THE CABINET: Through a Glass, Clearly

Carter Glass, diminutive but lively, freckled but silver-tongued Senator from Virginia, to whose credit many put the elaborate Federal Reserve Bank system, was in a receptive mood last week. He smiled upon newsgatherers who had assembled in his office. He had something he wanted to say.

After saying it, Carter Glass wrote it out and it was widely published. Carter Glass wrote:

“There has been recently a lot of talk by public men and the press over the alarming concentration of power in the Federal Government at Washington. Most of the talk as well as the comment has been general and little of it specific. . . . This all seems trivial to me, in contrast with other things that have happened. . . .

“I would like some informed person to tell me the meaning, for example, of the formal official announcement of the Federal Department of State that it has approved the private refunding debt proposals of the French Government in the U. S., together with a Prussian and Polish loan totalling $100,000,000.”*

Mr. Glass continued in an interrogative vein as mordant as the whortleberry juice of his beautiful homeland. By what Constitutional authority or Federal statute, he asked to know, did the State Department assume to review private business transactions? Who, he begged to be informed, was “the experienced, the tested credit man” of the State Department?

Senator Glass pictured the “vital interest” of any U. S. banking group whose transactions should be vetoed while those of another were approved. He could conceive how one foreign government might “marvel and feel aggrieved” when the State Department put an embargo on its bonds while officially attesting the high credit of some other nation. “

Except for the unquestioned integrity and approved patriotism of the incumbent Secretary of State,” mused Senator Glass, “who may exactly say that the exercise-of this unprecedented power, totally at variance with any proper function of the Department of State, will not some day be so flagrantly prostituted as to result in a distressing scandal?”

Senator Glass almost asked outright if the loan-reviewing function of the U. S. State Department had not been used as an illegitimate cudgel over the head of France in the current tariff controversy (see p. 14).

The policy which Senator Glass was criticizing dates, as he well knew, back to 1922, when President Harding one day explained to a group of bankers that their loans to foreign countries might well complicate this country’s foreign relations a) by being used for military or monopolistic ends or b) by interfering with the borrowing nations’ public debts to the U. S. The bankers at that time agreed to inform the State Department of projected loans in advance, so that the State Department might or might not express objections. The bankers acted voluntarily. There was no compulsion upon them nor did the State Department pretend to any legal right in its previewing of their private doings.

All this history Secretary of State Frank B. Kellogg last week rehearsed by way of explanation to Senator Glass. Mr. Kellogg emphasized that the State Department did not presume to pass upon the financial, but only the diplomatic, aspect of loans; that the State Department did not “approve” ‘ loans, but only object to them on occasion. He added that the policy thus inherited would be continued, lest supervision of the financial loan phase of foreign affairs fall into the tanglesome hands of some commission appointed for the purpose by Congress. Senator Glass, challenger, had the further satisfaction of hearing President Coolidge himself come forward in defense of foreign-loan-reviewing by the State Department; of hearing Senator Borah, Chairman of the Senate Committee on Foreign Relations and a Republican, say: “I do not want to be placed in the attitude of criticizing the State Department. . . . But I do think it is a practice which should be terminated.”

In the opinion of some observers, Senator Glass’s gasconade was all that had been necessary to “terminate the practice” without further ado. Not required by law to consult the State Department, not required by law to respect the State Department’s objections if raised, U. S. bankers were in effect made to see, as through Carter Glass, clearly, that a custom which they had begun in a spirit of cooperation had unconsciously become a habit with the effect of a law. In 1922, with U. S. money cheaper than elsewhere, needy nations came to the U. S. borrowing. Now, with U. S. money so very cheap that U. S. bankers go abroad lending, what used to be a precaution sometimes seems like a restraint.

*For other private foreign loans currently forthcoming in the U. S., presumably after scrutiny by the State Department, see p. 34.