FOR the second time in less than twenty years an American Financial Mission in Persia has been wrecked by politics. The Shuster Mission of 1911 was brought to an abrupt end by the intervention of Russia. The Millspaugh Mission of 1922-1927 owes its termination chiefly to a resurgence of nationalistic elements which the Administrator General of the Finances was powerless to propitiate. The experiences of the two Missions raise the question of the possibility of the completion of a difficult technical undertaking by foreign experts not officially sponsored and supported by their governments. The fate of the Millspaugh Mission provokes also the more immediate enquiry whether Shah Pahlevi's government is likely to show sufficient strength and integrity to build upon the foundations of the last five years a solid structure of financial independence.

At the end of the war, Persia--crippled, demoralized, and destitute--was subsisting on monthly doles of £70,000 from Great Britain. Russia having fallen out of the race, the time seemed ripe for the establishment by Great Britain of a friendly protectorate. Such was in fact the intent of the agreement signed at Teheran on August 8, 1919, providing for a loan of £2,000,000 and the appointment of British officials as financial and military advisers to Persia.

This agreement was made public shortly after the return of President Wilson from Paris, where he had heard the details of the desperate situation of Persia and had been dissuaded from receiving a delegation of Persians only by the strong objections of Mr. Lloyd George. The discovery that at the very moment when he was prevented by the British Premier from hearing the Persians at Paris the British Government had been secretly negotiating at Teheran an agreement for the virtual control of Persia made the President extremely angry. His anger mounted when he learned that the official organ of the Cabinet at Teheran had, on August 23, declared that "America, the only Government able to assist Persia, had abandoned her" and that Persia had been "deceived" by him. At the beginning of September, therefore, through Secretary of State Lansing, he sent a telegram to the American Minister at Teheran directing him to deny that America had refused to aid Persia and to declare that the United States had constantly and consistently showed its interest in the welfare of Persia. The Anglo-Persian agreement, the Secretary of State added, would seem to indicate that Persia did not desire American support and coöperation in the future.

This telegram, copies of which were given to the press by the American Minister, produced great excitement at Teheran and strengthened the hands of those who opposed the ratification of the agreement. The fate of the agreement was sealed in February, 1921, by the conclusion of a treaty between Persia and Soviet Russia providing for the abandonment of the "predatory policy of the former Tsarist Government toward Persia," for the abolition of extraterritorial privileges in favor of Russian nationals, for the annulment of the Anglo-Russian agreement of 1907, and for the renunciation of all claims on account of the loans (some $30,000,000) made to Persia by Russia under the old régime. Before such an example of generosity from the traditional foe of Persia, Great Britain (whose people were clamoring for financial retrenchment) could not continue her demand for the ratification of the Anglo-Persian agreement. She did not even oppose the dismissal of the British military and financial advisers who had already begun their work.

With the Anglo-Persian agreement definitely out of the way, Persia looked again to America. The country's financial situation was still, despite the cancellation of the Russian debt, nearly as desperate as it had been at the close of the war. The generosity of Soviet Russia not having extended to the revision of the conventional tariff, the income from the customs revenues was still distressingly low. The internal taxes were still anachronistic and unprofitable. The means of transportation were of the most primitive. Agriculture and industry were undeveloped. The only natural resources from which considerable revenues could be readily drawn were the fisheries, which were in Russian hands, and the petroleum fields, which had been largely conceded to British capitalists. The most encouraging asset of the country was its new army, which, under the inspiring leadership of Reza Khan, was making great progress in the establishment of order.

The economic program formulated by the Persian Prime Minister in the autumn of 1921 embraced not only the engagement of American financial advisers but the grant of a petroleum concession to an American company and the flotation of a loan in the United States. With a view to the realization of this program, Mirza Hussein Khan Ala, frequently referred to as Persia's ablest diplomat, was sent to Washington. Mr. Ala immediately sought the aid of the Department of State in the selection of the advisers and opened negotiations with American companies with respect to oil concessions and a loan. He succeeded in interesting the Standard Oil Company of New Jersey in a concession and in obtaining from that company an advance of $1,000,000 for the most pressing needs of his Government. At the Department of State he was accorded a sympathetic hearing, and in July, 1922, he received from the Department a note in which the Economic Adviser of the Department, Dr. A. C. Millspaugh, was suggested as a person with whom the Legation might wish to communicate with regard to the appointment of a Financial Adviser. It was made clear that the Government would assume no responsibility for any action which Dr. Millspaugh or any other American might take as an official in the employment of Persia.

