interest has been paid by France since Apr. 1919 on $2,933,171,672.48 of her indebtedness to the United States contracted under the Liberty Loan acts. Although interest charges on the French debt to Great Britain have been carried at all times in French budget reports, no similar item has appeared in connection with the statement of the French debt to the United States. On the contrary it is stated in the various reports that "no interest has been asked of us" or "no service of interest has been required by the United States." These statements are not in accord with the following quotation from the report for 1920 of Secretary of the Treasury Glass.

"In the spring of 1919 the respective governments were informed that it would be convenient for the Treasury to receive semiannual payments of interest on April 15 and on October 15 on approximately two-thirds of their respective obligations, and on May 15 and November 15 on the remainder."

It has been pointed out by Secretaries of the Treasury on numerous occasions, in connection with their effort to bring about definitive negotiations for the funding of foreign debts, the Treasury has no authority for the deferring of interest except in connection with exchanges of demand obligations for bonds in funding operations.

Bonds for Purchase of War Surplus

While neglecting the payment of interest on government advances, France has regularly and. promptly met the interest on the $407,341,145 of bonds given the Secretary of Far in payment for surplus war supplies sold to the French government in 1919. The interest on these bonds is due in February and August of each year.

The war supplies sold to France for $407,341,145 were valued by the United States Liquidation Commission at $562,230, $562,230,800.02. In the interest of a prompt settlement, however, certain claims of the French government against the United States, including claims for customs duties, were allowed as offsets.

M. Clémentel in his budget statement of December 1934 said that France had paid 2,900,000,000 francs for these war supplies (the approximate valuation placed upon them by the U. S. Liquidation Commission) and had sustained heavy losses as a result of the transaction. His subsequent figures showed, however, that 2,739,570,721 francs had been recovered through sales of these supplies up to that time, with no valuation placed upon those used by the French government or remaining to be disposed of.

The $407,341,145 of bonds given in exchange for surplus stocks mature in 1929 and 1930. France has other large payments of principal falling due during the next five years, and it seems probable that she will ask that her obligations on account of purchases of war stocks be refunded in connection with the funding of the balance of her debt to the United States.

Authority for War Loans

The war loans which make up the bulk of the French debt to the United States were extended under the four Liberty Loan acts, authorizing the Secretary of the Treasury to establish credits in favor of foreign governments engaged in war with enemies of the United States, and to the extent of these credits to make advances to these governments through the purchase of their obligations at par.

The amounts appropriated for such loans by each of these acts are shown in the following table:

Act of April 24, 1917	$3,000,000,000
Act of Sept. 24, 1917	4,000,000,000
Act of April 4, 1918	1,500,000,000
Act of July 9, 1918	1,500,000,000
Total	$10,000,000,000

The first Liberty Loan act provided that loans to foreign governments should be made at rates of interest not lower than those to be paid to American investors in the Liberty bonds. The second act required that the obligations taken from foreign governments should mature not later than the American bonds issued to provide the funds for the purchase of foreign obligations. These provisions were carried in all subsequent acts.

In April 1917, prior to the passage of the first Liberty Loan act, Premier Ribot told Ambassador Sharp at Paris that "personally he hoped no resolution would be introduced or debated in Congress making gifts on the part of the United States to France, however much his countrymen would appreciate the sentiment and good will prompting such action."

Advances During War and Armistice Periods

The first $100,000,000 credit in favor of France was established by the American Treasury May 8, 1917, and $50,000,000 in cash was advanced on that day. This was followed by the opening of thirty seven additional credits, ranging in amount from $10,000,000 to $280,000,000, during the ensuing twenty six months.

It is interesting to note that seventy one of the 142 cash advances during this period were made before the armistice and seventy one after the armistice. The amount advanced after the armistice represented nearly thirty five per cent of the total loans. The figures are given below.

	Number	Amount
Cash advances prior to November 11, 1918	71	$1,970,000,000
Cash advances after November 11, 1918	71	1,027,477,800
Cash advances, May 8, 1917 to Sept. 28, 1920	142	2,997,477,800

As evidence of these advances the Secretary of the Treasury received certificates of indebtedness, or promissory notes, from France, the first of which were payable within a few months, and which became demand obligations upon their maturity without payment. The first certificates bore interest at 3 and 4 1/4 per cent. Subsequent certificates were made payable on demand and bore interest at the rate of 5 per cent.

"By arrangement with the respective governments," it was stated in the report of the Secretary of the Treasury for 1920, "substantially all the obligations have since May 15, 1918, borne interest at the rate of 5 per cent."

Theory Upon Which Loans Were Extended

Before the United States entered the war the French government had borrowed $750,000,000 in the United States through the sale of government bonds to American private investors. The funds were used to make payments for purchases in the United States of foodstuffs and materials for the support of the French armies and the civilian population.

When the United States entered the wax in April 1917 further private borrowing by the Allied nations in the American money market, which would seriously have interfered with the financial program of the American government, was made unnecessary by the establishment of credits in favor of those nations under the Liberty Loan acts.

