March 13, 1915

by Richard van Pelt, WWI Correspondent

The editor of the Oregon Statesman commented on the power of the major banks over the export trade:

BANKS CONTROL EXPORT TRADE

Something new in business methods has developed in our export trade. Most of the big orders for munitions and supplies bought by Great Britain, France and Russia are handled by three New York banking houses – J.P. Morgan & Co., The Guaranty Trust Co. and the National City bank. The evolution has come about in this way:

For a while after the war started, the export trade was chaotic. The allies were all bidding against each other, thus forcing up prices to their own disadvantage. Our manufacturers were overwhelmed by swarms of professed agents for foreign governments, who usually demanded “rake-offs” for placing orders, and whose purchases were sometimes found to be unauthorized when they goods were delivered. Finally, a New York lawyer figured out a workable system, which is followed now in nearly all cases. When a foreign government places an order, a contract is drawn up between the two principals. The buyer is required to have sufficient credit in some United States bank to cover the amount of the purchase. The seller deposits the contract in that bank, together with a sample of the goods ordered, or a copy of the specifications for them. The bank acts as trustee, and when the order is finished satisfactorily, pays for the goods from the funds deposited.

The only objection to the system is that it tends to give a few big bankers a monopoly of the export trade, enabling them to turn over orders to favored firms and freeze out others.

Financiers and industrialists profited from by providing goods and loans to the British for their war effort. J.P. Morgan acted as an agent for private loans to the allies, mainly England. U.S. Steel and DuPont saw vast increases in their profits. So great were war profits that after the war, the 1936 Nye committee reported:

The Committee finds, under the head of sales methods of the munitions companies, that almost without exception, the American munitions companies investigated have at times resorted to such unusual approaches, questionable favors and commissions, and methods of “doing the needful” as to constitute, in effect, a form of bribery of foreign governmental officials or of their close friends in order to secure business.

The committee realizes that these were field practices by the agents of the companies, and were apparently in many cases part of a level of competition set by foreign companies, and that the heads of the American companies were, in cases, apparently unaware of their continued existence and shared the committee’s distaste and disapprobation of such practices.

The committee accepts the evidence that the same practices are resorted to by European munitions companies, and that the whole process of selling arms abroad thus, in the words of a Colt agent, has “brought into play the most despicable side of human nature; lies, deceit, hypocrisy, greed, and graft occupying a most prominent part in the transactions.”

The committee finds such practices on the part of any munitions company, domestic or foreign, to be highly unethical, a discredit to American business, and an unavoidable reflection upon those American governmental agencies which have unwittingly aided in the transactions so contaminated.

The committee finds, further, that not only are such transactions highly unethical, but that they carry within themselves the seeds of disturbance to the peace and stability of those nations in which they take place. In some nations, violent changes of administration might take place immediately upon the revelation of all details of such transactions. Mr. Lammot du Pont stated that the publication of certain du Pont telegrams (not entered in the record) might cause a political repercussion in a certain South American country. At its February 1936 hearings, the committee also suppressed a number of names of agents and the country in which they were operating, in order to avoid such repercussions.

The committee finds, further, that the intense competition among European and American munitions companies with the attendant bribery of governmental officials tends to create a corrupt officialdom, and thereby weaken the remaining democracies of the world at their head.

The committee finds, further, that the constant availability of munitions companies with competitive bribes ready in outstretched hands does not create a situation where the officials involved can, in the nature of things, be as much interested in peace and measures to secure peace as they are in increased armaments.

The committee finds also that there is a very considerable threat to the peace and civic progress of other nations in the success of the munitions makers and of their agents in corrupting the officials of any one nation and thereby selling to that one nation an armament out of proportion to its previous armaments. Whether such extraordinary sales are procured through bribery or through other forms of salesmanship, the effect of such sales is to produce fear, hostility, and greater munitions orders on the p art of neighboring countries, culminating in economic strain and collapse or war.

The committee elsewhere takes note of the contempt of some of the munitions companies for those governmental departments and officials interested in securing peace, and finds here that continual or even occasional corruption of other governments naturally leads to a belief that all governments, including our own, must be controlled by economic forces entirely.

The ethical and moral consequences of profiting from the munitions trade was not lost on readers. Opinion split between those who held it was a neutral’s right to trade anything the market would bear and those who viewed such trade as turning America into a homicidal nation dominated by “merchants of death.” The State Department published Neutrality and Trade in Contraband which supported the view that American citizens could trade whatever they wished:

Neither the President or any executive department of the Government possesses the legal authority to interfere in any way with trade between the people of the country and the territory of a belligerent. There is no act of Congress conferring such authority or prohibiting the traffic of this sort with European nations . . . .

For the Government of the United States itself to sell to a belligerent nation would be an unnatural act, but for a private individual to sell to a belligerent any product of the United States is neither unlawful nor unnatural nor within the power of the Executive to prevent or control.

The reality is always more complex. For the ethical reader the question was one of balancing what one could do with what one ought to do. Diplomatically, enforcing an embargo would have prompted retaliation by Great Britain, and some thought, would have driven the United States into the arms of Germany.

The reports of the Nye Commission and the awareness of the vast profits caused many to later wonder whether or not the sacrifices made were for the benefit of “merchants of death” than to make the world safe for democracy. This suspicion would contribute to the growth of the isolationist movement as the second phase of the conflict opened with World War II in 1939.

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About whclarc

We are devoted to providing information fresh from the Archives, Library and Collections of the Willamette Heritage Center in Salem, Oregon. We specialize in the history of Marion County and the greater Salem area.
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