Demobilization

Although as these words are written it is more than two and a half years since the armistice of November 11, 1918, was signed, it is still impossible to give a clean-cut and definitive statement of the accomplishments of the industrial demobilization. It may never be possible to do so. Although in the main it was possible to terminate the war contracts with supplementary agreements fixing the Government’s liability to the penny, the consolidation of these agreements would not give the full cost of the termination. A few claimants are stubborn and insist upon the ultimate legal redress guaranteed them by the terms of their contracts. The administration in Washington has changed, and some few of the claims once settled—as it was believed, finally—are being reopened. And then, on the credit side of the war ledger there is the same indefiniteness. Surpluses of war supplies are indeterminate—expanding or contracting as policies change, as the military establishment finds need of materials once declared surplus, as war reserves deteriorate. Thus it is impossible to draw a line and say that all transactions on the one side should be entered in the war account and all on the other in the account of the permanent Army.

But in one important branch of our war industry there was a complete, definite liquidation. The red line was drawn and the balance struck. This was the branch in which the Allies and other foreign nations were participants, as either buyers or sellers. The promptness with which this transaction was consummated, and the completeness of it—down to the last dollar due, down to the last pound of materials exchanged—mark it as one of the outstanding accomplishments in the whole industrial record of the war. Its benefits to the countries affected are not to be read entirely in the footings of the columns of debits and offsets: rather, they are political and economic—the prestige of the United States enhanced, international good will sustained, irritation and ill feeling, which might easily have been aroused among the late Allies and their associates in the settlement of their business arrangements, avoided.

It is evident that these war transactions fell into two classes: one class in which the Allies dealt (through the American Government) with American industry for the production of supplies; the other in which the United States was the customer, and the industries of the Allies (and to a slight extent the industries of certain neutral nations) the source of supply. And, as the business of terminating the arrangements was thus a double-barreled proposition, the War Department found it convenient to attack it with two agencies: the so-called Cuthell Board (which, officially speaking, was the “Special Representative of the Secretary of War” and his assistants) and the United States Liquidation Commission.

Mr. Chester W. Cuthell was the Special Representative of the Secretary of War. His Board consisted of lawyers and accountants whom he chose and appointed. The duties of Mr. Cuthell and his Board were to terminate and settle up the war business of the Allies in the United States under those arrangements in which the War Department had been a participant, whether as agent, producer, or partner. The Board was therefore essentially the agency for liquidating the international business on this side of the Atlantic. The United States Liquidation Commission, on the other hand, was the agency created to liquidate America’s war industry abroad; and this was much the greater of the two tasks. The United States Liquidation Commission was charged, also, with an added duty: that of disposing of all American surplus military property on foreign soil.

We must think of both these activities in international demobilization as going on simultaneously, as they did. The two agencies were created almost at the same time: Mr. Cuthell was appointed on January 22, 1919, and the United States Liquidation Commission was created on the following February 11. Also it was necessary that they both work in the closest contact and coöperation with each other, since the arrangements of both would have to come together in the final settlements, the American claims against the Allies, as substantiated by the Board, going to offset the Allied claims against us, as acknowledged by the Liquidation Commission. This liaison and harmony existed. The coöperation, too, extended to the adoption of certain broad policies which were to be followed by both in liquidating the business. One of these, and perhaps the most important one, was that, in the negotiations that were to follow, no nation should expect to profit at the expense of any of the others. The settlements should be made on the basis of actual cost. A second policy was that international agreements and understandings, even though they had never been committed formally to writing, were to have the binding force of formal contracts. In other words, the business would be settled as among partners and friends, no one of whom wished to take advantage of the others.

Upon both liquidating agencies bore the need for haste in terminating the business. Armies were demobilizing, personnel familiar with the subjects in negotiation melting away. If the discussions were to be long protracted they would take on the aspect of contentions, with evidence and affidavits to be secured, inventories and audits taken, hearings conducted, examination and cross-examination of witnesses, causes perhaps finally going into international tribunals or before commissions of arbitration. Nothing but ill feeling could result from such an outcome. The international business relations had become enormously intricate during the war. It was obviously an impractical thing to go into details, as a creditor might attack the schedules of a bankrupt corporation. Such procedure would drag along for years. It was to the advantage of every party to the transactions, the parties being sovereign nations having regard for their international contacts, to give and take in rough bargaining, accepting estimates and lump sums rather than insisting upon items and particulars, and finally to agree to totals which at the best would be only approximations. The important thing was to get the business over with justice done to all.

That was the spirit in which both boards worked.