In the contract signed by Mr. Ala and Dr. Millspaugh on August 14, 1922, Dr. Millspaugh was named not as Financial Adviser but as Administrator General of the Finances of Persia. The powers accorded to the Administrator General were less extensive than those which had been granted to Mr. Shuster after the latter's arrival in Persia in 1911. They included, however, "general charge of the financial administration and the preparation of the government budget" and "effective control over the personnel of the financial administration, over expenditures, and over the creation of financial obligations." The Persian Government agreed that "it would neither grant any commercial or industrial concession nor take any decision on a financial question without prior consultation" with the Administrator General.

Dr. Millspaugh and the eleven assistants who had been chosen by him and appointed by the Persian Government after the communication of their names to Mr. Ala by the Department of State, arrived in Persia in November, 1922. Skeptics gave them three months to become familiar with their task, three months to get the task under way, and three months to collect their salaries before leaving the country in despair.

The most immediate need of the patient was money to meet a current deficit of $4,000,000 and to pay salaries and pensions, which were eight months or more in arrears. There were some observers, indeed, who charged that the Financial Mission had been invited to Persia merely as a cloak for obtaining a loan in the United States. If the Mission were successful in obtaining a loan, it would have served its purpose and might be dismissed. If a loan were not obtained, it would be wholly disregarded.

Undismayed by the atmosphere of depression in which they found themselves, Dr. Millspaugh and his associates set to work. They almost at once perceived that the chaotic state of the finances was due primarily to "politically induced maladministration." There was "abundant financial ability among the Persians," and there were numerous Persian statesmen who had "the requisite energy, courage, and will" for the solution of their country's financial problems. The failure of the ministers of finance who had undertaken the task had been due almost entirely to political pressure. "With an average tenure of three months . . . a minister of finance was unable, as a rule, to know his administration or to carry out any far-reaching programs. . . . Even if he were personally honest, he could not oppose those who were politically influential. . . . Cases were never closed. . . . Nepotism reigned." The idea that laws should be applied alike to the powerful and the weak, that public funds should be spent only for the public good, had never been even tentatively put into practice.

In these circumstances the rôle which the Administrator General of the Finances was called upon to fill was fairly obvious. He was first to introduce financial reforms and then, because he was a foreigner, under contract for a minimum period of three years, he was to bear the brunt of the criticisms of those who would be injured by the reforms.

The reforms began and the criticisms immediately followed. The removal of incompetent employees produced instant outcries from their political backers. The passage of a budget law and the pruning of the estimates of the various ministries drew protestations of the impossibility of carrying on the activities of the ministries with the funds allotted. The attempts to collect arrears of taxes from rich and powerful landowners brought opposition which was broken down only by the threat of armed force, supported by the Minister of War. The measures taken, in 1923, for the collection of the opium tax led to rioting comparable to the American "Whiskey Rebellion" of 1796. The centralization of the purchase of government supplies aroused the hostility of those who had profited from the loose practices formerly prevailing. Officials as well as civilians found it difficult to reconcile themselves to the substitution of the rule of law in financial matters for the system of arrangements and accommodations to which they had been accustomed.

At the end of the first year of the American Financial Mission in Persia, Reza Khan, the Minister of War, upon whose effective support the success of the Mission in collecting taxes had chiefly depended, assumed the Premiership. The enemies of the Mission immediately instituted a campaign to alienate the new Premier from the Administrator General. This campaign succeeded to the extent of magnifying petty differences which arose between the two men. During the spring of 1924 the popular agitation for the abolition of the monarchy and the election of Reza Khan as President drew attention away from the Financial Mission and its activities. As soon as that agitation had subsided "a veritable storm of criticism" broke. Dr. Millspaugh writes:

"In and out of the Majless (the National Assembly) we were charged with various high crimes and misdemeanors, namely: with maintaining an excessive budget for the Ministry of Finance; with receiving advances from the bank, contrary to the Constitution; with failing to reorganize the financial administration; with collecting taxes illegally and oppressively; with delays in the conduct of the correspondence of the ministry; with treating the disponibles (eligible persons unemployed) contrary to the Civil Service law; with irregularities in the purchase of supplies; with failing to adapt ourselves to the mentality of the Persian people; with disregard of the responsibility of the Minister of Finance; with maintaining an unnecessary number of interpreters and translators; with having too many high-salaried officials; with dismissing honest men and appointing dishonest ones; with lack of expert knowledge; and with general incompetence."

To the chorus of domestic criticism was added the voice of the Russian Legation, which declared, in its Moscow Wireless, that "the actions taken by the American advisers with respect to financial reforms in Persia" had been "without result" and that it had been stated in the Majless that it was "no longer necessary to incur losses from the American Mission, particularly in view of the incompetence of Dr. Millspaugh in financial matters." The "dissatisfaction" with Dr. Millspaugh, the Legation added, "is increasing, especially because of his political interferences."