The theory of the Liberty Loan acts was that the United States government would act as an intermediary between the Allied governments and American private investors, thus preventing interference with the American financial program, and enabling foreign governments to borrow at lower rates than those obtainable if the borrowing were done direct. The savings to France in interest charges as a result of this arrangement have been estimated to amount to $30,000,000 a year.

The American government has consistently maintained the position that the war debts of foreign nations to the United States are entitled to the same treatment that has been accorded debts contracted with American private investors before the United States entered the war. Interest on French bonds in the hands of American private investors has been promptly met, and the principal has been paid in full on such issues as have fallen due. It will be pointed out later, however, that a considerable part of the French payments of principal and interest on these bonds was made from the credits established in favor of France from the proceeds of the Liberty Loans.

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"Political" and "Commercial" Debt

A distinction between French government bonds held by American private investors and the demand obligations held by the United States Treasury was drawn by Etienne Clémentel, former French Minister of Finance, in his Inventory of France's financial position and resources published in December 1924.

This distinction is important in that it is likely to be insisted upon by the French government in negotiations for funding the French debt to the United States.

M. Clémentel's Inventory showed the French external debt under two headings, "commercial" debt and "political" debt. The "commercial" debt amounted to 14 per cent, and the "political" debt to 86 per cent of the total.

In all French budget reports up to and including the year 1921, debts owed to American investors and to the United States government were classified under the general heading "long term debt." The first separation of these obligations into two classes, "political" and "commercial", appeared in the reports of the Committees on Finance of the Senate and Chamber of Deputies in connection with the budget in 1922.

The first acceptance and interpretation of this separate classification by a member of the French government was contained in M. Clémentel's Inventory, which was productive of severe criticism both in Great Britain and in the United States.

The French "Commercial" Debt

The total "commercial" debt owed by France to the United States was given by M. Clémentel as $609,357,000. Under this heading were listed the $407,341,145 of bonds given the Secretary of War in payment for surplus war materials, and the principal of French government bonds outstanding in the hands of American private investors. French bonds at present held by American investors approximate $200,000,000, of which about $159,300,000 was floated after the armistice.

The United States is a creditor for about 60 per cent of the "commercial" debt, Great Britain for about 30 per cent and Japan 2 1/2 per cent, the remainder being in the form of bank credits in various countries. Interest payments on the "commercial" debt, the Inventory stated, "are strictly assured in every way."

The French "Political" Debt

France's two "political" creditors are Great Britain and the United States. The nominal value of the French "political" debt to Great Britain was given in an annex to the Inventory as 619,402,900 pounds. The principal of the "political" debt to the United States, representing cash advances under the Liberty Loan acts, was given as $2,933,265,231—amounting, with accrued interest on November 15, 1924 to $3,729,883,209.

As elements calling for reductions in the amount France should be required to pay on her "political" debt, M. elemental pointed to the large sacrifice of French lives and the devastation of French territory during the war; the large profits on war materials and the taxes collected on those profits by the governments by which loans for the purchase of war materials were advanced.

"The political debt which we have contracted to the United States and Great Britain does not seem to us susceptible of a sound evaluation," M. Clémontel said. "We cannot now discount the eventual results of conferences which may take place on this subject and the figures which we may indicate as the possible value of charges which will be definitely placed on the debt will lack any serious basis."

It was for the reason thus stated by M. Clémentel that "political" debts were carried in an annex and were not listed with other liabilities in the Inventory itself.

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French War Expenditures in the United States

French government expenditures in the United States from April 6, 1917 to November 1, 1920, during which period the expenditures of all belligerents were supervised by the United States government in order to coordinate governmental buying in this country, amounted to $4,196,246,931.23. It is important, in connection with the attempt to draw a distinction between "political" and "commercial" loans, to consider the purposes for which these expenditures were made.

Sources of Funds for Expenditure

While the bulk of the money expended by the French government in the United States during the period 1917–1920 came out of the Federal Treasury, only 70 per cent of the total took the form of government loans. When the United States entered the war arrangements were made with the French, British and Italian governments whereby currencies needed by the United States for war expenditures in those countries were provided by the respective governments and the dollar equivalents were made available to foreign governments for purchases in the United States.

Under this arrangement the United States received 5,711,941,418.08 francs from the French government, with which the American army paid its way in France on a cash basis. The French government in return received $1,025,438,235.88 from the United States Treasury, which was devoted to payment for supplies purchased in this country.