Mr. Cuthell, upon his appointment, found in the Division of Purchase, Storage, and Traffic a consolidated and condensed record of every claim held by the War Department against the governments associated with us in the war. This showed him the field. He discovered, however, that none of the war missions maintained by the Allies in the United States was vested with power to adjust and settle these claims, many of which were disputed. Therefore, while his hastily gathered force of experts was preparing the claims for presentation, Mr. Cuthell himself (in April, 1919) was sent to Europe to ask the foreign governments concerned to create liquidating agencies competent to deal with the United States and, further, to retain in their respective services, until the liquidation should be effected, the officers familiar with the American transactions.

It should be noted here that this was a wide departure from international precedent. Ordinarily, financial claims between nations are settled by the slow and cumbersome processes of diplomatic interchange, or else by arbitration. To have allowed the war claims to go into this channel would possibly have meant the end of the amity between the Allies and the United States. Our liquidation agencies proposed direct dealing through business plenipotentiaries, with restrictions even less exacting than would be drawn by two private corporations.

In Paris Mr. Cuthell found representatives of Italy prepared to discuss the American claims against Italy. Soon after the conferences started, however, President Wilson made public at the Peace Conference his attitude toward the Italian occupation of the Adriatic port of Fiume; and the Italian delegation, including those ready to negotiate a business settlement with us, withdrew from Paris.

Mr. Cuthell thereupon went to London to negotiate with the British. The British Government appointed and empowered a special commission, headed by Lord Inverforth, then the British Minister of Munitions, and including several eminent representatives of the British Government, among them Mr. W. T. Layton, a man of unusual ability and the one who took the actual lead for the British in the subsequent negotiations, to deal with the American claims. Meanwhile Mr. Cuthell’s principal assistants had arrived from the United States, bringing with them the now formulated statements analyzing the British war business in America and setting forth what our negotiators regarded as the proper charges for the British to pay in settlement. These assistants were Mr. Ralph W. Gwinn, who was to present the Liberty engine case; Mr. Miller D. Steever, in charge of the airplane lumber claim; and Mr. F. C. Weems, who had prepared the smokeless powder and cotton linters cases. The conferences began immediately, and such was the progress made that within ten days a complete agreement was reached, and the British war business in the United States was definitely terminated. The so-called Cuthell-Inverforth Agreement, which embodied the terms of settlement, was dated May 10, 1919.

The agreement, reached so speedily and with such complete mutual accord, terminated a vast business within the United States. From the United States as dealer, Great Britain had procured smokeless powder, picric acid, airplane lumber, and Liberty engines. As a partner of the United States, Great Britain participated in the pool of cotton linters which cornered the entire American supply for the benefit of the powder mills. England was also a partner with us in the project to build a chain of chemical factories in America to produce acetone, used in making dope for airplane wings. These factories never came into production, and the project was closed out with a loss of over $6,000,000, half of which loss the British were bound to share. We participated with England in the purchase of Australasian wool. The terms under which the wool contract was closed out were noted in a previous chapter of this volume.

The celerity with which these complicated war transactions were terminated was a distinct triumph in international negotiation. The British, when they entered the conferences, probably had no idea that they were to be rushed through to any such speedy conclusion. The conferences, in fact, began as if they were to drag along for an extended time. On the first day Mr. Gwinn gave a careful and clear exposition of the Liberty engine case, setting forth in detail just what we had done and to what extent the British ought to participate in the costs. Although, whenever any of his figures were challenged, the American delegation proceeded then and there to make adjustments apparently to the satisfaction of the British commissioners, yet when Mr. Gwinn had concluded, the Americans were unable to gain from the British any expression of opinion as to whether the total would be accepted, at least tentatively, as the British obligation. It was evident that the British expected to prepare and, later on, press an argument against the American statement. If this procedure were to be followed throughout the negotiations, it would be many weeks before the conferees could reach any final agreement.

This outcome of the first day’s negotiation was a disappointment to the Americans, but they determined to try again next day. The next morning Mr. Steever took up the airplane lumber case, and talked for nearly four hours. He went into a description of the picturesque phases of the northwestern lumbering enterprise—the felling of the spruce trees, the steel cables on which the great trunks slid down the mountain sides, the railroads built into hitherto inaccessible wildernesses. But punctuating his rhetoric were the hard figures of costs, expenditures, losses, deliveries, and values. The British had shared in this whole enterprise in the Pacific Northwest, the development of which had never reached the stage of turning out the airplane lumber at low prices. As Mr. Steever talked he invited interruption and objection, and the British delegates availed themselves of the invitation. The various objections were resolved as the case was unfolded. At the conclusion Mr. Cuthell asked for any further objections to the statement. But the British had exhausted their challenges during the presentation of the claim. The only objection raised was to British participation in the cost of certain dry kilns in which the export airplane lumber was not treated. This item was promptly subtracted from the claim’s total, and then Mr. Cuthell briefly urged that the column’s footing be accepted tentatively as the British obligation. If not to the surprise of the Americans, certainly to their extreme gratification, the British commission agreed.

