THE UNITED STATES IN WORLD AFFAIRS. An Account of American Foreign Relations, 1931. By WALTER LIPPMANN, in collaboration with WILLIAM O. SCROGGS. New York: Published for the Council on Foreign Relations by Harper and Brothers, 1932, 375 pp. $3.00.

THIS book is the chronicle of a year, not the history of a period. Its starting line is a date and its finish is twelve months later. It does not, by reason of these time limitations, cover any rounded-out movement -- a rise, development and decline. It is a faithful and stirring record of the events of a single year, which itself is barely ended; in its treatment it gives only such references to the past as are necessary to create perspective and it ventures no speculation as to the future. It is the first of a series to be published annually hereafter, differing from the Survey formerly published each year by the Council on Foreign Relations in that it is a running narrative of events as they occurred, whereas the Survey dealt topic by topic with individual phases of American foreign affairs. The difference between the two is the difference between the horizontal and the vertical method of treatment.

If Mr. Lippmann had attempted to deal with the events of 1931 according to the vertical method his work would have lost its moving quality as an installment in a continued story. Moreover, the vertical method presupposes that the sequences discussed shall already have reached an end or at least a stopping-place. No end and no stopping-place to the movements which dominated foreign relations in 1931 are yet in sight. Nor would it have been any more possible for him to have segregated our foreign relations into classes or groups. If the year demonstrated nothing else, it made it clear beyond peradventure that politics and economics, for example, act and interact upon each other, and that the political and economic history of this time is not capable of differentiation. The record of 1931 to be understood at all must be studied as a whole, for a study of the parts gives no more clue to the total complication than does the isolation of a germ give understanding of the sum of human illnesses.

To give weight and value to events and forces while they are still in process furnishes a task midway between journalism and historical analysis. This task was admirably suited to Mr. Lippmann's peculiar gifts. He has succeeded, in collaboration with Mr. Scroggs, in fitting the developments of the year into an ordered perspective. He draws few conclusions, relying rather on the force of his exposition to guide the reader to judgments identical with his own.

The twelve months which the book covers begin with the opening of Congress in December 1930 and close with the opening of the new Congress in December 1931. A year of crisis in domestic affairs, it was no less a year of crisis in our foreign relations. Overshadowing both, and in part responsible for decisions made and unmade, was the economic depression; it has scorched and flattened every field of constructive human endeavor and has released political forces hitherto dormant. On the foreign policy of the United States it has exerted an influence which will probably continue long after the world has recovered from the paralysis and confusion into which it has been thrown. More than our share in the war, more than our desire to establish the peace, with inexorable logic the economic depression is countermanding the caution of Washington's farewell address and nullifying our policy of isolation.

The issue has been clarifying itself almost imperceptibly, partly because measures of self-containment have thus far failed to pull us back to the standard of prosperity we conceive to be ours, and partly from the pressure of developments abroad. Among the early efforts to preserve or restore our prosperity independently of foreign conditions were, of course, the Hawley-Smoot tariff, the operations of the Farm Board, and the restriction of immigration. Even before the ineffectiveness of these measures to raise prices and wages had become manifest, a movement was initiated which ran headlong into the principle of self-containment. This had its origin in the plight of silver. The United States is a surplus producer, and the causes for the collapse of prices centered in the Far East and in Europe. The Senate, acting upon a resolution reported by the Committee on Foreign Relations, requested the President to call an international conference on the status of silver. It was thus made clear that the Senate had no doubts that self-containment, in the case of silver at all events, would not bring back the price. While this conference was never held, negotiations looking toward the control of production and marketing by international action were undertaken in other directions, contravening the theory of self-containment. Americans, official or private, participated during the year in negotiations on wheat, sugar, nitrates, copper and other products. The negative results achieved up to now are a matter of common information; the thing to be observed here is that international action on American initiative or with American participation was attempted at all.