The sources from which the funds for French expenditures in the United States were drawn are shown, in the following table:

Cash advances by U. S. Treasury (loans)	$2,997,477,800.00
Dollars paid for francs	1,025,438,235.88
Paid from other resources	173,330,895.35
TOTAL EXPENDITURES	$4,196,246,931.23

Purposes of French Expenditures

The Treasury record of French expenditures is not in such form that those made from the proceeds of government loans can be separated out. It is necessary, therefore, to consider the French expenditures as a whole. The purposes for which the French expenditures were made are shown in the following table:

Munitions, Including remounts	$925,893,005.57
Exchange (pegging franc in N. Y. market and providing exchange facilities for purchas of american commodities)	431,787,409.72
Exchange (credit after armistice to create additional reserves for the Bank of France and for use in purchase of commodities)	200,000,000.00
Arbitrage	50,708,565.75
Cereals	344,641,786.44
Meat	152,119,775.32
Sugar	58,741,487.85
Other foods	295,212,583.23
Cotton	174,842,590.28
Tobacco	40,710,011.76
Other supplies	276,572,214.16
Miscellaneous goods	53,719,842.97.
Freight and insurance	249,536,090.69
Transportation	32,519,420.36
Shipping (includes some froight)	122,359,280.23
Interest	268,791,426.37
Maturities	289,744,755.28
Relief	143,137,042.12
Silver	6,300,000.00
Miscellaneous	78,909,643.23
Total Expenditures	$4,196,246,931.23
These items include payments made by Great Britain on behalf of France out of American loans, which were debited to France on the books of the Treasury.

Purchases Before and After Armistice

Thirty five per cent of the purchases shown in the foregoing table were made after the armistice. It has already been noted that a similar proportion of the cash advances on American loans to France were made after the cessation of hostilities. The amounts of the loans and expenditures made before and after the armistice are compared in the following table:

	Loans	Expenditures
Before November 11, 1918	$1,970,000,000	$2,711,469,252
After November 11, 1918	1,027,477,800	1,484,777,679
	$2,997,477,800	$4,196,246,931

The difference between the loans and expenditures shown in this table was covered almost entirely by the dollar payments made by the United States government for francs.

Service on "Commercial" Debt

The table on French expenditures shows a total of $558,536,181.65 paid out of Treasury funds to meet interest and maturities on French bonds sold to American private investors before the United States entered the war. Of this amount $272,827,891.86 was used for the payment of interest and maturities after the armistice. It has been pointed out in this connection that the funds used for the service of France's "commercial" debt to the United States were classified in M. Clémentel's Inventory as a part of the "political" debt.

Stabilization of Exchange

Of the exchange transactions given in the table at least $382,000,000 was used before the armistice in the stabilization of French exchange in the United States and abroad. Two hundred million dollars was transferred to the Bank of France after the armistice, principally to provide additional reserves against outstanding bank notes.

After the United States entered the war the value of the franc was maintained at 9 per cent below par, although its purchasing power was 25 to 28 per cent below par as compared with the dollar. The value of the franc was thus stabilized until the general "unpegging" of the exchanges in March, 1919. Under the weight of the franc and the British pound, which was similarly stabilized, the dollar was forced to a discount in neutral markets, resulting in heavy losses to American importers. After American support was removed the franc fell sharply in all foreign markets.

Losses to the United States

The "pegging" of the franc with American dollars, while maintaining the prestige of France and enabling her to purchase supplies and carry on trade in other countries, yielded no material advantages to the United States. On the contrary, maintaining French exchange at a level unjustified by its purchasing power, resulted in substantial money losses to this country. These losses have been estimated as follows:

Losses on imports from neutrals	$350,000,000 to $400,000,000
Overpayments for francs for U. S. Army	256,000,000
Overpayments for imports from France	40,000,000

Had the franc not been stabilized in this and neutral countries during 1917–18 the amount of the French debt to the United States would have been considerably increased.

The French nation meanwhile enjoyed money gains and savings on exports to the United States, imports from neutral countries and in exchanges of dollars for francs for American army use substantially equal to the American losses.

Purchases for Army and Civilians

The food supplies purchase by France in the United States during and after the war out of Treasury advances, amounting in value to more than $850,700,000, were for the use of both the army and the civilian population. It has been estimated that 85 per cent went to the support of civilians. Whether the French government received an amount from civilians in payment for food supplies sold to them substantially equal to its cost cannot be stated.

Tobacco was purchased to the extent of $40,700,000. Tobacco is a French government monopoly, the profits—representing sums which otherwise would have to be raised by taxation—going to the support of the French government. The extent of the profits on American tobacco purchases during the war and armistice periods is unknown.

American government officials have pointed out that a considerable proportion of the French expenditures in the United States before the armistice, such as those given under the headings interest, maturities and exchange, were made for purposes only indirectly connected with the actual conduct of hostilities. Others, such as the $122,000,000 spent for ships which became a part of the French merchant marine, had the nature of investments in goods of permanent value to France.

It is impossible, because of the form in which records of purchases were kept, to determine the proportion of American advances to France used for strictly military purposes. Estimates of the amount vary all the way from $950,000,000 to $2,265,000,000.

Purposes of Post-Armistice Advances

After the armistice Treasury Department officials believed that loans to foreign nations should be stopped as soon as possible, but continued advances for rehabilitation and relief were urgently recommended by American representatives abroad. Norman H. Davis, Special United States Commissioner of Finances in Europe, in a letter to the Treasury Department, December 5,1918, wrote:

"From the Treasury standpoint it is advisable, of course, to cut off as soon as possible our advances to the allied governments. But on the other hand, from a political standpoint it may be advisable not to cause too much anxiety just before the peace conference. As I have already advised you, the British treasury has notified the French and Italian treasuries that they are through making advances to them. They have either done this in order to force them on us or for political reasons in order to force their opinions at the peace conference in consideration of then agreeing to additional advances."