That was the real victory, for it set the precedent for the entire settlement. Each day the Americans presented a new case; and each evening when the American representatives left the Hotel Metropole in London, where the conferences were held, a tentative agreement in that case had been reached. Finally all the claims were settled tentatively, except the Liberty engine claim. Once more the Americans pressed to have the original statement accepted, and it was. It was understood, however, that all figures were to be subject to verification by a British audit of the books of the War Department in Washington.

On the tenth day the Americans brought to the Metropole a tentative written agreement, embodying all the sub-settlements agreed upon. Mr. Cuthell then pointed out the considerable cost of a British audit of our books, the possibilities of friction arising over the presence of British auditors in our War Department over an extended period, and the likelihood, since all the American estimates were conservative, that the audit would not in any event greatly change the amount of the British obligation and might even increase it; and he suggested that it would be good policy for the British to accept the tentative figure as final and let it go at that. Lord Inverforth promptly agreed. That was cricket, as the English say.

The agreement fixed the cash liability of the British Government for its unpaid American war bills and its obligations arising from the termination of its American contracts and engagements at $35,464,823.10. Of this the Liberty engine item was the largest item—approximately $14,000,000. The British paid over $13,000,000 to satisfy all claims of the United States arising from the British purchases of airplane spruce, fir, and cedar. Its powder contracts accounted for nearly $4,700,000 of the settlement sum, wood distillates (principally acetone) for about $2,900,000, and its 2-per-cent share in the linters pool for the rest.

Practically all the settlements made by the Cuthell Board were carried as offsets to the American liabilities under the general foreign liquidation accomplished by the United States Liquidation Commission; but the British preferred to make their settlements separate transactions. Accordingly, on August 2, 1919, a representative of the British Treasury delivered to the War Department a check in payment of the British obligation under the terms of the Cuthell-Inverforth Agreement. This, however, was not a complete termination for Great Britain. That Government admitted full liability under numerous other, but small, claims which the War Department had not yet had time to prepare in detail. As invoices were subsequently presented to the British Government, these claims were promptly paid. The minor cases came to approximately $7,000,000.

Progress almost equally swift was made by the Cuthell Board in securing a settlement of the American claims against France. At first there was no official French agency empowered to make such a settlement. Mr. Cuthell and his assistants proceeded immediately to Paris after making the British agreement and importuned the French Government to designate a representative competent to conclude a settlement. There they were joined by Messrs. Charles B. Shelton, William Fisher, John H. Ray, Jr., and Harry A. Fisher, who brought with them from Washington the formulated statements of various American claims against the French. After several days’ delay Premier Clemenceau appointed the French Liquidation Commission, headed by M. Édouard de Billy, who had been with the French High Commission in Washington during the war and was therefore familiar with the French contracts in the United States. To France the War Department had sold picric acid, cotton linters, smokeless powder, airplane lumber, and Liberty engines. The French liability in these cases was finally fixed at $95,968,561.87, and a formal agreement admitting the liability was signed on May 29, 1919. There were other considerable claims against France, the statements of which had not yet been prepared. Later (September 9, 1919) Mr. Cuthell came to an agreement with M. Casenave, minister plenipotentiary of France in the United States, whereby the French admitted an additional liability of $64,910,352.92. Of this sum, $38,000,000 represented ocean freight charges upon war supplies bought by France in the United States and carried to France in American army cargo transports.

Two additional settlements with France, one terminating the French contract with J. G. White & Company for raw materials for airplane manufacture and the other terminating the French contract with the General Vehicle Company for the production of Gnome rotary airplane engines, increased the French liability by $2,117,785.34. These settlements were made in France by Mr. Monte Appel, chief assistant to Mr. Cuthell. The total liability arising from the American war business of France was therefore $162,996,700.13. This sum went into the general settlement agreement made with the French by the United States Liquidation Commission.

Soon after the French settlement was a fact, the Italian Government appointed a commission to treat with the Cuthell Board. The Italian agreement, dated August 13, 1919, admitted an obligation on the part of Italy in the sum of $5,200,000, representing Italian war purchases of picric acid, smokeless powder, airplane lumber, linters, and trinitrotoluol, this agreement not including an admitted obligation of approximately $395,000 for Liberty engines, clothing, and other small items not yet invoiced. Against this obligation Italy presented a claim for $4,053,073 for the overseas transportation of American troops on Italian ships. The Italian Government paid the difference, namely, $1,146,927 to the War Department on September 26, 1919, and also paid the minor claims as they were presented.

Minor claims against the governments of Belgium, Brazil, Canada, Cuba, and Czecho-Slovakia, to the total of $4,709,330.89, were presented by the Cuthell Board and paid by the governments concerned.

