Effect of Loans & Trade on US Entry in War 1917

To What Extent Did Investment in the Allied Cause Determine Action?

Nov 29, 2008 Michael Streich

By 1915 American bankers and merchants kept the Allied cause viable through loans and war material, leading to speculation entry in the war was motivated by investment.

On April 6, 1917, the United States formally entered World War One. Although immediate causes include the Zimmermann Telegram as well as Germany’s decision to resume unrestricted submarine warfare, post war criticism included the aspect of Allied debt. Although no evidence exists that President Woodrow Wilson was under pressure from bankers or merchants to intervene in the war in order to protect American financial investments, by the end of the war British debt alone stood at over nine billion dollars.

Recession, War Loans, and Prosperity

The outbreak of war in 1914 coincided with a recession in the United States. By 1915, American neutrality was being criticized as bankers and merchants began to loan money and offer credits to the warring parties, although the Central Powers received far less. Between 1915 and April 1917, the Allies received 85 times the amount loaned to Germany. This was good business for American enterprises, notably munitions and foodstuffs.

According to Harold Faulkner, [1] the total dollars loaned to all Allied borrowers during this period was 2,581,300,000. The scope of the loans was not unnoticed in early 1915 as Secretary of State William Jennings Bryan sent a letter to J. P. Morgan & Co., reminding that the policy of neutrality and private bank loans were “inconsistent with the true spirit of neutrality.” [2] Bryan also quipped that “money is the worst of all contrabands because it commands everything else.”

After the United States entered the war, the government itself kept the Allies afloat with loans, financed partially through the sale of war bonds. Barbara Tuchman, in The Guns of August, writes that, “Eventually, the United States became the larder, arsenal, and bank of the Allies and acquired a direct interest in Allied victory that was to bemuse the postwar apostles of economic determinism for a long time.” [3]

The Nye Report of 1936

It was precisely this postwar view that influenced Senator Gerald Nye’s report on US neutrality in World War I and the role of war debt as a factor in declaring war. Speaking in the Senate in July 1939, Nye reiterated that: “No member of the Munitions Committee…has ever contended that it was munitions makers that took us to war. But that committee and its members have said again and again, that it was war trade and the war boom…that played the primary part in moving the United States into war.: [4]

The June 5, 1936 fifth committee report exonerated Wilson in terms of allegations that he had taken America to war to protect financial interests. However, the report also mentioned that Wilson was, “caught up in a situation created largely by the profit-making interests in the United States…” [5]

Summary

Despite American neutrality, loans and trade with Britain and France during the war accelerated the need to see the Central Powers defeated. Even the Lusitania carried contraband munitions, a fact downplayed by Wilson but mentioned in Senator Robert LaFollette’s anti-war speech of April 1917. American investment between 1915 and 1917 was one factor in entering the war. The 1936 Nye Report’s investigation and analysis sought to avoid a similar financial entrapment as another continental war loomed in the 1930s.

[1] Harold Underwood Faulkner, The Decline of Laissez Faire 1897-1917 (New York, Rinehart & Co., 1951.

[2] Quoted in same source.

[3] Barbara Tuchman, The Guns of August (New York: MacMillan Company, 1962), p. 337.

[4] Congressional Record, 76 Congress, 1 Session (1939) pp. 10,405-6

[5] United States Special Committee, Senate Report 944, Part 5, 74 Congress, 2 Session, pp. 1-9.