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which will not permit abuse of power and which scorns to profit by unjust accusation; in the insistence upon the processes of reason by which alone we can avoid the mistakes of prejudice; in the detestation of the demagogue and all his works, the most dangerous enemy of the republic; and in the sympathy with the weak and oppressed, and in the dominant sentiment of human brotherhood through which we shall be able to reconcile our national aspirations with the full performance of our duty to humanity."

LAWYERS AND TRUST

COMPANIES

HE trust companies and banks conTducting trust departments in the

State of Washington have adopted a new plan of approach toward cultivation of cordial and mutual relations with members of the legal fraternity. Under the auspices of the combined membership of the Trust Section of Washington the first of a series of booklets has been distributed among lawyers

in that state. In these booklets the trust companies will set forth their aims and purposes in handling fiduciary business, their desire for friendly relations with the members of the Bar and indicating the opportunities for mutual advantage resulting from an enlightened understanding of respective

activities.

The trust companies in Washington have been very successful, not alone in overcoming prejudice or hostility among lawyers, but also in enlisting the latter as actual allies in developing fiduciary business. This has been accomplished by a frank admission

CORPORATE REORGANIZATION in connection with railroad or corRUST companies acting as fiduciaries

porate reorganizations will be par ticularly interested in an article appearing in this issue of TRUST COMPANIES, contributed by Edwin S. S. Sunderland, of the New York Bar, dealing with the effect of recent Circuit Court decisions, notably in the Missouri Pacific-Iron Mountain Rail

way cases. Considerable uncertainty has attended the reorganizations since the socalled "Boyd case," growing out of the reorganization of the Northern Pacific.

In the Boyd case in 1913, the United States Supreme Court allowed unsecured creditors to upset the reorganization, because in the opinion of the court they had been unfairly treated as compared with stockholders under the reorganization plan. The precise scope of this decision has been uncertain. Since that date there has been a constant effort to devise some method which would be so clearly equitable as to be proof against later attack by unsecured creditors, and which would yet permit stockholders to participate in the reorganization. Some such method being very desirable in order that stockholders might safely participate in the reorganization and bondholders might obtain upon such participation by the stockholders the cash necessary to meet the reorganization requirements. In this article Mr. Sunderland describes a method which has proved successful in several recent cases.

NATIONAL BANK BRANCHES

UO warrants proceedings have been

of the legitimate sphere of the legal profes-Q instituted in the Supreme Court of Qinstituted

sion in regard to legal practice and drawing up documents of a purely legal nature. The experience has shown that lawyers are responsive to such an attitude on the part of trust companies and that the latter are also profiting directly in the way of securing trust business from the offices of lawyers who devote special attention to drawing up wills and settlement of estates.

The policy adopted by the trust companies of Washington has also resulted in relaxation of legislative restrictions affecting the development and solicitation of trust business.

Missouri by the State's Attorney General to restrain the First National Bank of St. Louis from establishing or operating branch banks or offices on the plea that such action is not authorized by Federal charter and is contrary to state law which prohibits branches. The recent action of the First National Bank in establishing a branch office in St. Louis on the ground that the Federal law contains no specific prohibition, has attracted nation-wide attention and the legal proceedings will probably be carried to the United States Supreme Court.

ECONOMIC AND MORAL FACTORS INVOLVED IN ALLIED DEBT PROBLEM

NATIONAL WELFARE DICTATES GENEROUS CONSIDERATION TO

DEBTORS

FREDERICK W. GEHLE

"Of the Mechanics and Metals National Bank of New York

(EDITOR'S NOTE: Delegations from the various Allied governments are about to confer with the United States Foreign Debt Refunding Commission created by Congress to effect an adjustment of advances made by our Government during and after the war aggregating $11,500,000,000, including accrued interest. While the dominant sentiment in this country appears to be opposed to the cancellation of the Allied Debt there are profound economic as well as moral reasons which justify a liberal policy toward European nations in regard to refunding of principal and extension of interest. Mr. Gehle is the author of a number of instructive treatises on international economics and fortified kis views and statements during a recent visit and study of conditions in Europe.)