While the Cuthell Board was engaged in rendering the bills to the Allies for supplies purchased by them in America and collecting the money on those bills,—and here let it be said that the collections were greater in aggregate amount than the total sum involved in all the claims for or against the United States prosecuted or resisted by the nation’s official diplomacy from the beginning of our national existence up to the outbreak of the war in Europe; international transactions which included the Louisiana Purchase, the purchase of Alaska, and the purchase of the Canal Zone,—all the while that Mr. Cuthell and his associates were collecting money for Uncle Sam, the United States Liquidation Commission was busy adjusting the fit of the shoe on the old gentleman’s other foot. In other words, the Commission was paying the war bills owed by the United States to the Allies. This was a business equally great and even more important.

There was some question whether the President, with all his war powers, could legally empower boards and commissions to conclude international settlements involving the passing of money, since such power resided only in the State Department, the acts of which had to be ratified by Congress before they were binding upon the United States. The Cuthell Board and the United States Liquidation Commission were actually created in January and February, 1919; but to remove any doubt as to the binding force of their settlements, Congress, on March 2, 1919, passed an act empowering the Secretary of War to settle, through any agency he might set up, all international war claims in which the War Department was involved.

The Secretary of War appointed Mr. Edwin B. Parker chairman of the United States Liquidation Commission. As members he appointed Brigadier General Charles G. Dawes, Mr. Homer H. Johnson, and Hon. Henry F. Hollis. During the active part of the war Judge Parker had held the important post of priorities commissioner of the War Industries Board. General Dawes, in private life a Chicago banker, had been General Purchasing Agent of the A. E. F. In 1920 he sprang into national prominence when, as a witness before a congressional investigating committee, in vigorous and unconventional style he defended the material transactions of the A. E. F. and denounced those critics who, in searching for waste and lavish expenditure, evidently overlooked the fact that the prime purpose of the A. E. F. was to defeat a dangerous enemy on the field of battle. His striking utterances on that occasion did more than reams of printed propaganda to reconcile the American public to the inevitable wastes of the war. President Harding soon afterwards appointed “Hell and Maria” Dawes, as he had come to be known, federal budget commissioner, thus placing him in charge of the most important attempt at economy in national expenditures which the United States had ever made. Mr. Johnson was an able and well-known lawyer of Cleveland. Mr. Hollis was a former United States senator from New Hampshire.

When the Liquidation Commission reached France and organized for work about March 1, 1919, it found the ground well prepared for it. Mr. Edward R. Stettinius, the well-known New York financier, had been sent to France in July, 1918, as a special representative of the Secretary of War to act as a sort of surveyor-general over the war industry resulting from the foreign orders placed by the American Expeditionary Forces. Mr. Stettinius found that a considerable part of the munitions being procured abroad was being produced and delivered under informal and more or less vague agreements and understandings. Before the armistice Mr. Stettinius had done his best to reduce some of the more important of these understandings to the form of written, definite contracts. Promptly after the armistice he took steps to cancel all further production for the Americans and then began the negotiations leading to the settlements. Mr. Stettinius resigned in January, 1919, and the United States Liquidation Commission inherited these various negotiations in the stages at which Mr. Stettinius left them.

Although, as we have said, the characteristic note of our industrial demobilization abroad was outright cancellation of contracts and the payment of indemnities, the policy was not maintained consistently. There were several important exceptions, and one of these was the method adopted in terminating the British manufacture of artillery and shell for the A. E. F. The numerous orders, contracts, and agreements placed and made by the A. E. F. for the delivery of British artillery and ammunition were consolidated, on October 19, 1918, by Mr. Stettinius in conference with Mr. Winston Churchill, then the British Minister of Munitions, into a single formal agreement. In terminating this contract after the armistice Mr. Stettinius assumed that it would be better to accept completed guns and ammunition, even though these might be surplus above the future requirements of the Army, than to pay heavy cancellation indemnities and receive nothing in return. Artillery does not deteriorate rapidly, either materially or in design. The negotiations opened by Mr. Stettinius with the British Government looking to this end were picked up by the Liquidation Commission, which, in March, 1919, reached an agreement with the British that, in lieu of paying any cancellation damages, the United States would accept a limited quantity of matériel completed after the armistice under the American contract.

America accordingly accepted the post-armistice delivery of 498 British-made guns, ranging in model from 60-pounders to 8-inch howitzers, and 420,000 rounds of ammunition for them. For this matériel the American Government paid £6,637,598.

