Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-02-01
WOULD
HAVE TO PAY DEBTS
Cancellation of War Obligations by u. S.
Might Have Far-Reaching
Economic Effects.

At SlO,uSO,OUUuUU. fAb LIE aver
age rate of interest borne by that debt
at the end of the last fiscal year, 3.S06
per cent, the annual interest charge
amounts to approximately $50 zoo, 900.
Last year the total payments of princi-
pal and interest of the 10 nations in
debted to the United States amounted
to about $239,500,000. or less than 80
per cent OF our own interest charge
on the national debt incurred by the
war If the present debt settlement
terms are fulfilled, the amount Of an
nual payments will increase to maxi
mum of about $4,000 900. and as the
interest requirements on our own ma
tional debt decrease in due course, the
debt payments will meet this interest
charge and leave balance applicable
to a reduction of principal owed by
bond holders as was assured them when
the Liberty bonds were sold.
U. S. Liberal in Treatment.
To cite one instance alone, tbs one
which perhaps creates the most dis
cuSsion, the total debt of one debtor
government to the United States prior
to funding was about $4,23o, 000,0 0o
On the S per cent interest basis borne
by the obligations given by the debtor
government, the present value of pay
ments provided for in the agreement
would be 1881 100000, reduction Of
60 per cent, in effect wiping out the
entire indebtedness incurred by the
debtor government during the war
period and providing simply for the
payment of advances made to that
government after the armistice, which
aggregate. including accrued interest,
81 ,655, 900 900.
1t is the feeling of our officials that
the United States has been liberal in
the treatment of its debtors and they
can see no justification for the criti-
cism sometimes made of the position
taken. 1t may properly be borne in
mind that in the settlements Of the
peace treaty the United States alone
of all the allied participants received
no territorial or financial consideration
whatever and that the burden of in
debtedness we inherited from the war
has no offsetting credits.
1t is even deemed doubtful whether
a cancellation of the war debts would be
within the spirit of the Constitution. If
Congress should undertake to levy a
special tax for the purpose of making
gift to foreign government, payment
of that tax could probably be success
fully resisted upon the ground that the
Constitution makes no provision for such
a tax. Section of Article I of the
Constitution authorizes Congress "tc
lay and collect taxes, duties, imposts
and excuses; to pay the debts and
general welfare of the United
States" While the suggested tax
would plainly not be within this
constitutional provision, it is probably
true that in case of a cancellation of
debts which would have precisely the
same effect upon taxpayers. there would
be no legal method by which any tax
payer could protect himself. 1t is urged
that Congress ought not, however,
power to do directly. The Federal
Government is one of limited and
enumerated powers, and 1t would be
unreasonable to suppose that the people
would ever have consented to taxation
for the benefit of foreign nations, even
for their own possible economic benef1t.
Further Concessions .Unjustified.
1t is thus argued that any further
concessions on the part of our Gov
eminent would be unjustif1able politi-
cally, morally and economically, and
while many approve the exercise OF the
utmost patience and consideration
possible, In accordance with the terms
of the agreements drawn, they can see
no justification for further material
concessions on our part.
If it should develop that in any case
the requirements are too severe the
ordinary intelligent consideration by
creditor for the interests of his debtor
would warrant a reconsideration and
possible amendment of the existing
agreement as matter of sound business
policy. The attitude of our Govern
ment has been that each case should
stand on its own merits without vio-
lating the principle involved or
establishing precedents for others.
The Washington point of view In
regard to the matter seems to be that
the question is primarily political rather
than economic, and there appears to be
no politician willing to suggest to the
American people that they assume the
burden of taxation which would be in
Cured by the cancellation of outstand-
ing war indebtedness. Moreover, the
opinion is almost universally expressed
in political circles that should such a
suggestion be made by any political
leader it would find little response in
the body polite It is further urged
that any movement for cancellation or
reduction, if necessity compels 1t, should
properly come from the debtor and
not from the creditor nation. So far
no such effort has been publicly made.
and the matter is not officially before
our Government for consideration.
There are, naturally, great differ
ences of opinion as to the possible
economic effects of either collecting or
canceling war debt settlements, and
whereas there are important econo-
mists and business leaders who urge
this as a curative measure for inter-
national business depression, there are
many others who do not accept this
argument and insist that while con-
cessions may be necessary in some in
stances, the spirit of the settlements
agreed upon should be maintained. and
that simple justice to the American
taxpayer demands the fulfllment OF
these obligations, at least in such meas
ure as the capacity to pay warrants:
Moreover, there is widespread belief
that both the causes and possible cures
of the present depression are quite
apart from and independent of any
question of settlement Of war debts.
Burden Greatly Increased.
There Is one important factor In the
situation which cannot be ignored in
justice to the debtor countries. BY
reason of the fall in commodity prices
the burden of our debtors has been
greatly increased. for the debt burden
is really not fixed by dollar values, but
by the values of the goods and services
which must be translated into dollars
in order to complete payment. A big
decline III the price lever means an
additional burden upon the debtor
country, which must exchange its goods
and services to satisfy dollar claims
Reductions or delay in payments to
make that readjustment would have
economic and moral Justification and
could be made without violating the
principle of fulfilling obligations.
The fact should not be lost sight Of
that throughout this postwar period
the United States has made extensive
private loans to European countries to
assist in their economic sterilization,