FEW weeks ago there was a gathering in a Western city of men from every part of the country representing the best thought and leadership of a particular profession. A speaker addressed the gathering on the subject of the Allied war debts to the United States, and when he finished, his audience was asked to register, by a raising of hands, its view regarding a proposal that the obligations held by the United States Treasury, drawn against the Allies, amounting to more than $11,500,000,000, be cancelled.

Of the two hundred or more men present, fewer than twenty indicated their desire to see these obligations cancelled. The remainder quite positively indicated their desire that payment be called for.

To any enlightened student who has given close thought to the subject of the international debts, it might seem extraordinary that a group of men representing the country's best minds should be so one-sidedly inclined in the matter of the most pressing problem, next to the adjustment of the German indemnity, which confronts international finance. The public generally is aloof to any suggestion of a forgiveness of the European debts to the United States. But the public generally does not follow complex economic reasoning on things like this; experience is the only teacher from which the masses really learn. Intelligent opinion, however, is subject to reason and argument, even on economic complexities, and recently reason and argument have been brought into very definite play to convince American

opinion that some adjustment of international debts will soon be necessary not only in the interest of national solvency abroad, but of national prosperity in the United States.

Judging from the result of the vote at the particular meeting mentioned above, or, for that matter, judging from the result of nearly every discussion or debate which is held, the American people generally, reasoning people and unreasoning alike, are not at present sympathetic to suggestions that the United States cancel the debts of the Allies outright, wiping them off as though they had never existed.

Would Cancellation Aid European

Reconstruction?«

Looked at dispassionately, it is not to be wondered that this should be so. Proposals that existing debts shall be forgiven imply that the burden of a large part of Europe's war costs shall be placed permanently on American taxpayers, in order that European taxpayers may be spared. These proposals coincide with daily reports regarding the expense of the enormous armies and bureaucracies of the European countries, and with the reports of jealousies, hatreds and deliberate obstruction to peace-time reconstruction, and in the logic of the case the average American has come to wonder if, after all, an outright gift of such stupendous proportions as $11,000,000,000 or $12,000,000,000 would really help Europe's process of reconstruction. As the average American sees it, there has come to exist a false notion regard

ing the ability and responsibility of the United States in world matters. The fact that this country sclved so many problems of the war should not mean, in his opinion, that this country ought to assume the numerous reconstruction responsibilities properly falling upon other countries-especially in cases where the governments of those countries insist upon the luxury of large armies and civil establishments, at the same time that debt compromises are mentioned because of their inability to meet their expenses and adjust their finances.

From abroad, because of this, reports come that we are suffering from the traditional resentment of the borrower against the money lender when the date of payment comes around; it being said that while as a people we are generous to a fault when our emotions are aroused, freely giving our money and our lives, we do not, unemotionally, give up our prejudices. In the circumstances does this statement fairly apply? Is it strictly prejudice that has made Congress decline to take the initiative in straightening the matter of the Allied debts out? Is it prejudice that has made the American people as a whole hesitate? Perhaps the best answer to these questions has been given by an Englishman, Francis W. Hirst, who, writing in the July number of the Yale Review, made this pungent statement:

"The Americans have shown their philanthropy by a splendid effort to relieve the famine in Russia; but why should they lend money to Europe or entertain any scheme for the reduction of war debts. so long as their money and their credit are certain to be thrown into a pool of bottomless deficiency or frittered away on preparations for another war?"

Legal Justice of Claims

The necessity for adjusting credit matters to the exigencies of the world's trade is sê great that a definite program will presently have to be settled upon so that debts like those owed by Germany to the Allies, by the Allies to one another, and by all of them to the United States, will not be a continuing source of embarrassment, uncertainty, and vexation eventually leading to a crisis.

Reason and expediency will have to govern, but while in our own case we are convinced that reason and expediency will govern in the long run, we cannot get away from the fact of the legal justice of our claims against our fellow warriors in the late struggle against Germany. As those who reason

against cancellation see the case, in the financial scale a debt is a debt; the money which was borrowed from the United States during the war was not a gift, but a loan secured by the solemn obligations of responsible sovereign states to another sovereign State As they see it in the moral scale, the balance on war account is not against us, but in our favor.