A most interesting negotiation conducted by the Liquidation Commission for the United States was that which wound up the tripartite international project for the construction of 36-ton tanks, better known as the Anglo-American Mark VIII tanks. France was originally a party to this transaction only to the extent of agreeing to provide a site for the assembling plant in France. England and the United States were equal partners in the enterprise, England supplying hulls and guns and America the power and traction. The French, however, were to be permitted to buy tanks at the partnership price; but the French at first did not ask for any, asserting that their own light tank production was sufficient for them.

The plant was built at Châteauroux, Neuvy-Pailloux. About the time the project was getting well under way, heavier tanks began to demonstrate their effectiveness in the field; and then France insisted that, because her armies held the most front-line mileage, the most of the Anglo-American tanks to be built at the Châteauroux plant should be allotted to her. Reluctantly the British agreed that the first 1,200 tanks should be divided equally between France and the United States and that France should receive all of the next 300.

Then the war ended. About 24,000,000 francs had been invested at Châteauroux. The British had spent £3,000,000 in the manufacture of components and the Americans a like sum, expressed in dollars. France had not put in a centime; yet she had expected to receive nine-sixteenths of the first year’s output. The question was, what share of the heavy loss should France stand? The French arrangement with the Tank Commission was tantamount to a contract, with the British-American partnership standing in the light of contractor. It was evident, then, that the French were morally bound to pay cancellation charges—to stand part of the loss, in other words. The British and American negotiators at London thought it would be about right if France would pay back the 24,000,000 francs expended by the British and Americans at Châteauroux, and the British and Americans would throw in the tank plant itself as an inducement.

Then the question arose, how would this 24,000,000 francs be divided? Both England and America had lost heavily in the big-tank enterprise—each had, in fact, agreed to let these losses balance each other; neither was to bill the other for anything in the settlement—and here seemed to be the chance to get some of the money back. Naturally, the Americans assumed that the French reimbursement would be divided equally, since both America and England had contributed equally to the cost of the Châteauroux plant. But no, the British contended; since they had surrendered their share of the first year’s production of tanks, the lion’s share of the reimbursement should go to them. There was logic in this, but, without deciding the point, both sides repaired to Paris to present their joint tank claim to the French; and then it appeared that the British and Americans had been dividing some French chickens before they were hatched. Through M. Louis Loucheur, the Minister of Munitions, the French Government metaphorically lifted its eyebrows in surprise that its associates could present such a claim. To be sure, the French expected to take the Anglo-American heavy tanks, but so did the Americans and British expect to receive light tanks from the French industry. These were merely understandings, not formal contracts; and the French, to do their share, had made large expenditures in developing the light-tank manufacture for the benefit of all. Needless to say, the French Government had lost heavily in terminating its tank industry. These national losses should set off each other....

The British and American representatives retired to ponder this rejoinder. It seemed to have merit; yet the fact remained that somehow or other France was evidently going to emerge from the tank discussion with the Châteauroux plant in her possession. The delegates returned and argued with such force that the French Government agreed to pay 20,000,000 francs in settlement, taking over the Châteauroux plant.14 Since the salvage value of this plant was estimated at 5,000,000 francs, the sum of 15,000,000 francs was considered as the indemnity paid by France. England then asked for five-sixths of the total payment, but the American argument scaled this down to 70 per cent. America thus received 6,000,000 francs out of the settlement.

The bargaining Yankees, however, were yet to have the final word in the tank deal. With the settlement complete, sealed and delivered, the British had on their hands 105 sets of tank parts with only junk value, although it had cost the British £5,000 a set to manufacture them. The Americans offered £1,000 a set for these parts, and the British snapped at the offer. This fine bargain enabled us later, at low cost, to assemble these parts with the American-built components and thus place in the war reserves 100 of the largest and most formidable tanks ever built.

Another, a minor, tank transaction should be noted. The British Army had supplied, during the action, sixty-four tanks of various sorts to the 301st Tank Battalion of the A. E. F. Fifty of these, some of them more or less damaged, had been returned to the British after the armistice, and the remaining fourteen were shipped to the United States. For the purchase of the fourteen and for the war use of the other fifty, the Liquidation Commission agreed to pay the British Government the sum of £189,233 2s 11d.

Outside the claims for payment for materials actually delivered, the British pressed upon the Liquidation Commission collateral claims of several sorts. One of these was for interest upon money invested by the British in stocks of goods destined for American consumption. Our people protested successfully against paying interest upon such investments, but admitted the point that we should pay interest after the goods had been delivered and we had been billed, allowing a reasonable interest-free period for vouchering and checking. Investigation showed that both armies had been dilatory in paying their bills to each other, and that the average time of delaying payment had been five months and a quarter. The British bills against America exceeded the American bills against England by some £51,000,000. One month and a half was allowed as a reasonable interest-free period after billing. Accordingly the commission agreed to pay 5-per-cent interest on the British billing excess, a sum which amounted to £797,854 11s 2d, and this America paid.15

It was impossible for the Liquidation Commission to make a lump settlement of all the minor bills, accounts, and claims of Great Britain against America, because of the difficulties in securing full statements of the indebtedness. It was roughly estimated, however, that these claims would aggregate £10,000,000.

