674 Chapter 25 From “Normalcy” to Economic Collapse: 1921–1933
that led to World War II. It is also proper to place
some of the blame for the troubles of the era on the
United States and the European democracies, which
controlled much of the world’s resources and were pri-
marily interested in holding on to what they had.
War Debts and Reparations
The democracies did not take a strong stand against
Japan in part because they were quarreling about other
matters. Particularly divisive was the controversy over
war debts—those of Germany to the Allies and those of
the Allies to the United States. The United States had
lent more than $10 billion to its comrades-in-arms.
Since most of this money had been spent on weapons
and other supplies in the United States, it might well
have been considered part of America’s contribution to
the war effort. The public, however, demanded full
repayment—with interest.“These were loans, not con-
tributions,” Secretary of the Treasury Mellon firmly
declared. Even when the Foreign Debt Commission
scaled down the interest rate from 5 percent to about
2 percent, the total, to be repaid over a period of sixty-
two years, amounted to more than $22 billion.
Repayment of such a sum was virtually impossi-
ble. In the first place, the money had not been put to
productive use. Dollars lent to build factories or roads
might be expected to earn profits for the borrower,
but those devoted to the purchase of shells only
destroyed wealth. Furthermore, the American protec-
tive tariff reduced the ability of the Allies to earn the
dollars needed to pay the debts.
The Allies tried to load their obligations to the
United States, along with the other costs of the war,
on the backs of the Germans. They demanded that
the Germans pay reparations amounting to $33 bil-
lion. If this sum were collected, they declared, they
could rebuild their economies and obtain the interna-
tional exchange needed to pay their debts to the
United States. But Germany was reluctant even to try
to pay such huge reparations, and when Germany
defaulted, so did the Allies.
Everyone was bitterly resentful: the Germans
because they felt they were being bled white; the
Americans, as Senator Hiram Johnson of California
would have it, because the wily Europeans were treat-
ing the United States as“an international sucker”;
and the Allies because, as the French said,“l’oncle
Shylock”(a play on the names Uncle Sam and Shylock,
the moneylender in Shakespeare’s Merchant of
Venice)was demanding his pound of flesh with inter-
est. Clemenceau wrote President Coolidge in 1926,
“Come see the endless lists of dead in our villages.”
Everyone shared the blame: the Germans because
they resorted to a runaway inflation that reduced the
mark to less than one trillionth of its prewar value, at
least in part in hopes of avoiding their international
obligations; the Americans because they refused to rec-
ognize the connection between the tariff and the debt
question; and the Allies because they made little effort
to pay even a reasonable proportion of their obligations.
In 1924 an international agreement, the Dawes
Plan, provided Germany with a $200 million loan
designed to stabilize its currency. Germany agreed to
pay about $250 million a year in reparations. In 1929
the Young Plan further scaled down the reparations
bill. In practice, the Allies paid the United States
about what they collected from Germany. Since
Germany got the money largely from private
American loans, the United States would have served
itself and the rest of the world far better had it written
off the war debts at the start. In any case, in the late
1920s Americans stopped lending money to
Germany, the Great Depression struck, Germany
defaulted on its reparations payments, and the Allies
then gave up all pretense of meeting their obligations
to the United States. The last token payments were
made in 1933. All that remained was a heritage of
mistrust and hostility.The Election of
Meanwhile, dramatic changes had occurred in the
United States. The climax of Coolidge prosperity came
in 1928. The president—somewhat cryptically, as was
his wont—decided not to run again, and Secretary of
Commerce Hoover, whom he detested, easily won the
Republican nomination. Hoover was the intellectual
leader, almost the philosopher, of the New Era.
American capitalists, he believed, had learned to curb
their selfish instincts. Voluntary trade associations could
create“codes of business practice and ethics that would
eliminate abuses and make for higher standards.”
Although stiff, uncommunicative, and entirely
without experience in elective office, Hoover made an
admirable candidate in 1928. His roots in the Midwest
and West (Iowa-born, he was raised in Oregon and edu-
cated at Stanford University in California) neatly bal-
anced his outstanding reputation among eastern
business tycoons. He took a “modern” approach to
both capital and labor; businessmen should cooperate
with one another and with their workers too. He
opposed both unionbusting and trustbusting. His career
as a mining engineer had given him a wide knowledge of
the world, yet he had become highly critical of Europe.
The Democrats, having had their fill of factionalism
in 1924, could no longer deny the nomination to
Governor Al Smith. Superficially, Smith was Hoover’s
antithesis. Born and raised in New York’s Lower East
Side slums, affable, witty, determinedly casual of