The disordered market for raw commodities was of course particularly burdensome upon the countries of Latin America, since they rank among the largest producers of primary materials. While the revolutionary movements of 1930 and 1931 are often interpreted as the result of a widespread aspiration toward liberalism in government, it is nevertheless true that it remained for the economic pinch to awaken the mass of the people to a sense of political wrong. These disturbances were significant for the foreign policy of the United States, because in dealing with them the Department of State returned to the recognition policy of Thomas Jefferson, that is, an acceptance of the fact that every nation has a right to determine its form of government, thus tacitly abandoning the "moral approval" policy which Secretary Bryan inaugurated in respect of Mexico in 1913.

Another phase of our Latin American relations furnished at once a prelude and a contrast to the acute problems which developed in Europe. In both cases there was a vast investment of American capital; the contrast lies in the measures taken to protect it. During the first ten years after the war, South American countries, like many others, as well as like our own states and cities, rapidly expanded the public debt. The size of the loans was often too large and on the whole they were too numerous; they were based on a false conception of prosperity which the loans themselves helped to create. Most of these loans were sold to American investors, and under the stress of revolutions and the economic depression many of them passed into default. For the protection of the immense investment of American capital represented in them there was little which the Department of State could do. It had assumed no responsibility toward the American public for the repayment of the loans, and above all it had no measures of relief which it could apply to the debtor states so that they could continue to meet their obligations in the face of local distress. Its attitude became therefore that of a benevolent bystander, and the initiative for protection passed to the interested bankers or the bondholders themselves.

Similar in origin, in that they also marked the first ebullient phase of America's experience as an exporter of capital, were the American investments in Germany. But the sequel was very different, and this difference was due mainly to the existence of the inter-Allied debts. The debts indeed furnished the occasion for the most dramatic departure from isolationist principle which the record of the year affords.

This was the Hoover moratorium. The background to the proposal can be briefly told. Just as in 1914, the trouble which led up to the June 1931 crisis in Germany started in Austria, or rather as a phase of the long process of dissolution of the Austro-Hungarian Empire which began in 1848. Whether, as the Germans say, the Austrian Government declared itself unable to go on without a customs union and threatened to conclude one with another neighbor if Germany refused, or whether, as others say, Chancellor Brüning felt the need of a diplomatic victory in foreign policy and seized upon a prelude to the Anschluss as the means, at all events we are accustomed to date the acute difficulties of 1931 from March 21, when the official announcement was made that Germany and Austria had agreed to form a customs union.

These difficulties had been foreshadowed in the German election of September 1930, when the parties of the extreme Left and Right took nearly 43 percent of the seats in the Reichstag. But in February 1931 the Nationalist Party seemed to be disintegrating, the National Socialists (Hitlerites) had discredited themselves by walking out of the Reichstag, and the Communists, who had the fewest seats, were not, by themselves, a menace. Then came in March the customs union proposal, with its darkening of the political horizon, particularly between Germany and France. What part the customs union proposal played in precipitating the collapse of the principal Vienna bank, the Oesterreichische Kredit-Anstalt, cannot with certainty be said now. But that collapse undermined confidence not only in Austria but in Germany also, where the financial structure had been none too secure since 1929. Recurrent budget deficits, rising unemployment, poor conditions in business, the practical cessation of American longterm lending, and a vast volume of short-dated debt which foreigners could call home on short notice -- all these left Germany peculiarly vulnerable. Her position, furthermore, became clear to the world in July when the Chancellor, Dr. Brüning, issued his third emergency decree calling for still higher taxes and further drastic cuts in the budget. This decree was published on the eve of his week-end visit to Chequers, which by coincidence or otherwise was so timed as to take on the appearance of a last-minute appeal to Germany's creditors. Seepage of short-term funds away from Germany now became a flood, and the collapse of the entire German economic system was in sight unless prompt steps were taken to prevent it. This was the situation, fully verified by Secretary Mellon who chanced to be in London, which brought President Hoover face to face with the necessity of using any means at his disposal for bringing relief.