Cash advances by the United States to Great Britain after the armistice amounted to $581,000,000, the last being made on July 1, 1919. Cash advances to France continued until September 28, the amount advanced after the armistice for rehabilitation and relief being $1,970,000,000. These are included by M. Clémentel, along with the loans of the war period in the "political" debt of France to the United States.

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Proposals for Pooling War Debts

Frequent pleas have been made since the war for scaling down the French debt to the United States, but no responsible official of the French government has directly proposed that the debt be repudiated.

In his famous Inventory presented at the end of 1934, M. Clémentel made the following statement:

"France does not intend to repudiate any of the contracts to which she has agreed and her signature to her will always be sacred, but she is convinced that an appeal to the sentiments of justice which grouped around her so many nations during the war will not be in vain. She is convinced that her allies and her friends will respond to the hopes which she has based on their conscience and their sentiments of justice and solidarity."

ClÉMentel's Pooling Proposal

After pointing out that the exigencies of the war compelled the Allies to draw on all their available resources, and that only the fusion of these common forces made successful resistance possible, M. Clémentel went on to make the following suggestion:

"If the judicial plane be abandoned in favor of higher considerations of cooperation and equity, strict justice would seem to demand the general pooling of war expenses and their re—allocation among the Allied states in proportion to the wealth of each and without regard to the particular obligations imposed by the necessities of the moment. By this means alone will a common basis be arrived at for the sun total of sacrifices."

This proposal was not formally transmitted to the United States, but it was severely criticised by Treasury Department officials and others when published in the American press.

Criticism of Pooling Plan

Under a re-allocation of war expenses "in proportion to the wealth of each nation", it was pointed out in informal statements, the nation that was least responsible for the war and least endangered by it would pay the greater part of the cost.

In this connection Prof. E. L. Bogart's figures on the cost of the war to the three principal nations engaged against Germany, for the period 1914–1919, (which included demobilization costs) were cited by government officials. They are shown in the table below:

	Total cost	Deducting loans from other governments
United States	$32,080,266,968	(no deduction)
Great Britain	44,029,011,868	$39,713,000,000
Franco	25,812,782,800	20,790,000,000

On the basis of these and other estimates, it was asserted that the United States during the period of its participation in the war contributed a larger proportion of its national wealth than any other nation. The low rates of taxation prevailing in France throughout the war period, as compared with the rates imposed in Great Britain and the United States, were pointed out as accounting in part at least for the size of the French debt and the financial difficulties leading to M. Clémentel's pooling proposal.

French War Gains

If war expenses were to be re-allocated on the basis of benefits received, instead of in proportion to the wealth of each nation, it was emphasized by officials of the American government the share of the United States would be negligible.

Territorial gains by France as a result of the war are shown in the following table:

	Area (sq. miles)	Population
Alsace Lorraine	5,605	1,709,749
French Equatorial
Africa (added area)	107,270	1,000,000
Togoland (mandate)	21,200	485,000
Cameroon (mandate)	166,489	1,500,000
Syria (mandate)	60,000	3,000,000
	360,564	7,694,749

In addition France obtained further concessions in Morocco, and control for 15 years of the Saar Valley, with its valuable coal and iron deposits. France is estimated to have gained territory one and one half times the area of France in 1914, much of it rich in agricultural and forest resources, iron, coal, potash and oil. France obtained in addition 410,000 tons of enemy shipping, a 25 per cent share in the Turkish petroleum Co., controlling the resources of Mosul and Bagdad, a right to one half the British acquisitions of oil fields in Galicia, Rumania and Russia and 34 per cent of all oil reserves in British colonies not already disposed of. These gains have been emphasized in Senate debate on the French debt problem and are likely to constitute an important point in the American argument against proposals for debt reductions.

American Position on Debt Pooling

M. Clémentel's pooling proposal was a revival of a scheme originally put forward by the Italian government during the preparation of the financial section of the Versailles treaty in 1919, looking to "inter allied agreements as to the consolidation, reapportionment and reassumption of war debts." The support given this proposal by M. Klotz, the representative of the French government, resulted in a letter from Albert Rathbone, assistant Secretary of the Treasury, to Edouard de Billy, French Deputy High. Commissioner in the United States, in which he said:

"I have to state most emphatically that the Treasury ** will not assent to any discussion at the peace conference, or elsewhere, of any plan or arrangement for the release, consolidation or reapportionment of the obligations of foreign governments held by the United States. You will appreciate also that the Treasury cannot contemplate continuance of advances to any allied Government which is lending its support to any plan which would create uncertainty as to its due repayment of advances made to it by the United States Treasury. I should be obliged if you would communicate to your Government the views of the Treasury as above expressed."

