Part 2: Reparations Agent
The Dawes Plan of 1924 was the cornerstone achievement of American stabilization policy in Europe, the keystone of efforts to promote peaceful political change and renewed economic growth. It revised the Versailles Treaty by restricting France’s ability to use reparations as a club to use against Germany’s resurgence. Ostensibly the work of expert businessmen and bankers, it nonetheless had the backing of the Coolidge administration. Depsite the administrations claims of non-involvement, Secretaries Hughes and Mellon, as well as Ambassador Kellogg, mediated between bankers, delegates and diplomats while on supposedly private trips to London. Mellon in particular staked his considerable prestige as head of a private economic empire and as chief financial officer of the U.S. by recommending the crucial loan portion of the plan to Morgan partner Thomas Lamont. President Coolidge repeatedly endorsed the plan and was prepared to offer arbitration by Chief Justic Taft in case the London Conference deadlocked.
The Dawes Plan transferred reparations control from the Allies-dominated Reparations Commission to the newly created U.S.-dominated agent general’s office. Some wrangling ensued over which person was going to fill this crucial post. The House of Morgan in particular attached great importance to the selection of an agent general who would be sympathetic to their concerns, effectively vetoing the names of Owen D. Young and James A. Logan. Coolidge in turn vetoed Morgan’s initial candidate, Morgan partner (and Coolidge friend) Dwight Morrow, because he feared that appointment would fuel Robert La Follette’s progressive presidential campaign against Wall Street influence. After intensive consultations between Lamont and Mellon in London, and Morrow and Coolidge in Washington, the administration fully endorsed Morgan and Company’s eventual candidate, S. Parker Gilbert. As we have seen in Part 1, Gilbert had been undersecretary of the Treasury in 1921-22 and had developed an excellent rapport with Mellon before departing government to resume his legal practice.
Gilbert had been involved, in the summer of 1924, in the negotiations concerning the proposed loan and had served as a liaison between the Morgan partners and the administration. As agent general, Gilbert would have considerable power over German transfer payments, loan service, and budgetary practices. Morgan expected that Gilbert would safeguard the contemplated loan, especially since the administration refused to offer guarantees for its protection.
Gilbert was able to function as an effective agent general for several years, as he oversaw the successful operation of the Dawes Plan and, by virtue of his tact, sagacity and integrity gained the confidence of European leaders. By 1927, however, the financial weaknesses and political shortcomings of the Plan were becoming apparent to him, and he began to consider the merits of a permanent revision. Disturbed by what he perceived as extravagant financial practices of the German government (“over-borrowing and over-spending”), irresponsible monetary policy of the German Reichsbank, and indiscriminate lending by American bankers, he began to argue behind closed doors for a final reparations settlement, not oblivious to the fact that this would be a capstone achievement for his career. A successful setlement, Gilbert was convinced, had to fix the total amount of the indemnity but also had to grant the German government full responsibility for meeting its obligations. This would remove the German fear that gains in productivity, revenues, and savings would be taken away as reparations, thereby encouraging increased savings and a more conservative management of German finances. He also assumed that a final reparations settlement would enable German industry to borrow more cheaply and encourage American bankers to lend more prudently.
Gilbert began consulting with Mellon, FRBNY chairman Benjamin Strong, Owen Young, and Morgan partners Lamont and Morrow – they all were in agreement that a reparations resolution would mitigate international financial problems, stimulate world commerce, and protect American loans and investments. Ceaseless financial diplomacy took Gilbert from one European capital to another all through 1928, as he attempted to navigate the numerous impediments to a settlement. Crucially, though, despite encouragement from Mellon, the Coolidge administration remained very reluctant throughout 1928 to place official weight behind Gilbert’s proposals for a reparations settlement. Coolidge assured the reparations agent that Washington would not hinder his efforts – yet nor would it officially support him in his task. Herbert Hoover emerged as the principal agent behind this policy. As it was widely expected that he would succeed Coolidge in the White House, consideration for his views became a crucial factor. Burned by charges during the 1920 presidential campaign that he was too “international” or even “too British,” the Commerce Secretary now espoused the most hard-line view in the cabinet against leniency in reparations, or against any linkage between the reparations and war debt questions. Another factor working against Gilbert’s scheme was opposition from Britain – the highest echelons of the British Treasury saw his proposals as diametrically opposed to British interests, because they viewed any revision of the Dawes Plan as premature.
In the spring of 1929, as president-elect Hoover was focusing his attention on farm and tariff legislation and preparing several studies of the nation’s social problems, a committee of experts under the leadership of Owen D. Young and J.P. Morgan met in Paris to finalize work on a settlement of the reparations issue. Before departing for Paris, both men had met outgoing president Coolidge. The president had emphasized the potential dangers, admonishing the exoerts to limit their efforts to completing the Dawes Plan and to avoid establishing precedents. Unfortunately, the situation in 1929 was much more difficult than it had been in 1924 – Germany was resurgent, and American money interests had extended so much credit to Germany, that they had a vital interest in preserving German economic strength and ability to pay.
Ultimately, Gilbert’s efforts were taken over by the Young committee, and the Young plan itself, intended as a grand solution to the reparations, failed to halt the descent into chaos following the Wall Street crash and subsequent sharp economic downturn. When Gilbert’s tenure as general agent for reparations ended in 1930, the agent’s functions were assumed by the Bank for International Settlements.