Quite apart from any humanitarian or theoretical inducements which may have influenced the President to intervene in Europe, the practical considerations were overwhelming. German longterm loans issued in the United States, including the two Government loans offered in connection with the Dawes and Young Plans, amounted to about $1,250,000,000. These bonds were very widely held, by individuals, corporations and banks -- the latter mostly small banks in country districts. As for the German short-dated debt, the American share in it at the middle of June was certainly not less than $750,000,000 -- and probably more--and was held on the whole by upwards of one hundred city banks from New York and New England to California. In addition, American industry to some extent before the war, and to a large and increasing extent during the ten years after it, had established factories in Germany or purchased interests in German concerns. The Department of Commerce estimates the value of this investment at nearly $250,000,000. All told, then, the American financial interest in Germany at the time of the moratorium was around two billions and a quarter, and much of it was widely distributed throughout the country.

The Federal Government had of course done nothing to encourage this vast investment on the part of private citizens, and its direct responsibility under the prevailing code was therefore nil. But Mr. Hoover was confronted with the fact that the investment existed and that its loss might cause repercussions more formidable still. He had yet another practical consideration. This was the fact, not theretofore admitted in principle, that practically all of the $246,000,000 due in the financial year 1931-32 to the United States Treasury from foreign governments came directly or indirectly from Germany. Obviously, if the German economic structure collapsed, Germany could not provide these sums, and the question would then arise whether her creditors and our debtors could or would provide them out of their own resources. It was therefore the part of good business to bring about the postponement of a portion of Germany's obligations in the hope that the major collective interest of the American people in Germany would be protected. As Mr. Hoover remarked in his public statement explaining the moratorium proposal, it was a suggestion "to the American people that they be wise creditors in their own interest and be good neighbors."

The proposal, however, had one flaw which almost proved fatal to it: it did not fit into the framework of the Young Plan. It was natural that France, as the principal beneficiary under the Young Plan and as a relatively small holder of German private debt, should hold out until the legal fabric of the Young Plan was fully respected. During the negotiations the run on Germany was resumed, and the German economic system was called upon to pay in a few weeks rather more than the moratorium was designed to save it through a full year. In consequence of this run, the principal banks in America and England entered into an informal understanding among themselves to let their German credits stand. This understanding was later made formal in two successive "standstill agreements," entered into by all of Germany's important banking creditors in response to a request of the governments represented at the London Conference of July, in which the Secretary of State of the United States officially participated.

The element which was present in the case of Germany and wanting in the case of Latin America, the factor which determined the whole course of the moratorium affair, was the inter-Allied debts. They furnished the Federal Government with a handle which it could use for the benefit of Germany and hence for the protection of Germany's creditors. This leads to the conclusion, ironical to anti-cancellationists who are also isolationists, that it was the inter-Allied debts which determined the fact of intervention in Europe.

Mr. Hoover subsequently withdrew somewhat from the position which circumstances had thus forced him logically to take. Far from utilizing the debts to induce a lasting settlement in Europe, he fell back on the isolationist principle that Europe should settle its own affairs. In this he undoubtedly acted in accordance with the prevailing mood of Congress. The upshot of his conversations with M. Laval the following October was that the initiative with respect to intergovernmental obligations, which include reparations, "should be taken at an early date by the European Powers principally concerned within the framework of the agreements existing prior to July 1, 1931." At the same time, through Senator Borah's interview and other channels, it was made evident that our official and public opinion would become less intransigent if equitable political readjustments were made in Europe. M. Laval thus got a free hand, but on the understanding that before we would be ready to consider putting a capstone on the building we must be satisfied that the foundations were sound. The debts thus passed from an active to a passive part in the program, but remain potent nevertheless to intrude upon our isolation.

The question of arms limitation does not appear to have involved isolationist policy one way or the other. Disarmament presents just that combination of idealism and practical benefit which to us as a people is the final seal of rightness. Some writers are wont to point to the Washington Conference, the six preparatory disarmament conferences and the present conference at Geneva as signs that we are emerging from our isolation. Looked at closely, this does not seem to be so. The various kinds of disarmament conferences do not look to continuing collaboration; on the contrary, when an agreement shall have been arrived at, then in theory the nations shall disband (save for a possible disarmament commission which shall see whether the agreements are kept) and return each to his own business. In entering into collaboration on disarmament, therefore, we leave the door open behind us.