The position taken in this letter and a similar letter sent to the delegate in Washington of the Italian Treasury represents the attitude consistently held by the Treasury Department toward all schemes for pooling inter Allied debts.

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Discussions of Funding and Repudiation

American criticism of the Clémentel Inventory and particularly of its omission of France's "political" debt to the United. States from the list of France's definite liabilities, resulted in a visit by the Finance Minister to the American embassy early in January at which M. Clémentel explained to Ambassador Herrick the position of his Government toward the debt. Herrick suggested that the French proposals for adjustment of the debt be put into writing. This was done by M. Clémentel and his proposals were transmitted to Washington. It was stated that these were only "informal" proposals and the document was withheld from publication both in France and in the United States.

The general understanding of the Clémentel plan was that it proposed (1) a ten year moratorium—until such time as substantial payments were received from Germany under the Dawes plan, (2) distribution of payments of principal and interest thereafter over a period of 80 years, (3) remission of back interest, and a future interest rate of one half of one per cent. These proposals were "informally" rejected by the American government January 24.

British Proposal for Settlement

At the meeting of the Allied finance ministers at Paris January 10, M. Clémentel had meanwhile secured from Winston Churchill a restatement of the British attitude toward the inter allied debts. Churchill stated that the British government stood upon the principles of the Balfour and Curzon notes of 1923 and 1923, Expecting from her allies in repayment of their debts to her only so much as would enable her, together with reparations payments from Germany, to meet the payments on her funded debt to the United States. This statement of the British position was later confirmed in a formal note.

Great Britain is entitled to receive 22 per cent of the reparation payments under the Dawes plan. Assuming that Germany's schedules of payments are carried out, it was estimated that the British plan of settlement would result in a two thirds reduction in the French debt to Great Britain, which is estimated to amount to $3,055,452,000. It was generally believed that France would seek a definite settlement with Great Britain on this basis before or simultaneously with the opening of negotiations for the funding of her indebtedness to the United States. At the time of the Jusserand-Mellon conversations on the French debt, Churchill stated in the House of Commons that the British government considered it essential that any payments made "by our debtors in Europe to their creditors in the United States" should be accompanied simultaneously by payments to Great Britain.

Marin Speech in Chamber of Deputies

The attitude of members of the French Chamber of Deputies and of the American Senate toward the debt owed by France to the United States was made clear by speeches in those bodies January 31 and 22, 1925 by Deputy Louis Marin, former Finance Minister of France, and Senator Borah, chairman of the Senate Foreign Relations Committee.

Deputy Marin opened his sensational speech by stating that up to that time there had been no debate in the Chamber of Deputies on the question of the interallied indebtedness and it was time that "the voice of the people should be heard through their representatives, which should serve as a guiding principle for the government."

"It is true," he said, that "France, Belgium, Serbia and Rumania, for example, gave their signatures when money was loaned to them, but that was merely acknowledging that certain sums have been received. This signature does not mean that there should be no balancing between the sums of money used for the common war and all the efforts, all the sufferings, all the losses, all the elements which cannot be weighed and which France has given."

The World War, he continued, was a common war, in which all participants should contribute according to their relative wealth. He argued that every French soldier should be counted as a part of the contribution of France to the common cause; that France lost by death 1,450,000 soldiers and 500,000 more who died by wounds; that they were worth a minimum of 50,000 francs each; that France suffered other losses still more serious that should be estimated in figuring up the balances due to France in a settlement.

"During the making of the treaty of Versailles," he said, "France made many sacrifices against the promise of compact guaranties. Certain clauses were inserted in the treaty at the sole demand of the United States. But the United States Senate refused to ratify the treaty, as was its right. Does not that refusal give France the right to other compensation?"

Deputy Marin concluded his speech as follows:

"Since we are not permitted to apply the simple compensation principle of annulment, I tell you that we would be completely exhausted if we had to pay these enormous sums demanded by certain plans conceived in the United States. It is also a moral impossibility. * * *
"I well perceive the generosity of our English friends and the sacrifices they are about to make. Their generosity touches us deeply, but in the name of justice and of the universal moral conscience I demand that the problem of the debts shall be treated on the basis of compensation for the charges of the war."

Borah's Reply to Marin

Senator Borah replied to the Marin speech the following day, January 22, opening his address with the statement that the speech seemed to express the view "not only of the distinguished speaker, but the view of the Chamber of Deputies and I presume, in a large measure, the view of the French people."

Senator Borah first analyzed the settlement with Great Britain, which he said was "the most generous proposition for the settlement of international debts that can be found anywhere in the history of international affairs." The same principles of settlement he said would willingly be extended to France.