One obscure and involved problem for the Commission to solve related to the so-called British “hidden losses” on steel products sold to the United States during the war. The British treatment and control of its war prices differed radically in method from ours. The War Industries Board, it will be remembered, fixed prices high enough to stimulate production and then held the industries to those prices, no matter to whom they sold. The British plan was an opposite one. With steel, for instance, the British Government simply monopolized the raw materials and sold them to the producers at prices that represented a loss to the Government. In effect, it was a subsidy. To the British public it made no difference whether it paid this subsidy or an equal amount in the increased cost of artillery, ammunition, and other munitions made of steel. But when it came to a settlement between England and the United States, the British Government insisted that the United States was not fairly entitled to the “manufacturers’ issues” price for the raw steel that went into the British-made munitions supplied to America. The British, therefore, after the main settlements, presented a supplementary claim to compensate for the hidden loss, and this claim amounted approximately to £3,770,000.

In principle, the Commission was willing to admit the force of the British contention. It asked the British, however, to prepare a more definite statement, showing (1) the average British governmental loss on all steel supplied to manufacturers for the year preceding the armistice, (2) the amount of such steel that went into products sold to America, and, finally, (3) the hidden loss on all steel furnished to America as thus estimated. When the revised statement was presented, it was found to contain items of hidden loss which America could not possibly allow. The British war subsidies went all through their war industry. For instance, in order to stimulate production, the British Government had paid subsidies to the makers of silica brick, used in building steel furnaces. The British asked us to stand a part of this subsidy, inasmuch as some of the shell supplied to us had been produced from furnaces built of subsidized brick. The Commission retorted by asking why Great Britain did not also ask us to share the subsidy on the bread the British steel workers had eaten while they were working on the American artillery and shell orders. In other words, we were willing to pay hidden losses so long as they were not too remotely connected with the American contracts. The Commission also raised the shrewd question, why, since the British were asking us to pay for hidden losses, they did not admit us to the benefits of their “hidden profits”—viz., the profit taxes collected from the British steel manufacturers.

In the autumn of 1920 General G. W. Burr, the Director of Purchase, Storage, and Traffic after the armistice and a member of the War Department Claims Board, went to England to close up all the outstanding claims existing between the United States and Great Britain as a result of the war. The outcome of his negotiations was the Burr-Niemeyer Agreement, which tied up all loose ends and brought about a final termination of the war business between the two nations. All pending claims were brought into one lump-sum settlement, under the terms of which the United States paid to Great Britain the sum of £2,946,511 2s 8d. This sum settled all the miscellaneous and minor claims noted above; settled, too, the debt owed by the United States to the British for the maintenance of our Siberian Expedition; and settled all other claims, including the hidden-loss claim and a British claim for reimbursement for various “overhead” inspection and storage charges. The settlement figure was much under what the British had originally claimed. In this settlement the hidden-loss and “overhead” claims were paired in a single item which accounted for approximately £1,500,000 of the total paid by the United States. The Burr-Niemeyer Agreement was dated November 23, 1920.

One general claim set up by the British Government against the United States the Liquidation Commission rejected. After we had paid to Great Britain the bill rendered for the transportation of our troops and supplies in England, the British Government rendered a supplementary bill for the same services. During the war Great Britain gave guaranties of income to the British railways, and in settling with the railroads the British Government granted to them an increase in military passenger rates, an increase which was retroactive to April 1, 1919. The British asked us to pay our share of the retroactive increase. This was refused on the ground that by the same token we could hold the British to their share of the loss sustained by the American Government in its operation of the American railroads by the United States Railroad Administration, since our roads had hauled great quantities of British supplies. To open up closed settlements because of retroactive agreements would open up a Pandora’s box of troubles for both nations.

Thus the international bargaining went on, back and forth, give and take, broad principles of settlement prevailing rather than the minute and individual merits of particular items, both sides accepting estimates and unaudited totals and each relying upon the good faith of the other. Thus this tremendously involved and intricate business was closed up with dispatch and amiability. As a rule the A. E. F. in its purchases had dealt with governments, with which such liquidation methods could be adopted; but there were a few relatively small contracts made directly with private individuals in England, France, Italy, Portugal, Spain, and Switzerland. These contracts were canceled outright in the full knowledge that we should have to pay indemnities. In the settlement of such contracts the United States Liquidation Commission acted for the A. E. F. much as the War Department Claims Board did for the producing bureaus at home—as a supervisory body, approving the settlements made by the various services of the A. E. F. and paying off the contractors. In all, indemnities were paid for the cancellation of some 450 contracts in Europe. In making these settlements, the United States benefited greatly by the depreciated rates of exchange against the currencies of several of these nations, since all indemnities were paid by the United States in the currency of the countries in which the claims arose. Expressed in dollars at par, it cost the United States $3,568,653.23 to cancel the miscellaneous European contracts, but the reduced exchange rates effected a considerable saving under that figure.