The statement of the Russian Legation was immediately characterized by the Persian Minister of Finance as "absolutely untrue." It was attributed by the editor of the Persian newspaper Iran to the action of Dr. Millspaugh in defending the rights of Persia against the claims of Russia with respect to certain fisheries. Nevertheless, the fate of the Financial Mission was undoubtedly in the balance, with the scale inclining sharply toward its dismissal, when Vice-Consul Robert W. Imbrie, in charge of the American Consulate, was murdered by members of a fanatical mob in the streets of Teheran.

The murder of Mr. Imbrie produced a crisis in the relations between Persia and the United States. The American Government demanded of the Persian Government, in addition to the punishment of the guilty persons, an indemnity for the Vice-Consul's widow and reimbursement of the cost of transporting his body on a warship to the United States. The prompt compliance of the Persian Government with the American demands restored Washington's good will toward Persia. A striking evidence of this was the proposal, made to the Persian Minister of Foreign Affairs in November, 1924, by the American Chargé d'Affaires, that the sum of more than $100,000 due for the transportation of the Vice Consul's body be set aside as a trust fund for the education of Persian students in the United States.[i] The confidence of American and other foreign bankers and investors in the political stability of Persia, however, had been seriously shaken by the Imbrie incident. It may therefore be considered to have had an important bearing upon the decision of the Persian Government to retain the Financial Mission at least until the end of the minimum period fixed in the contract.

During the next few months the position of Dr. Millspaugh and the three other members of the Mission who were still in Persia was so far consolidated and improved that in March, 1925, Dr. Millspaugh was informed that the Persian Government would not exercise its option to terminate their contracts at the end of the three years but would desire their services for the full period of five years contemplated in the contracts. In May, 1925, the Majless, with little opposition, authorized the employment of twelve additional Americans, including an agricultural expert (to give advice in regard to advanced methods of farming). Shortly afterwards a bill was passed providing for the establishment of a government monopoly of sugar and tea in order to obtain revenues for the construction of railroads, and while Dr. Millspaugh was on his way to the United States to engage his additional financial experts, the Government decided to employ a competent American engineer to take charge of this project.

Returning to Persia with the newly engaged experts at the end of the summer of 1925, Dr. Millspaugh found the country on the verge of a political change of the highest importance to the members of the Financial Mission as well as to the Persian people. In October, 1925, the nominal ruler of the country, a young man who preferred the pleasures of Paris to the responsibilities of Teheran, was deposed by a resolution of the Majless "for the sake of the national welfare." At the same time the Kajar dynasty, which had brought Persia into contact with the Western world three-quarters of a century before, was stripped of its royal prerogatives, and the supreme power was entrusted provisionally to Reza Khan, the Prime Minister. At the beginning of 1926 Reza Khan, the strong man of Persia, became Shah Pahlevi, the founder of a new dynasty.

In Shah Pahlevi Dr. Millspaugh believed that he had a friend. He knew, however, that the Shah's first love was the Army, which had restored order and contributed an indispensable element to the success of the Financial Mission. It was obvious that if the Administrator General held the expenditures of the Army strictly within the amounts appropriated by law, it might appear to the Shah that the possession of this power by a foreigner was opposed to the national welfare.

The expected crisis came in the autumn of 1926. Although the amounts appropriated for military expenditures were believed to be adequate for the maintenance of the Army and for the preservation of order in so far as that required the use of military forces, the pay of the soldiers in some of the provinces had been allowed to fall as much as eight months in arrears. Officers of the military establishment, on the other hand, had apparently been growing wealthy on small salaries. The Army accounts had never been rendered to the Administrator General, as required by the terms of his contract. He had been informed, however, that these accounts showed a deficit of $4,500,000. In this situation, mutinies of troops broke out in the provinces of Khorassan and Azerbaïdjan. The Shah proceeded in person to Khorassan and, to meet the emergency, demanded from the Treasury $300,000 in excess of the amount appropriated for the Army. The demand was refused by order of the Administrator General, who pointed out that he had no authority to disregard the budgetary laws. The issue was thus sharply joined between the Administrator General, acting under the terms of his contract and of the laws, and the Shah, who could not fail to be enraged by the mention of laws and contracts at such a time.

The funds required for the suppression of the mutinies were borrowed by the Shah, on his personal credit, from a bank in Teheran. Measures were soon afterwards adopted for the reform of abuses by military officers. The Administrator General was invited to designate a Chief Accountant to the Army. Cordial feelings were again expressed by the Shah toward the American Mission. But beneath the surface, the Shah preserved the memory of the thwarting of his will by a foreigner in a national crisis.

In December, 1926, the Minister of Persia to the United States, in an interview with President Coolidge, took occasion to commend "the zeal and the efforts" of the American Financial Mission. The President, in turn, expressed gratification at "the success which has thus far attended the efforts of the American Mission in behalf of Persia" and added: "I hope that, with the continued support of His Majesty, the Shah, and of your Government, Dr. Millspaugh and his assistants will be able to render even greater services in the future."