After referring to the secret treaties, covering divisions of territory, the fight made against them by President Wilson at Paris, and the gains to France under the Versailles treaty, Senator Borah said:

"If we should settle with France upon the basis upon which we settled with England, we would cancel by that settlement nearly 50 cents on the dollar of all that France originally owed us. Unless it is a question of absolute rejection of the debt; unless it is proposed to create such a condition of public mind and such an opinion In regard to the matter that it can be—I hesitate to use the harsh term 'repudiation'—unless it can be acquitted, I will say, upon the part of the United States, I can not understand how any other terms than those which have been offered could be expected. If France asks for better terms than the British terms, she is finessing for cancellation. Her arguments are the arguments of cancellation; her logic, if such it can be called, is the logic of repudiation. The fact is that we are face to face with the proposition whether we shall urgo the payment of any part of this debt, and France is face to face with the proposition of whether she will pay any part of this debt, and no one can read the French press or the debate which took place yesterday in the Chamber of Deputies without concluding that that Is now the issue, whether any part of it Is to be paid."
"We are entitled," said Senator Borah, in concluding his speech, "to a specific proposition from France and France is in honor bound to make it."

The day following Senator Borah's speech, the Marin speech was disavowed as a statement of French government policy when the Harriot government mustered 290 votes in the Chamber of Deputies against posting the speech throughout France. Two hundred and twenty four votes were cast in favor of posting the speech, which Premier Herriot had previously described as a "most impressive appeal to the sense of justice of our Allies."

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The French Debt and the Dawes Plan

The official position of the United States calls for funding of the French debt upon substantially the same terms accorded to Great Britain

the settlement to be in no way conditioned upon amounts received by France as reparations from Germany under the Dawes plan, or from nations to which loans were made by France during the war.

The amount of the debt as stated by the Treasury Department as of November 15, 1924, was $4,137,224,354.57. Taking $4,140,000,000, in round numbers, as the amount of the debt, and applying the British scheme to the French debt, gives the following as the schedule of payments required from France during the years 1925 to 1935.

		Interest	Principal	Total
First year	(1925)	$124,200,000	$20,700,000	$144,900,000
Second year	(1926)	123,579,000	20,700,000	144,279,000
Third year	(1927)	122,958,000	21,600,000	144,558,000
Fourth year	(1928)	122,310,000	22,500,000	144,810,000
Fifth year	(1929)	121,635,000	22,500,000	144,135,000
Sixth year	(1930)	120,960,000	24,300,000	145,260,000
Seventh year	(1931)	120,231,000	24,300,000	144,531,000
Eighth year	(1932)	119,502,000	25,200,000	144,702,000
Ninth year	(1933)	118,746,000	25,200,000	143,946,000
Tenth year	(1934)	117,990,000	27,000,000	144,990,000
Eleventh year	(1935)	136,710,000	28,800,000	165,510,000

The payments would continue for 62 years—until 1987, if the debt were funded at once—at the end of which period the debt would be finally extinguished.

Estimate of Taxation Required

The National Industrial Conference Board in a preliminary report, June 15, 1925, on its study of the French debt said:

"If present negotiations for the funding of this indebtedness ($4,211,000,000 as of May 15, 1925) should be concluded with a settlement on the same terms as those granted Great Britain, France's annual payments to the United States would range from $147,000,000 in the earlier years to $170,000,000 in the latter part of the 62 year period. This the Conference Board's preliminary study indicates would require an increase of approximately 9 per cent in the annual tax burden of the French people, but the Board's analysis hazards no estimate as to what extent the situation may ultimately be relieved for France through reparation receipts tinder the Dawes Plan."

An addition of 9 per cent in the annual tax burden of France, would bring the yearly tax bill up to 23 per cent of the national income, the National Industrial Conference Board stated, in 1924 the tax burden amounted to 20.8 per cent of France's national income. In the United States the tax burden was 11.5 per cent and in Great Britain 23 per cent of the national income according to the Board's calculations.

The point that a 9 per cent increase in the French tax burden would permit France to meet the required payments to the United States seems, however, to leave out of consideration the difficulties of transferring tax payments made in a depleted currency in France to the United States in the form of American dollars.

Receipts from Dawes Plan

France is entitled to receive 52 per cent of the reparation receipts yielded by the Dawes plan. The amounts that will be received by France during the first eleven years, assuming that only the minimum amounts are raised within Germany and that they can be successfully transferred, are shown in the table below. Contrasted with these amounts are the total amounts that France would be required to pay to the United States each year (as shown in the preceding table) if the principles of the British settlement were applied to the French debt.

	French receipts under Dawes plan	Payments by France to U. S. under British plan
1925	$123,809,524	$144,900,000
1926	151,047,619	144,279,000
1927	117,619,048	144,558,000
1928	185,714,286	144,810,000
1929	309,523,810	144,135,000
1930	309,523,810	145,260,000
1931	309,523,810	144,531,000
1932	309,523,810	144,702,000
1933	309,523,810	143,946,000
1934	309,523,810	144,990,000
1935	309,523,310	165,510,000

If maximum amounts are received under the Dawes plan, they would largely exceed the payments required on the French debt to the United States in every year after 1925. In attempting to draw conclusions from these tables it is necessary to bear in mind, however, that they take no account of the payments that will be required from France on her debt to Great Britain during these years, the amounts of which still remain to be fixed.