It is much easier to detect the failings and peculiarities of aliens than it is to recognize our own shortcomings; and if in these pages we have exulted somewhat over the successes of our delegates in checkmating the designs of our European associates, this is not to be taken as any boast that we ourselves were too disinterested and altruistic to overlook the main chance for ourselves. The truth is that, although all the belligerents were in the field primarily to win a victory of arms, not one of them entirely lost contact with the counting room. This was clearly shown in the American arrangements for the supply of French artillery.

The numerical expansion of the A. E. F. in the spring and summer of 1918 resulted in a greatly increased demand by the A. E. F. for French artillery and ammunition. America supplied schedules of the raw materials which she could furnish, and the French made estimates of the numbers of guns they could deliver monthly to the A. E. F. But this was all understanding and mutual agreement—no formal contract was drawn. When Mr. Stettinius reached Paris in the summer of 1918, he immediately began to press to get this agreement down in black and white, so that America might know exactly what her obligations were. At that time, of course, there was no thought that the war would end within the year. About the 1st of November, however, it became evident that an armistice was drawing near, and immediately the Americans grew lukewarm on the subject of a formal contract. The reason was evident. Under the terms of a formal contract, America’s termination obligations would be questions of fact; with the affair left as an unwritten agreement, our obligations would be questions of equity, to be negotiated, and we were likely to emerge from such negotiations in better case financially than we should be if held by the set and rigid conditions of a formal contract.

Nevertheless, the United States did not seek to evade its just obligations under the French ordnance agreement. France had spent large sums of money in expanding the industry to take care of the expected American consumption, and the money so spent was a proper charge against the United States in any settlement. Immediately after the armistice Mr. Stettinius ordered production stopped on our orders; but this the French, for domestic, social, and economic reasons, were unable to do; and at first they were inclined to insist that we should accept and pay for a large quantity of artillery produced during a gradual termination of the industry. Mr. Stettinius successfully maintained the position that this post-armistice production was undertaken purely in pursuance of an internal policy of the French Government and that by no stretch of logic could it be entered as a proper war charge against the United States. Mr. Stettinius then went on to conduct the settlement negotiations, and these were about complete when the Liquidation Commission arrived to inherit the transaction and to draw the final settlement contract.

As in the settlement of the British artillery contract, the American negotiators accepted guns and ammunition produced after the armistice by the French; and they did it in complete consistency with the position and policy defined in the preceding paragraph. The armistice found great numbers of French guns in process of manufacture for the A. E. F. The United States was obligated to accept and pay for this unfinished material. After the inventory of it had been taken, the Liquidation Commission suggested that in lieu of the unfinished parts the United States accept their value in full completions and that the production of all other guns be canceled without charge to the United States. This alternative, allowing, as it did, a measure of post-armistice production in the French mills, the French Government quickly accepted and, in carrying out the terms of the subsequent settlement contract, delivered to the United States 944 75-millimeter gun units, 700 155-millimeter howitzer units, and 198 155-millimeter gun units, all with limbers and with additional parts as spares. For these the United States paid 117,501,887.45 francs.

The French agreed to a similar plan in canceling the construction of airplanes and engines for the United States. This construction had been undertaken under a formal contract, signed by General Pershing. The contract contained no cancellation clause, but the French Government had provided for cancellation in its subcontracts with the French producers. Under the terms of the contract large numbers of airplane cellules (airplanes without engines), engines, and other aëronautical supplies were in production on the day of the armistice. In lieu of unfinished parts, the French agreed to deliver their equivalent (in value) in finished equipment. Under a preliminary agreement the United States acknowledged a cancellation debt of 167,667,761 francs. Of this, about 23,000,000 francs represented cancellation charges and the rest money to be paid for completed materials, the schedule of which included 3,568 cellules and 3,979 engines. This preliminary agreement, however, was modified later by the French Liberty engine settlement negotiated by the Cuthell Board. Under this settlement France agreed to accept and pay for Liberty engines still to be delivered, to the value of $19,530,000, and in addition to pay nearly $2,000,000 in cancellation indemnities.