The President's remarks were undoubtedly calculated to strengthen the position of Dr. Millspaugh in his relations with the Persian Government and with the Shah. It was realized in Washington that, notwithstanding the lack of any responsibility of the American Government for the success or failure of Dr. Millspaugh's undertaking, the prestige of the United States was inevitably involved in that undertaking.

The Administrator General's five-year contract was due to expire at the end of September, 1927. The three-year contracts of most of his assistants, having been made in 1925, had an additional year to run. At the time the three-year contracts were made, it had evidently been expected that Dr. Millspaugh's contract would be renewed upon its expiration. Neither party to that contract was, however, under any obligation to renew it.

When the question of the renewal of Dr. Millspaugh's contract came up for discussion in the Majless, in the spring of 1927, the friends of the Administrator General were able to point to a record of genuine achievement. During a period of less than five years the national revenues, notwithstanding the abolition of numerous taxes, had increased from twenty to thirty million dollars. The control of all governmental expenditures, except those of the Ministry of War, had been established. The funded debt had been considerably reduced, salary and pension arrears had been paid, foreign and domestic pecuniary claims had been largely settled, and a deficit of $4,000,000 had been transformed to a surplus of the same amount. Appropriations for agricultural development had been increased, telegraph lines extended, wireless stations erected, commercial air transport inaugurated (over three main routes), mail transport largely motorized, and a fund of over ten million dollars (increasing at the rate of six millions a year) established for railway construction. $1,500,000 were being devoted annually to the construction and maintenance of highways. Measures had been adopted for the encouragement of domestic industry and the promotion of exports. Sanitation facilities had been improved. Finally, sufficient revenues had been allocated to public instruction to make possible within a few years the establishment of universal elementary education.

Impressed by this remarkable array of achievements, the majority of the Majless at first favored the renewal of Dr. Millspaugh's contract without essential change. So did the Prime Minister and a majority of the members of the Cabinet. The Shah, however, remembering the Administrator General's defiance of his orders on the occasion of the mutiny at Khorassan, regarded the powers of that official as too great. The reduction of those powers, he declared, was to him a matter of as much importance as had been the change of the dynasty. Support of the proposal also came from the Russian Legation, which resented Dr. Millspaugh's continuing opposition to the fisheries settlement discussed in 1924. The political issue was thus not wholly domestic.

The Cabinet was reorganized. A new Minister of Finance proposed a renewal of Dr. Millspaugh's contract with a change which would have made his decisions on financial matters subject to review by the Council of Ministers. In vain did the Administrator General point out that the effect of this would be to place the actual direction and responsibility of the financial administration exactly where they had been before the coming of the American Mission. In vain did the Minister of the United States urge upon the Shah, unofficially, the importance of avoiding action which might retard the development of the country and the growth of its credit abroad. Believing that the powers which had been given him under the contract signed in August, 1922, were indispensable to success, Dr. Millspaugh rejected the revised contract, and availed himself of his privilege of leave of absence.

The post of Administrator General was assumed provisionally by the Prime Minister. The American assistants who had been engaged in 1925 thereupon demanded to be released from their contracts, on the ground that the office of the Administrator General, under whose instructions they were bound to act, had been in effect abolished. Their demand was rejected, and they were informed that they would be expected to remain in the service of the Persian Government until the expiration of the period stipulated in their contracts.

Information is not yet available as to the manner in which the finances of Persia have been conducted since the withdrawal of Dr. Millspaugh. One significant development, which occurred almost immediately after his withdrawal, was the settlement of the fisheries dispute in a manner satisfactory to the Russian Government and contrary to the previous advice of the Administrator General. It will be surprising if the influence of both domestic and foreign politics is not felt by the financial administration to some extent in the near future. The Shah has, however, given notice of his intention to watch over the financial administration with the same care that he has in the past exhibited with reference to the Army. There is no doubt that he is intensely desirous of the earliest possible construction of the railways for which provision was made during Dr. Millspaugh's stay in Persia. This construction, for which contracts have recently been made with American and German engineering firms, cannot be pushed ahead rapidly unless the revenues of the government are supplemented by considerable foreign loans, and such loans cannot be obtained in the absence of confidence in the orderly administration of the finances. There is therefore at this time a special occasion for the Shah to use his great strength in enforcing high standards of efficiency and integrity. If such standards are indeed enforced for the next few years, it is conceivable that they may become habitual and Persia may not again require the services of a foreign financial dictator.

[i] The proposal was accepted in behalf of Persia. The establishment of the trust fund awaits the action of Congress.

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  • EDGAR TURLINGTON, a member of the American Delegation at the Lausanne Conference, later Acting Chief of the Near East Division in the State Department
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