We came to the help of the Allies at the critical juncture of the war. We ourselves were not immediately menaced by Germany, but entered the war wholly of our own free will and with nothing of economic power to gain. What we did saved Europe, and the cost to us was more than 100,000 American lives and the expenditure of $30,000,000,000 of wealth. Each of the Allies at the time peace was signed took reparations from the vanquished. We, on the other hand, were penalized in their behalf. We taxed ourselves to carry the burden of war obligations incurred for the Allies' advantage, and are still paying those taxes without any compensating material return. We have had no interest on the money we loaned. We have had no part of the, indemnity. We have had no part in the territorial, commercial or other tangible advantages of the peace treaty.

Analysis of Advances Made by United States

Some of the loans made by the United States were made after the Armistice. Following is an analysis of the advances made by the United States Treasury, recently prepared with a view to showing the extent of the loans made by the Treasury to the Allies after the war was over (actually though not technically) on the basis of Treasury daily statements. This does not include accrued interest, which to date has brought the total to more than $11,500,000,000: To and including November

11, Armistice Day........$7,076,714,750.00 Thereafter, to and including

June 28, 1919, when the Treaty of Versailles was signed

2,025,570,265.56

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pediency than in the matter of disposal of the international debts. From the point of view of legal justice the debts are due, but reason and expediency are bound to determine the settlement of Europe's debts in the long run, quite the same as they are bound to determine the settlement of the German indemnity.

Every argument given above for insisting upon payment of the Allied debts is reasonable and definitely supports the claim of legal justice for the payment of those debts to our Treasury. Over against all these arguments, however, there are those of reason and expediency. The existing state of the exchanges, and the claims of the world's trade problems combine to set up economic arguments for cancellation, which, as already indicated, are destined to govern the outcome. Every dollar represented by the notes held in our Treasury is rightly due us; nevertheless, consideration of the matter must be stripped of the colorings of opinion and passion and must be measured in the light of expediency. Among the nations it is more than a case of "You shall pay!" as against "I won't;" the whole proposition must be determined in the light of the question of how to adjust the debts on a basis that will permit payment, and that, above all, will restore international trade in a way to bring universal prosperity.

In another year, with interest added to principal, the nations abroad will owe to the United States Government more than twelve billion dollars. On that sum were it insisted that interest should begin next year, the annual interest requirement, would be not less than five hundred million dollars. Were a sinking fund adopted to cancel the debt within a period of twenty-five years, there would be the prospect of an annual payment of an additional $400,000,000.

No Practical Plan of Payment Yet Devised

Does any one believe that these sums, in full, can be paid? Is there any conceivable way in which they might be paid? Up to date no way has been devised. Payment by Europe to ourselves of $900,000,000 yearly over any protracted period would have, so far as we can draw the picture today, a revolutionary effect upon world conditions. Relations of trade and commerce would be tremendously displaced. Forced to honor the signature of their notes and to meet the obligations of their debts, nations abroad would strive to pay the charges accruing against them by shipping gold or goods, and

coincidentally would curtail their purchases here so that they might not sink deeper into our debt. Made effective, such a procedure would bring ruin to our debtors, driving them so deeply into poverty that they could no longer support their existing structure of civilization. Made effective, further, such a procedure would flood the United States with gold and imported goods, and at the same time take away our foreign markets. A combination of circumstances like that would bring disaster to our productive industry.

Frederick C. Goodenough, chairman of Barclay's Bank, London, in an address a few weeks ago referred to this situation as follows:

"If a debtor country is to meet its obligations and is also to regain its pre-war economic level, or even remain at the level of today, the interest and amortization of debts can only be provided for by vastly greater efforts of production than before; that is to say, through more strenuous labor aided by improved methods and organization. The alternative is a lower standard of living which would vary in the case of each country according to the proportion of its debt to its population and resources. A lower standard of living would render a country less able to buy from abroad."