Dawes Plan Proposed for France

In his Inventory and in newspaper statements at the beginning of the present year M. Clémentel suggested the application of the principles of the Dawes plan to France. He said France would not submit to the system of controls imposed upon Germany, but would welcome an impartial determination of its capacity to pay, a limitation of its obligations to other nations on this basis, a moratorium and subsequent regulation of the transfer of payments to protect French exchange.

Some weeks later the same suggestion was made at a bankers' banquet at Chicago by Sir George Paish. It was credited in the European press, however, to General Dawes, and immediately drew hostile criticism in Paris. It was pointed out in the French press that the principle that governed the work of the Dawes Commission was to get from Germany the maximum limit of payments. France would seek by every means to avoid an examination of its assets, it was stated, if the application of the same principle was to be attempted in that country by a hostile commission.

While resisting the various theories upon which claims for reductions in the French debt are based, there is an opinion among some officials of the American government that it may ultimately be necessary to make an examination of the French capacity to pay and to permit such reductions as may be shown to be necessary. The information thus far gathered for the use of the far Debt Commission in negotiations for funding the French debt, tends, however, to support the contention that France will be able to pay her debt to the United States in full within a 62 year period without undue obstruction to her economic recovery.

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American Revolutionary Debt to France

The financial and military assistance rendered by the French monarchy and French subjects during the American revolution have been cited both in this country and abroad as calling for generous treatment of France in the adjustment of her present debt to the United States.

Senator Borah in debating this subject in the Senate asserted that the French motive in extending aid to this country was to embarrass and humiliate a rival—Great Britain—at whose hands France had suffered defeat in the war ended in 1763, and that she had been adequately compensated by the results. Senator Bruce contended on the other hand that the French assistance was due primarily to an enthusiasm on the part of the French people for the American cause, which could not be resisted by the monarchy, and which later culminated in the revolution in that country. Whatever the merits of the opposing arguments, the assistance rendered by France was of the highest value in the establishment of the new nation.

Revolutionary Loans by France

The financial aid extended by France took the form both of gifts and of loans. When first asked by American representatives in Paris loans were refused by the French government, but a willingness was expressed to make secret gifts in the amounts requested. The first gift was made June 10, 1776, and the first direct loan two years later, following the negotiation of a treaty of alliance.

The details of the four loans advanced by France during the revolutionary period are shown in the following table:

Year	Loan	Amount in dollars	When Due	Interest rate
1777	1,000,000 livres	$181,500	Indefinite	5%
1778	18,000,000 livres	3,267,000	12 annual installments from 3d year after conclusion of peace	5%
1781	10,000,000 livres	1,815,000	10 annual installmerits from November 6, 1787	4%
1782
1783	6,000,000 livres	1,089,000	6 annual installments from January 1, 1785	5%
TOTAL	35,000,000 livres	$6,352,500

The first French loan was obtained by Franklin March 24, 1777 from the Farmers-General of France, an organization which collected the taxes and enjoyed among other privileges the tobacco monopoly. In the contract for this loan Franklin undertook in the name of the American government to deliver during the year 1777 five hogsheads of York and James River tobacco. The Continental Congress was able, however to deliver only a small part of the tobacco (valued at $27,811) and the balance of the loan was later repaid to the French government, which as a result of the French revolution succeeded to the rights of the Farmers-General.

The first loan negotiated directly with the French government was that of 1778 for 18,000,000 livres, advanced in 21 installments from 1778 to 1782. This was the result of France's decision to recognize the independence of the United States, and the first advance was made three weeks after the signing of the treaty of alliance.

In 1781 France secured for the United States a loan of 10,000,000 livres from Holland, the interest and principal of which were guaranteed by the French government. In 1783 France made another loan of 6,000,000 livres.

Subsequent Treatment of Loans

Due to the condition of the finances of the new American government interest payments on these loans and the installments required on the principal were not always promptly made. In 1782, in a contract between Franklin and Vergennes, the French Secretary of State, the arrears on the 18,000,000 livre loan of 1778, amounting as stated by Franklin "to the value of nearly two millions" (livres), was remitted.

Following the adoption of the Constitution the debt problem was vigorously attacked by Hamilton, and both the principal and interest, with the exception of the remitted interest on the loan of 1778, were eventually paid. The final funding operation took place in 1795 when $2,024,900 of indebtedness still outstanding was converted into domestic stock, bearing interest at 4½ and 5½, the first of which was repaid in 1807–1808 and the second in 1815. The total repayments from 1778 to 1815 amounted to $6,352,500, the full amount of the loans.

Treaty of 1783

In a contract signed between Franklin and Vergennes in 1783, and subsequently ratified as a treaty by the Continental Congress, it was stated that "it has been found proper to recapitulate here the amount of the preceding aids granted by the King to the United States and to distinguish them according to their different classes," The first two classes embraced the loans heretofore described.

