Super Imperialism. Michael Hudson
for its military support. The provision of arms to allies, by universal custom, had been written off as a war cost. This time the credits were kept on the books. The eagle had unsheathed its claws.
Indeed, U.S. refusal to negotiate the Inter-Ally debts represented a more intransigent position than that taken by the Allies collectively vis-à-vis Germany in the Treaty of Versailles. The treaty itself imposed no fixed sum of reparations upon Germany, large or small, leaving this matter to the Reparations Commission. Article 234 specifically provided that “The Reparation Commission shall after May 1, 1921, from time to time, consider the resources and capacity of Germany, and after giving her representatives a just opportunity to be heard, shall have discretion to extend the date, and to modify the form of payments, such as are to be provided for in accordance with Article 233; but not to cancel any part, except with the specific authority of the several Governments represented upon the Commission.” Thus, although Germany’s reparation payments might be appealed, and even – by unanimous agreement – canceled, no such accommodation was made to America’s wartime Allies. This provision enabled Germany’s annual payments to be scaled down from an annual rate of 7 billion gold marks in 1920 to 2 billion marks in 1929 (about $426 million, at 4.2 gold marks to the dollar).28 But the Allies were granted no such provision. This made it inevitable that they would follow in Germany’s ultimate bankruptcy.
When General Pershing marched into Paris at the head of the Allied troops, he saluted Lafayette’s tomb and announced, “Lafayette, we are here.” A cartoon of the early 1920s depicted him as having approached the monument and saying, “Lafayette, we are here. And now we want to be paid.” Of the nominal $28 billion of total Inter-Ally debts, the U.S. Government was owed $12 billion, some $4.7 billion by Britain, which in turn was owed $11 billion by its European allies. Much of this was owed by Russia and became uncollectible after the Bolshevik Revolution of November 1917. The size of this official indebtedness overwhelmed the private international investments existing prior to the war. Furthermore, whereas “America’s war debts were extended in commodities, the United States asks their repayment in dollars or in United States Government securities at par. The face value of these debts is $2,000,000,000 more than the world’s gold holdings. The completion of the syllogism is that nolens volens the United States must accept remittances in commodities or services in order to provide Europe with dollar exchange.”29 But instead, its tariffs were increased and the Federal Reserve System pursued anti-inflationary policies. The result was to drain European gold to the United States.
The only visible way the Allies could obtain the funds to pay the United States was to insist upon German reparations. “Without the payments of the Allies to the United States,” a British official commented in 1929, “the reparation problem would be perfectly simple. It would be quite easy to fix a figure which Germany could pay, and which the Allies would accept; but once Europe has to pay these huge sums to the United States it becomes very difficult not to put the German debt too high.”30 Germany was burdened with a sum calculated to reimburse the Allies for most of the damage wrought during the war, a sum that exceeded the total value of Germany’s corporate assets. It simply lacked the resources to provide the Allies with the funds necessary to amortize their debts to the United States and to each other. As Snowden noted:
When the funding arrangements which America had made with her European debtors fully mature she will be receiving approximately £120,000,000 [$600 million] a year on account of these debts. The most sanguine expectation of the yield of German reparations is not more than £50,000,000 [$250 million] a year, though the Dawes scheme provides for an eventual payment of £125,000,000 [$625 million] a year. But no authority believes that Germany will ever be able to pay a sum approaching the latter figure. Therefore, what all this amounts to is that America is going to take the whole of the German reparations and probably an equal sum in addition. This is not a bad arrangement for a country that entered the war with “No indemnities, and no material gain” emblazoned upon its banners.31
Snowden’s reference was to President Wilson’s address to Congress of April 2, 1917, in which he stated: “We have no selfish ends to serve, we desire no conquest, no dominion, we seek no indemnities for ourselves, no material compensation for the sacrifices we shall freely make.” Wilson had also promised Belgium that it would never be asked to repay the $171 million it had borrowed. But his promise was not honored, although the U.S. Government did agreed to waive the interest on this loan. Britain and France, by contrast, waived the principal as well as the interest on their much larger loans to Belgium.32 As Keynes put matters, France could “barely secure from Germany the full measure of the destruction of her countryside. Yet victorious France must pay her friends and Allies more than four times the indemnity which in the defeat of 1870 she paid Germany. The hand of Bismarck was light compared with that of an Ally or of an Associate.”33 The result, he warned, would be that “the war will have ended with a network of heavy tribute payable from one Ally to another. The total amount of this tribute is even likely to exceed the amount obtainable from the enemy; and the war will have ended with the intolerable result of the Allies paying indemnities to one another instead of receiving them from the enemy.”
Despite these facts, the U.S. Treasury persistently refused to consider its scheduled repayments and interest as being in any way contingent upon the receipt of German reparations by the Allied Powers. Britain therefore had to turn to France and Germany to raise the funds with which to pay its war debts to the United States. France had only Germany to turn to, and marched into the Saar in 1921 to take in kind what it could not obtain in cash. It was a period in which the most extortionate of nationalistic acts were inspired by frustration at the economic situation imposed upon the world by the United States.
Super imperialism
The emergence of the United States as the overwhelming world creditor was at its very origin a governmental function. It was not the product of private investment abroad of surpluses earned through foreign trade, nor the result of self-expansion of private overseas investment through reemployment in foreign ventures of earnings and internally generated cash flow. Although such reinvestment of private funds did occur, it was small in comparison with the advances made by the U.S. Government during the war to its allies and, after the war, for relief and reconstruction.
In the case of other nations, government intervention in foreign lands generally had followed growth of private investments, especially in areas rich in undeveloped natural resources. Governments either seized territories to secure expansion of the private interests of their nationals in these areas and to exclude the capitalists of other nations from them, or they entered into special agreements with the rulers of such areas to produce identical results. In either case private capital took the initiative; government action was subsequent. This may not have been the invariable order of events but it was the usual order. There had been unquestioned emphasis upon the nurturing of private interests abroad, such interests being identified with those of the nation as a whole.
Attainment of world creditor status by the United States did not follow this historic path, nor was it identically motivated. The great surge of U.S. investments overseas was by government, not by private investors, although this did occur, of course. It was not directed principally toward undeveloped areas rich in raw materials, but to a Europe whose industrial output was larger than that of the United States, but visibly deficient in raw materials within its borders. Motivation for massive U.S. Government financial claims on Europe was political in its emphasis; economics played a smaller role.
The argument is valid, in fact, that private industrial and financial interests in the United States would have been best served by government nonintervention, financial or military, in the European war and in Europe’s reconstruction. An exhausted Europe, prostrated by an indefinitely prolonged war, would have exposed the whole continent to domination by U.S. finance capital, whose resources would have been generated in part by continued sales of arms on commercial terms to the belligerents. From the viewpoint of the generality of U.S. private finance capital, intervention therefore was an error. A totally exhausted Europe could not have continued its hold on its raw materials-producing colonies, as the end of World War II demonstrated. In these respects intervention by the U.S. Government limited the potential spheres of expansion of private U.S. finance capital in both Europe and its colonial