Whatever single countries might be capable of doing, Europe as a whole could not ship enough gold or goods, and economize sufficiently in American purchases, to balance more than a fraction of a yearly obligation of $900,000,000 to us. There is not enough gold available, while as for trade, the proposal that Europe, which has always in the past been our customer on a large scale, shall turn completely about, and warbroken though it is, ship vast quantities of articles here, and at the same time stop buying, is out of the question.

Utilizing Our Economic Power for European Betterment

Wholly apart, then, from every other consideration, we must expect that the problem of our international financial relations will in the long run be determined in the light of the commercial position of the United States among the nations of the world. The question goes beyond simple financial and moral obligations; it reaches down to the very foundations of our trade structure. As a creditor nation, practically self-sufficient, we stand in an unprecedented position. Having built up our home industries beyond

home requirements, and having for decades sold our surplus in the export markets, we now face the prospect of a turnover in our trade balances, through enormous imports to be made in the settlement of our accumulated export credits. Productive industry in this country is fearful of the consequences, and tariffs are being designed by Congress to prevent the inflow of foreign goods from rising too fast. It is all so contradictory; seeking to maintain our own productive activity at a high peak by keeping out the competition of imported goods, we nevertheless are looking forward to large repayments from abroad against existing credits, these repayments to be made in only one possible way-with goods.

Problems Before Debt Commission

There have been many adjustment plans proposed by those who see no way for Europe's immediate payment; some of these have been sound; others have been fantastic. Congress has appointed a Debt Commission to consider the best way to meet the situation. This commission is admirably constituted. It is composed of three members of President Harding's Cabinet, Messrs. Hughes, Mellon and Hoover, together with Senator Smoot and Representative Burton. But this commission's hands have been pretty well tied so that it can do nothing in the matter of permanent adjustment without reporting back to Congress.

We have a large reason, then, to exercise our economic power for the world's betterment, and adapt our course to the fundamental principles upon which world progress must be based. Europe's leaders maintain that the United States is absolutely necessary to Europe's recuperation. As for ourselves, we are coming more and more to appreciate how much more Europe's recuperation means to our welfare.

What the ultimate outcome will be remains to be determined; in the writer's opinion the determination will only be made after many conferences on the part of foreign representatives with our commission, and only after the most painstaking thought. There has been an increasing discussion regarding the striking of "bargains" among the nations; one to forgive another if that other forgives a third, and so on around the circle. The United States would be outside the circle, as in any such bargaining it would forgive debts without being forgiven; moreover, finance would play a smaller part than politics in such bargaining-and in the past few

years politics has been the curse of Europe.

The proposition to remit or readjust international debts is one that, as was said a moment ago, will require the most painstaking thought, for it must be remembered that the future integrity of international financial obligations is involved. A general cancellation of debts, smacking of repudiation, would have financial and political consequences tremendous in their significance.

But in the meantime, confronted with an emergency, the most logical attitude on our part is one of patience and care. Whatever one's personal opinion he cannot object to the suggestion that the debts involved, if they are to be liquidated, should be liquidated very slowly, and even the interest payments, if they are soon to begin, should begin with small amounts, increasing slowly after a long period. Such a course would give time for our debtors to build up their resources, and give time also to our industries to accommodate themselves to the new conditions.

THOSE DIFFICULT WAR DEBTS

The Mercantile Trust Company of St. Louis has reprinted and issued in booklet form a most lucid and strong argument for cancellation of the Allied Debt, written by Colonel John Ross Delafield of the New York Bar, and which appeared recently in The Nation's Business. Colonel Delafield has received the Distinguished Service Medal fo his valuable services to the War Department, which included the reorganization and administration of the Board of Contract Adjustment.

Col. Delafield approaches the subject of war debt cancellation from the standpoint of the man who believes that, aside from moral obligations, it is distinctly to our National economic advantage to forgive our Allied debtors, pointing out the serious effect of exchanges operating against our trade, the impracticability of payments in cash or acceptable currency and the indirect effect of German Reparation payments to be enforced in case France and other allies are confronted with the task of paying our Government the vast amount that is due.

Col. Delafield says in the conclusion of his article:

"The problem is a grave one and of a character that requires courage and statesmanship to solve. It also gives an opportunity to effect a general readjustment which would (Continued on page 58)

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