Political cartoon published after Franklin D. Roosevelt was elected president
Source: Unsilent Generation
Political cartoon published after Franklin D. Roosevelt was elected president Source: Unsilent Generation

"No sooner had the last U.S. ballot been counted, than Great Britain led France and other Debtor Powers last week in a free-for-all drive by press stories and diplomatic notes toward present postponement and future cancellation of what Europe owes the U.S."

So wrote Time magazine two weeks after voters had elected Democratic New York Governor Franklin D. Roosevelt as president and handed him a basket of wailing economic "babies," the most insistent being World War I debts and reparations.

"The issue of war debts transcends in interest all other problems now before the statesmen of the world," the New York Times wrote.

The U.S. had advanced 11 Allied nations about $10 billion in goods and credits during World War I. The debtor countries used German reparations to fund repayments during the 1920s, but the German economy was in ruins by 1932.  U.S. loans had dried up, and the Depression deprived Germany of export revenue.

President Herbert Hoover had negotiated a payment moratorium until Dec. 15. Britain was expected to pay $95 million, and France owed $20 million. Additional sums were due from Italy, Czechoslovakia, Latvia, Lithuania, Finland, Belgium, Poland, Hungary and Estonia.

The question hung in the air: Who would pay and who would default? In mid-November, Britain, France, Czechoslovakia and Belgium appealed for a renewal of the moratorium.

Congressional leaders were firmly opposed to extending the deadline. Pennsylvania Senator David Reed observed: “I’ve not found a single member of Congress who will vote for a suspension of debt payment.”

Setting a historical precedent, the lame-duck president and president-elect agreed to meet at the White House on Nov. 22 to form a united response. During the two-hour meeting, "President Hoover did most of the talking," Time wrote. Hoover wished to secure Roosevelt's assent to a joint-position statement, but Roosevelt declined.

After the meeting, Hoover drafted a 2,500-word statement, acknowledging that "the world wide crisis has increased the weight of all debts throughout the world." But he argued against extending the deadline, echoing President Calvin Coolidge’s alleged response to an earlier request for war-debt relief: "Well they hired the money, didn’t they?"

Roosevelt responded to Hoover’s statement the following day, agreeing that debtors always "should have an opportunity to lay facts and representations before the creditor." But while Hoover wanted to shift responsibility of the payments to another commission, Roosevelt agreed with Congress that "the most effective contacts can be made through the existing agencies and the constituted channels."

The State Department dispatched notes to all the debtor nations that the Treasury expected full payment of all sums by Dec. 15. Congress would have to approve any revision.

The die was cast; financial centers held their breath.

(Philip Scranton is a Board of Governors professor of the history of industry and technology at Rutgers University, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)

Read more from Echoes, Bloomberg View's economic history blog.

To contact the writer of this blog post: Philip Scranton at scranton@camden.rutgers.edu.

To contact the editor responsible for this blog post: Kirsten Salyer at ksalyer@bloomberg.net.