Mr. Mellon on Debts

Through the U. S. mails, last week, went a fat letter. It was addressed to President John Grier Hibben of Princeton University and signed by Secretary of the Treasury Andrew W. Mellon. It contained Air. Mellon's theory of foreign debt settlements and a systematic rebuke to the academicians of Princeton and Columbia who recently urged a reconsideration and revision of the debt pacts. Soon President Hibben replied, and amid the clash of opinions facts became cloudy. But the following facts, as stated by Secretary Mellon, were not challenged:

Nature Of The Debts: Were the sums loaned originally regarded by Congress not as "loans" but as "contributions" to a common cause? Secretary Mellon's answer:

"The act providing for these loans authorized the United States Government to sell Liberty bonds to its own people, and to invest the proceeds of these bonds in the bonds of these foreign Governments.... What we allowed our associates to do, in effect, was to borrow money in our investment market, but since their credit was not as good as ours, to borrow on the credit of the United States rather than on their own.

"Looking at the substance rather than the form of the transaction, the situation was no different than if they had actually sold their own bonds in the American market and our Government had endorsed them. Had this course been followed would any one contend that the sums advanced were intended as contributions to a joint enterprise rather than loans expected to be repaid?"

Origin Of The Debts: "Early in the War, in order to minimize the dislocation of exchanges and for sound economic reasons the general principle was established that goods and services purchased by one ally in the country of another ally should be financed by the latter.

"When we came into the War we readily agreed to apply this sound principle to our transactions with our associates. That is to say, we agreed to furnish them the dollars with which all their purchases in the United States should be consummated and, what is more, we agreed to lend them those dollars. This was the origin of these debts. But here is the fact that is not mentioned and which you gentlemen have apparently overlooked.

"We purchased supplies and services from France and the British Empire by hundreds of millions. They had to be paid for in francs and in pounds. We did not get those francs and pounds on credit--we paid cash for them, except possibly in a few comparatively minor instances. In other words, we paid cash for the goods and services necessary to enable us to make our joint contribution to the common cause. Our associates got the goods and services purchased in this country necessary to enable them to make that part of their joint contribution on credit. Here is the fundamental reason which explains why we ended the War with everyone owing us and our owing no one."

Reparations = Debts: "The fact is that all of our principal debtors are already receiving from Germany more than enough to pay their debts to the United States; and France and Italy, with the exception of this year in the case of the latter, are receiving from the same source more than enough to pay their debts to Great Britain also."

Contrary Conclusions: Secretary Mellon concluded that because the Allied Powers receive as much in German reparations as they owe to the U. S., therefore "sums paid us will not come from taxation, but will be more than met by the payments to be exacted from Germany."

President Hibben, after consulting the Princeton faculty countered sharply that it is a perversion of the whole theory of "reparations" to suggest that sums intended to "repair" the damage wrought by Germany in France, etc., should be transferred to the U. S. which has denied any intention to collect German reparations.

Odium. Said Secretary Mellon: "The joint faculties of Columbia and Princeton urge the American people to reconsider the debt schemes with allied countries because of growing odium with which this country is coming to be regarded by our European associates. I doubt whether European nations dislike us as much as some people tell us they do.

"But I know this, that if they do, the cancellation of that part of their debts which has not already been canceled will not of itself change their dislike into affection. Neither in international relations any more than in private life is affection a purchasable commodity, while my observation and reading of history lead me to conclude that a nation is hardly likely to deserve and maintain the respect of other nations by sacrificing its own just claims."