World War I War Debts

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WORLD WAR I WAR DEBTS. During and immediately after World War I, America's cobelligerents borrowed some $10.350 billion ($184.334 billion in 2002 dollars) from the U.S. Treasury. These funds were used mainly to finance payments due the United States for munitions, foodstuffs, cotton, other war-related purchases, and stabilization of exchange. Of that sum, $7.077 billion represented cash loans extended prior to the armistice; $2.533 billion was advanced to finance reconstruction after the armistice; and postarmistice relief supplies and liquidated war stocks amounted to an additional $740 million. Total foreign indebtedness—including interest due before funding of the original demand obligations but excluding loans to Czarist Russia, for which no hope of collection remained—came to $11.577 billion ($206.186 billion in 2002 dollars).

In turn, the U.S. government borrowed from its own citizens, mostly through Liberty Bonds paying 5 percent interest. During the period of economic disorganization in Europe following the termination of hostilities, the administration of Woodrow Wilson agreed to grant the debtor nations a three-year postponement of interest payments. But it indicated that eventually the debtors would be required to repay the loans.

In February 1922 Congress created the World War Foreign Debt Commission, on which representatives of the House and Senate flanked the secretaries of state, commerce, and the Treasury. Congress directed the debt commission to seek funding arrangements providing for amortization of principal within twenty-five years and an interest rate of not less than 4.25 percent.

Disregarding this limitation on its mandate, the commission managed to reach agreement with thirteen European debtor nations before its five-year term expired. The settlements all provided for repayment of principal over sixty-two years. Assuming that the debtors would continue to pay for sixty-two years, the settlements as a whole were equivalent to cancellation of 51.3 percent of what could have been required on a 5-percent basis. Actually, those who drafted the agreements did not expect them to continue in force much beyond a generation, so that the true percentage of the debt forgiven was appreciably larger.

Nevertheless, the governments of the four principal debtor nations—Great Britain, France, Italy, and Belgium—believed that the debts should have been canceled altogether as the American contribution to a common struggle. They settled most unwillingly—Great Britain, to avoid losing its own standing as a creditor nation and banking center, and the Continental countries, to avoid being barred from access to American capital markets.

In 1931 the Hoover Moratorium provided for temporary cessation of all intergovernmental transfers to cope with the international banking crisis that accompanied the Great Depression. After the moratorium expired, the debtors found various excuses not to resume regular payments. By 1934 every European nation except Finland had defaulted. Congress expressed its displeasure in April 1934 by passing the Johnson Debt Default Act, effectively prohibiting defaulting governments from further borrowing in American markets for several crucial years. American policy planners later drew an opposite lesson. During World War II and its aftermath, they extended credits under Lend-Lease and the Marshall Plan without expecting integral reimbursement.


Hogan, Michael J. Informal Entente: The Private Structure of Cooperation in Anglo-American Economic Diplomacy, 1918–1928. Chicago: Imprint Publications, 1991.

McNeil, William C. American Money and the Weimar Republic: Economics and Politics on the Eve of the Great Depression. New York: Columbia University Press, 1986.

Stephen A.Schuker/a. g.

See alsoDebt and Investment, Foreign ; Great Britain, Relations with ; Moratorium, Hoover ; World War I ; World War II .

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World War I War Debts

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