War

Approaching WWI with Thomas Lamont

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Continuing my notes on America's 60 Families, with a digression to a little-known speech:

Lundberg says "total wartime expenditures of the United States government from April 6, 1917, to October 31, 1919, when the last contingent of troops returned from Europe, was $35,413,000,000. Net corporation profits for the period January 1, 1916, to July, 1921, when wartime industrial activity was finally liquidated, were $38,000,000,000…" (134)

By the end of the American involvement, US national debt had reached $30 billion, "or more than thirty times the prewar national debt. The only way the people could recover some of this money was by taxing the corporations" that had made some extreme windfall profits during the war. But the Republican administrations that followed Wilson's "saw that taxes on the rich were sharply reduced rather than increased." (135)

JP Morgan and Company acted as purchasing agent in the US for the European allies. Wilson's Secretary of State, the Populist William Jennings Bryan, warned the President in August 1914 that Morgan was seeking credit for Britain and France. Bryan told Wilson "money is the worst of all contrabands," and that if the loan was permitted, "the interests of the powerful persons making it would be enlisted on the side of the borrower, making neutrality difficult, if not impossible."
Wilson concurred, and Bryan wrote to JP Morgan in his official capacity as Secretary, outlining the administration's position that "Loans made by American bankers to any foreign nation which is at war are inconsistent with the true spirit of neutrality."  So on October 23, 1914, "with Bryan out of town," the bankers tried an end run. Samuel McRoberts, vice president of National City Bank, approached a State Department advisor named Robert Lansing, who called on Wilson. "Between them they drew a Jesuitical distinction between credits and loans: credits were held to be permissible…the Allied governments…began buying supplies in large quantities on bank credits…it was only a little more than six months before Wilson secretly gave permission for the flotation of the huge Anglo-French loan." (Wilson's good friend and trusted advisor Cleveland Dodge was a director of National City. 136-7)

Lundberg then moves on to JP Morgan and Company and especially to Thomas Lamont, who was to play an important role in financing the war and negotiating the peace at Versailles. Lamont gave an important but little-known speech in April, 1915, Lundberg says, which laid out the bankers' agenda for the war. Lamont spoke to the American Academy of Political and Social Science. Although Lundberg observes the speech, titled "The Effect of the War on America's Financial Position," was "neither reported in the newspapers nor was it brought to light by the Nye Committee." (139) Luckily, a transcript was published in the
Annals of the Academy. Here are some highlights:

Lamont begins by recounting that at "the outbreak of the general war…We saw our high-grade securities fall with great violence; we saw the entire fabric of our foreign exchange, built up over many generations, knocked completely awry; we found ourselves unable to buy sterling exchange wherewith to pay our debts in London. Our gold was exported in great volume…Domestic rates for money advanced to a high figure, and even at that money was scarce and hard to obtain." This alarming chain of events, Lamont recalls, was met with swift and decisive action. "Our securities were being dumpoed upon us in large volume by foreign holders. Therefore, we closed our exchanges…Gold was being exported and there was danger of a money panic. Therefore…under the Aldrich-Vreeland Act $400,000 of additional currency was almost immediately issued." To forestall the calling of foreign loans, the financiers of New York "sold $100,000,000 of its 6 per cent notes," raising $80 million in gold. When the South was panicking over the breakdown of the cotton market, the financiers "organized a banking pool to lend up to $150,000,000 on cotton." In these ways, Lamont says, "a comparatively few active and patriotic men acting as leaders, but with the loyal and united support of the whole financial community," saved the American economy.

Since the initial crisis, Lamont continues, the situation has turned to America's advantage. "Money is easy, we are importing gold on a good scale, having already brought back over $50,000,000 of what we sent out last year…we are turning from a debtor into a creditor…We are piling up a prodigious export trade balance [with] war orders, running into the hundreds of millions of dollars." Lamont lists a half dozen countries the financiers have loaned money to since Wilson allowed "credits," concluding "these foreign loans that we have made since war broke out [are] well above two hundred million dollars." But that's just the tip of the iceberg. "Many people seem to believe," Lamont says, "that New York is to supercede London as the money center of the world. In order to become the money center we must of course become the trade center of the world." So instead of a dangerous crisis, the European war might just be a tremendous opportunity for America.

But it's not a sure thing. In order to take advantage of this opportunity, the financiers will need to be both smart and bold. And a lot rests, Lamont admits, on "the duration of the war." If it's over quickly and Germany is able to regain its competitive position in international trade, "we should find that the building up of our foreign trade would be a much slower matter than if the war were to continue indefinitely…If we should continue to buy such securities [of US companies] back on a large scale -- and the chances are that if the war continues long we shall do that -- then we should no longer be in the position of remitting abroad vast sums every year in the way of interest…If the war continues long enough…then inevitably we shall become a creditor instead of a debtor nation, and such a development, sooner or later, would certainly tend to bring about the dollar, instead of the pound sterling, as the international basis of exchange."

So what's it going to take to bring about this historic reversal of America's financial fortunes? First, of course, American financiers need to be allowed to loan (and American manufacturers to sell) as much as possible to the warring Europeans. But in order to do this, Lamont says the US government needs to turn control over to the patriots who saved the economy at the war's start. "We are witnessing extraordinary developments on the other side of the water," he says; "we are seeing government control of industry being undertaken on a gigantic scale. Will such control continue in part or in whole after the war? Will the value of the cooperative effort which is now being demonstrated, be so great as to demand continuance after the war is over?" This passage may be confusing to people reading today, since we now expect businessmen to be against government involvement. Lamont is
calling for government cooperation with business -- but with himself and his fellow financiers calling the shots.

"Here in America," Lamont asks, "shall our manufacturers and merchants be able to take effective steps, with the active cooperation of the government for the development of foreign business? Will American producers be able to arrange for cooperation among their organizations?" To make America the world leader in trade and finance, Lamont says, things will have to change because "Today our laws do not allow them." In order to take advantage of the opportunity before them, "this year to one billion dollars," Lamont says the government needs to start looking the other way on antitrust and let business "cooperate."

"Some fail to realize," Lamont concludes, "that finance and general business are so interwoven that the success of manufacture and trade depends entirely on the cooperation of finance." Trusts and the holding companies that followed them, by the logic of the day, allow financiers to rationalize industries and make them more efficient and profitable. Bigger is better -- this is an idea we still recognize as part of the philosophy of big business. Lamont is calling for unlimited size, and also for cooperation by government to turn control over American foreign financial policy over to the people who took "those great remedial and protective steps that I have briefly alluded to…taken by a few gentlemen quietly and without legislative action."