This, then, was the situation. We were bound to accept and pay for a large number of French airplanes and engines which we did not need. The French were bound to accept and pay for a large number of Liberty engines which they did not need. We could, however, use some of the French planes and engines, and the French wanted 500 Liberty engines. Therefore we agreed to deliver the 500 engines and to accept French materials up to their value, and then to offset the excess number of Liberties provided for in the engine settlement agreement against the excess of French air materials named in the French aircraft settlement contract. This left a surplus of Liberty engines with the A. E. F., but these were delivered to the British to fulfill our obligations under the British Liberty engine settlement; and a few of the engines were sold to Poland.

The settlement with France for our use of her railroads during the war was so complicated that it would not be profitable to go into the details here. The intricacy of the problem was due to the fact that, while 2,000,000 Americans in France had used the French railroads for every transportation need,—and our forces fought farther from their expeditionary bases than did any other army in France,—we, in turn, had supplied to the French railroads locomotives, cars, crews, repairing, coal, track construction, and many other items. The Liquidation Commission itself did not attempt to go into these details, but turned the whole transaction over to a special section headed by Colonel F. A. Delano, the Deputy Director General of Transportation for the A. E. F., who had formerly been president of the Wabash Railroad and a member of the Federal Reserve Board. The upshot of the settlement was that we acknowledged a debt to France of 434,985,399.73 francs after all our claims had been set off against the French claim.

The United States Liquidation Commission agreed to pay to the French Government the sum of 3,000,000 francs for port dues assessed against our vessels for their use of French ports during the war.

When these and other subsidiary questions of settlement had been decided and the proper credits established by agreement in each instance, the United States Liquidation Commission took up the task of a general blanket settlement of the business relations between France and the United States during the war. This was a long and involved work; but, since the major items in the settlement had already been determined, there was little difficulty in securing an agreement. The General Settlement was dated November 25, 1919. It embraced all transactions between the two nations from April 6, 1917, to August 20, 1919, except (1) France’s purchases of our surplus military property, (2) the railroad transportation and the port dues settlements noted above, and (3) France’s claim arising from the overseas transportation of American troops in French transports. The sum total of the other claims showed that the United States owed France 1,488,619,027.52 francs and that France owed the United States $177,149,866.86. The rate of exchange and form of payment were left to future negotiations by the United States Treasury; but, assuming that francs were worth ten to the dollar, the net balance in favor of the United States was about $28,000,000.

We are not yet ready, however, to determine the net financial result of the international war business relations in which America was a participant. There was still the money to be realized from the sale of our surplus military property abroad. It will be remembered that one of the two functions of the United States Liquidation Commission was to dispose of the expeditionary property. Out of the sales transactions arose the largest single credit to the account of the United States on the international ledger: the proceeds from the bulk sale of A. E. F. installations and supplies to the French Government.

The arguments sustaining the wisdom of a bulk sale of the expeditionary property have already been sufficiently rehearsed in this volume. The first step on our part leading to the negotiations was to take an inventory of the entire property. The difficulty encountered then may be deduced from the fact that the French and the British, whose surpluses were not inordinately greater than ours, never even attempted such an inventory of their own property. The A. E. F. was a going concern, continually drawing from the stocks on hand, and its personnel was shifting and diminishing. Nevertheless, by a strong force of men, under the direction of Colonel J. H. Graham, Engineer Corps, in six weeks of day and night work, such an inventory was taken, the property being divided into eighteen categories, as follows: 1. Clothing and textiles; 2. Subsistence supplies; 3. Kitchen utensils and household furnishings; 4. Machinery, metals, tools, and hardware; 5. Building materials; 6. Forest products; 7. Railway and dock equipment; 8. Transport equipment (trucks, motor cars, motorcycles, wagons, horses and mules, etc.); 9. Hospital supplies, toilet supplies, and chemicals; 10. Photographic, measuring, and musical instruments; 11. Electrical equipment; 12. Oils, gasoline, and paints; 13. Ordnance and gas-warfare equipment; 14. Blasting apparatus and supplies; 15. Printing machinery and supplies; 16. Office fixtures, stationery, and supplies; 17. Hides and leather; 18. Aëronautical equipment.

These eighteen categories included only the movable property of the A. E. F. There were still to be considered the fixed installations—the barracks, camps, hospitals, warehouses, docks, railroad yards, buildings of almost every conceivable type. Judge Parker, the chairman of the Commission, cabled to France, before he sailed for Europe, a direction that the installations be inventoried and appraised. This work was first undertaken by Colonel Graham, who later, after he took charge of the inventory of movables, was succeeded by Brigadier General Edgar Jadwin, whose subsequent appraisal was known as the Jadwin Report. It showed the war cost of construction to have been $165,661,000, the normal cost $81,543,000, and the armistice value $39,256,000. As a matter of fact, any sum obtainable for the installations was clear gain, since the salvage value of the structures would not have paid the cost of dismantling (assuming that this work would have required the labor of 40,000 men for seven months), the ground rentals, and the costs of restoring the sites to their original condition.