Nor does our rapprochement to the League of Nations indicate any real change of policy. As Mr. Lippmann points out, this rapprochement since the election of Mr. Harding has been due largely to changes in emphasis within the League itself. Article XVI, providing for the use of force to maintain peace, has gradually subsided into the background, and the League has evolved "from a League to enforce peace into a League for conferring about methods of preserving peace," an evolution in the direction of American methods. Our other participations in the League -- on scientific, economic and social welfare commissions, to the extent of some three hundred American members -- do not in any real sense violate the isolationist policy; on the contrary, this form of collaboration is a compromise, for it permits our citizens to contribute to the solution of world problems without involving the United States.

One significant exception to the practice of coöperation without commitment occurred at the end of 1931, and it is interesting that it occurred as the direct result of an American plan. The Kellogg Pact was expressly designed to mobilize the moral sentiments of the nations without in any way involving their material resources. Yet as a result of the tacit violation of the Kellogg Pact by Japan in September the United States permitted its consul in Geneva to sit with the Council of the League for the purpose of discussing the application of the Pact. The move in itself was abortive, partly because it was a purely occasional matter and partly because, being taken under the ægis of the Kellogg Pact, action was necessarily confined to protest. At this stage it is impossible to say how far this piece of coöperation which does not involve commitment will lead us. We are deeply concerned in the Far East, not only commercially but traditionally as a champion of China from the days of the Open Door Policy to the Nine Power Treaty, and in any action we may take in that particular theatre of disturbance we shall inevitably find ourselves acting in international coöperation. Aside from any importance which our action may prove to have had in shaping events in the Far East, the fact should not be overlooked that the Secretary of State has worked out and inaugurated a method by which this Government can collaborate with the ranking body of the League of Nations.

It is due Mr. Lippmann to say that the emphasis placed here on the question of isolation is not characteristic of his book. It derives rather from the logic of the events which he narrates. He lets his narrative speak for itself, and points few general morals; in default of them the following observations will serve.

It is as well known abroad as it is here that such sallies as we have made from the isolationist position have been made reluctantly. They have been sallies in the strict sense of the word, not only because the way of retreat has always been kept open but because they have been ventured upon as exceptions to an otherwise fairly consistent policy of defense. But isolationists are not confined to the United States; they are symptomatic of the revival of nationalism, itself a product of the antagonisms engendered by the war and a reaction of alarm against the way in which the modern world is being drawn closely together. To an extent, also, the policy of isolation has found advocates abroad in imitation of ourselves; if high tariffs and industrial self-containment coincided with post-war prosperity in America, it was argued that they might produce the same happy result elsewhere.

For our own part, we in the United States have attempted to wall ourselves in as an economic unit, safe from foreign attack, while at the same time keeping the outlet open for the distribution of our exuberant production of goods and capital. In order to make this practice consistent with the principles of political isolation, we have developed the compromise theory that economics and politics occupy separate spheres, that we can do business with foreign countries without involving political relations. The trouble is that the compromise does not work. Time and again we have seen politics cross the frontier of economics, and economics invade the field of politics. Never has this been so clear as in 1931, when the depression has sharpened human impulses and diminished powers of resistance. Political difficulties have had their main origin in economic dissatisfactions and economic difficulties are insoluble without political revisions. Thus is the union complete.

International economic conferences and financial agreements, the moratorium, arms limitations and Manchuria, these are all part of an endless chain of sequences. It is useless to pretend that when the problem of reparations and the debts shall have been solved we can settle down to a simple business relation with Europe, useless to suppose that arms limitation, once achieved, can be dismissed from international politics, or that the trouble in the Far East is the last case in which our interests and commitments will force us to intervene abroad. As surplus producers, both of goods and credit, our network of business is cast over the whole world, and it is a world in which the unequal degrees and kinds of civilization, like the uneven cooling of the earth's crust, are always casting up disturbances.

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  • SHEPARD MORGAN, Vice-President of the Chase National Bank; formerly Finance Director of the office for Reparation Payments; author of the B. I. S. sections of the Young Plan
  • More By Shepard Morgan