Insurance Bureau for men in the service, in the operation of the Railroad Administration he promulgated by action certain broad principles of real democracy of which the effect is yet to be measured. By making millions of American citizens owners, temporarily at least, of Government bonds, he was writing another chapter in the history of public consciousness of Republican institutions; and, if Alexander Hamilton turned in his grave at the perversion by his Treasury of the principles of aristocracy which he had implanted within it, James Madison must have indulged in the nearest ghostly sound to a chuckle at the thought of the institution's apostleship of the principles it had been designed to repress.

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CHAPTER II

LOANS TO THE ALLIES

HERE is a picture, firmly implanted in the Ameri

can mind, of Franklin at the courts of Europe, meeting with straightforward and democratic simplicity the intrigues of imperial diplomacy. It is a visualization which has always pleased the national consciousness, depicting as it does the sturdiness of the national standard. It may, however, be supplemented, when partisan judgment is merged into historical perspective, by the picture of McAdoo, as Secretary of the Treasury, conferring with the agents and ambassadors of the foreign powers engaged with the United States in the war against Germany; for in the history of the nation no man except the President ever exercised so tremendous a power over the nations of Europe or used it with more statesmanlike discretion for his own country than did he. In a period of a little more than eighteen months, from April 24, 1917, to November 15, 1918, he authorized credits in favor of the Governments of Belgium, Cuba, France, Great Britain, Greece, Italy, Roumania, Russia, Liberia and Serbia amounting to more than eight billions of dollars; and he met week after week, sometimes day after day, the representatives of these Governments, intent on winning for their own countries all possible advantage. The greatest diplomats of Europe were almost literally camped on his door-step. They were the petitioners, and he the giver, but it was his brain in combat with theirs that they might have justice, and no more than justice.

It was essential to American success that the money

be loaned in such vast sums.

The United States was at war with Germany, but for many months no American troops could reach the firing lines. Through those months the Allies were paying in lives as well as in money. In fact, the greater part of the billions of dollars loaned by the United States to its co-belligerents was used in that time after the country had entered the war, but before it was able to take its full share in the fighting. The loans were, to a remarkable degree, saving elements for American lives, but McAdoo had to steer between the Scylla of sentimentalism and the Charbydis of overcaution. He had to be shrewd as well as sympathetic. No man in the Cabinet was taken to higher mountains. Even after the ending of the war and his resignation from the Treasury three foreign Governments offered to him decorations and what decorations!-in appreciation for his labors in the war loans. On the ground that these labors had been performed during the time of his Secretaryship he refused the honor, believing that the spirit, if not the letter of the constitutional prohibition extended even beyond the actual time of officeholding. His entire personal attitude toward the stream of plenipotentiaries was that of grave courtesy with a "Welcome" on the doormat, and a "No entangling alliances" motto on the wall.

The general theory of inter-Allied finance when the United States entered the war held that the people of each belligerent country could and should respond, in taxes and subscriptions for domestic loans, to the financial demands of its Government for its own or interAllied account. Each one of the Allies had been responsible for the financing of inter-Allied purchases within its own borders. This rule was extended to the

United States when it went into the war, and the American Government therefore financed the requirements of the co-belligerents within the borders. Great Britain and the United States shared in the neutral world in accordance with a formula agreed upon between them the expenditures there. It was because of the enormous purchases of war material in the United States and neutral countries that the loans had to be made in tremendous amount. The loans to cobelligerents made by McAdoo, under the power vested in him by Congress, bought American goods for foreign use, and were secured by collateral still held by the Treasury of the United States.

The insistence by the Treasury that the Federal Reserve Banks not violate neutrality by direct loans to the Allies from 1914 to 1917 had restricted American financing of inter-Allied needs to private bankers. By March, 1917, according to R. H. Brand in his presentation of the British "War and National Finance," the British Government "with commitments in the United States running into several hundreds of millions, was at the end of its tether." In a confidential cablegram to the President on March 5th Walter Hines Page, American Ambassador to Great Britain, declared that the financial inquiries made in London revealed "an international condition most alarming to the American financial and industrial outlook. England is obliged to finance her Allies as well as to meet her own war expenses. She has as yet been able to do these tasks out of her own resources. But in addition to these tasks she can not continue her present large purchases in the United States without shipments of gold to pay for them, and she can not maintain large shipments of gold for two reasons: first, both England

and France must retain most of their gold to keep their paper money at par; and second, the submarine has made the shipping of gold too hazardous, even if they had it to ship."

Even in face of the danger of panic which might come even to the United States if the failure of France and England to meet their obligations caused a collapse of European finance and world trade the United States could take no measure until the Congress authorized the Secretary of the Treasury on April 24th to make the loans to co-belligerents. In a letter to a Pennsylvania banker who inquired concerning the use of the war loans under the Bond Bill, McAdoo clarified the situation in a paragraph:

"This Government can not make war in the present circumstances upon Germany except in conjunction with the Allied Governments now in the field in Europe, and it can not carry on the war without the assistance and cooperation of the Allied Governments. For the time being, at least, whatever fighting we may do must be through the armies of the Allied Governments already in the field, and this to their armies, extended through credit and supplies furnished by the United States Government, is the most effective way in which we can do our part immediately in carrying on the war against the common enemy. It is certainly the view of the Congress of the United States that it is to the interest of the United States that funds should be supplied to the Allied Governments on the same basis that the United States is able to borrow for itself."

The Secretary of the Treasury had already communicated with the American Ambassadors to the other nations at war with Germany, had conferred with the special agents who had come to Washington, and