"In the third class," the treaty continued, "are comprehended the aids and subsidies furnished to the Congress of the United States, under the title of gratuitous assistance, from the pure generosity of the King, three millions of which were grunted before the treaty of February 1778, and six millions in 1781, which aids and subsidies amount in the whole to nine millions livres tournois. His Majesty here confirms, in case of need, the gratuitous gift to the Congress of the said thirteen United States."

French Gifts to the United States

M. Caron de Beaumarchais was the secret agent of the French government through whom many of the gifts and subsidies mentioned in the treaty were extended. For the purpose of concealing these gifts Beaumarchais established a mercantile house under the fictitious name of "Roderique Hortalez et Cie," which continued in existence from 1776 to 1783. Its disbursements during that period were said to have amounted to over 21,000,000 livres, a considerable portion of which was used for the purchase and shipment of military supplies to America.

As a natural consequence of the fictitious character of Hortalez & Co., the question later arose whether certain supplies received from Beaumarchais were gifts from the French king or were paid for by Beaumarchais on his own account, entitling him to reimbursement by the United States.

When the accounts of M. Grand, the American banker at Paris, came up for settlement in 1786, it was discovered that he had credited the United States with only 2,000,000 livres as gifts from the French government prior to 1778, whereas the amount was stated in the Franklin-Vergennes treaty, quoted above, as 3,000,000 livres. Little information could be found by American representatives abroad as to the "lost million" and it was concluded that the sum had been used by Beaumarchais for secret purposes in aid of the revolution which perhaps had better not be too closely investigated.

Settlement of Beaumarchais Claims

After Beaumarchais' death in 1799 claims on behalf of his widow and daughter for subsidies he had furnished in excess of amounts received from the French treasury were taken up with the United States by the French government. In 1806 Congress authorized a payment of $78,886.26. Claims on account of a part of the "lost million" which it was asserted had been reimbursed to the French treasury by Beaumarchais, were disallowed on the ground that this sum, as shown by the treaty, had been a gift from the French king.

The French government continued to press for settlement of disallowed claims and in 1831 a convention was signed adjusting claims of French citizens against the United States and claims of American citizens against France for illegal seizures of ships and goods during the Napoleonic wars. American claims were reduced by compromise to 25,000,000 francs and French, claims to 1,500,000. Out of the latter sum the Beaumarchais heirs, whose claims then amounted with interest to 4,689,241 francs, received the sum of 810,000 francs in 1835. The dispute was thus officially ended. It was later claimed that the Beaumarchais heirs had received an overpayment of $250,000 under this and the previous settlement, but this statement is disputed by present day historians.

Amount of French Gifts

When statements were made in the French press in 1924 that claims on account of financial assistance during the revolution would be presented as offsets in the negotiations for funding the French debt to the United States, an investigation of the whole subject was undertaken by the American Treasury department. It was found that all French loans to the United States during the revolutionary period had been repaid with interest within 32 years after the conclusion of the war. French gifts were estimated to have amounted to $1,815,000. Repayment of these gifts, excepting the claims on account of the heirs of Beaumarchais, had never been claimed by the French government or made by the United States.

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Footnotes

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*Last figures given by the Treasury Department. The total French debt to the United States on May 15, 1925 was stated by the National Industrial Conference Board as $4,211,000,000.

Footnote* Last figures given by the Treasury Department. The total French debt to the United States on May 15, 1925 was stated by the National Industrial Conference Board as $4,211,000,000.Go to Footnotes

*Inventaire de la Situation Financi$eGre de la Prance.

Footnote* Inventaire de la Situation Financi$eGre de la Prance.Go to Footnotes

*André Tardieu, French High Commissioner, in an article published in Paris Oct. 20, 1920, stated the amount of American loans to France as 15,000,000,000 francs and added in parenthesis "(45,000,000,000 according to the actual exchange.)"

Footnote* André Tardieu, French High Commissioner, in an article published in Paris Oct. 20, 1920, stated the amount of American loans to France as 15,000,000,000 francs and added in parenthesis "(45,000,000,000 according to the actual exchange.)"Go to Footnotes

*See "The Inter Ally Debts" E. R. R. December 30, 1924, p. 593.

Footnote* See "The Inter Ally Debts" E. R. R. December 30, 1924, p. 593.Go to Footnotes

*Journal Official, Jan. 22, 1925, pp 168, et seq. Congressional Record, Jan. 22, 1925, pp 2355 et seq.

Footnote* Journal Official, Jan. 22, 1925, pp 168, et seq. Congressional Record, Jan. 22, 1925, pp 2355 et seq.Go to Footnotes

*For details of British settlement see "The Inter-Ally Debts", E. R. R. December 30, 1924, p 598.

Footnote* For details of British settlement see "The Inter-Ally Debts", E. R. R. December 30, 1924, p 598.Go to Footnotes

Document APA Citation
The French debt to the United States. (1925). Editorial research reports 1925 (Vol. II). Washington, DC: CQ Press. Retrieved from http://library.cqpress.com/cqresearcher/cqresrre1925061700

Document ID: cqresrre1925061700
Document URL: http://library.cqpress.com/cqresearcher/cqresrre1925061700

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