Borrowing Trouble?

Foreign Loans. For the development of corporate and civic enterprises--largely waterpower, paper and cement activities--and to assist the stabilization of foreign currencies, U. S. bankers loaned to Europe and the Far East $1,318,700,000 for the ten months ending Oct. 31--more than was negotiated for the entire year of 1926. Wendell E. Thorne, financial expert of the Department of Commerce, who announced the total in Washington last week, forecasted that at the conclusion of this year U. S. loans abroad would aggregate $12,500,000,000. To Whom. To Germany was advanced $262,135,000--more than half of the $508,000,000 pocketed by all Europe. Part of the distribution follows: To Italy went $120,000,000; Hungary, $22,500,000; Denmark, $19,000,000; Jugoslavia, $34,000,000; England and Estonia received $4,000,000 each. Canada's share was $286,000,000, and Latin America's $375,400,000. The Far East and other corners of the world received $121,340,000. Alarm. Struggling to assert industrial supremacy, Europe, led by Germany, is challenging U. S. trade in world markets by the establishment of huge cartels for control of production and fixation of prices. Recent affiliations of foreign chemical and steel interests are belligerent gestures (TIME, Oct. 31). These are the views of Dr. Charles Holmes Herty, adviser to the Chemical Foundation Inc.,* who, in addressing the Salesmen's Association of the American Chemical Industry at the Machinery Club in New York last week, demanded that American banking interests "as good Americans . . . give thought to the matters at stake when they are called upon for foreign loans." "Selfish Bankers." Dr. Herty, his wrath mounting at contemplation of this "foreign menace to U. S. peace and prosperity," asked the chemical salesmen: "Are our bankers simply middlemen or brokers whose only thought is the commission they want. . . ?" He instanced this financiering as an example of how U. S. foreign loans strengthen the arms of those he contends are ready to strike the U. S.: "It is reported throughout the European press that the German cartel, the I. G. (Interessen Gemeinschaft Farbenindustrie), has, through exchange of stock, merged with the Norwegian Hydro-Electric Co. and that the latter is contemplating a great expansion of its operations for fixation of nitrogen through a loan of $20,000,000 which it expects to get through one of the great American banking organizations.* "Is it right?" questioned Dr. Herty, "that the savings of our people should be directed by this institution to the support of a European monopoly which will seek the destruction of the American nitrogen fixation industry, now so rapidly developing in ... (this) country?" Dissenters. Chemical executives, thus far unnamed, meanwhile have been active in Washington. They accept Dr. Herty's major doctrine regarding Europe's vigorous industrial attitude. But they demur at his denunciation of foreign loans. They would fight back by Europe's methods. They cannot now. They are blocked by the Sherman Anti-Trust law which forbids amalgamations likely to stifle competition. So (argued they last week) repeal the Sherman Anti-Trust law, or at least amend it to permit unification of U. S. industry to strike as a unit against similarly organized European blocs. Politics. Mark Sullivan,/- able Washington observer for the New York Herald Tribune, recorded last week the Administration's attitude toward troubled U. S. industry as "sympathetic." President Coolidge's recent informal sanction of cooperative oil producing measures he cited as indicative of official Washington's mood. But no tampering with the Sherman law will be tolerated. Col. William J. Donovan, whose business it is, as assistant to the Attorney General, to prosecute such violators, was vehement about it. "The defense of American business," suggested Col. Donovan, "can be accomplished through trade associations." Mr. Sullivan, prophetic, sees then that Congressional sparring in the coming session will be over the bone of "big business." He sees the progressive Republican element opposing with the Democrats any & all maneuvers, by the "old guard" to further U. S. industrial ends by means of legislation.

*An incorporated (Delaware) association whose members are leading U. S. chemical producers. Its capital is $500,000. It was formed by Francis Patrick Garvan in 1919 who, while Alien Property Custodian (succeeding A. Mitchell Palmer March 4, 1919 when Mr. Palmer resigned to become Attorney General) was appointed President of the association. Mr. Palmer as Alien Property Custodian in 1918 seized approximately 5,000 German patents registered in Washington relating to industrial and medicinal chemicals. Seizure was valid under the Trading with the Enemy Act and formulae, the despair of chemists here, thereby were open to U. S. scrutiny. One recipe was for the invaluable salvarsan, sovereign for syphilis, its secret then known only to enemy Germans. Another revealed the formula of novocaine, a local anaesthetic greatly used by dentists. While he was Alien Property Custodian Mr. Garvan assigned various of these patents to the Foundation of which he was President. For them he paid the Government $271,850. President Wilson ratified the transactions. The Government in 1923, charging deception, conspiracy and fraud, instituted suit against the Chemical Foundation in the U. S. District Court of Delaware. Judge Hugh M. Morris denied the allegations and dismissed the suit. U. S. Attorneys fought the case on appeal through to the Supreme Court which, on Oct. 11, 1926, affirmed the lower court's decision. The Chemical Foundation functions now as a licensed organization distributing its patent formulae on a nonexclusive basis upon request to members and authoritative producers and individuals. No dividends have been paid its shareholders; the money earned thus far has gone to further chemical research. President Garvan and Vice President George J. Corbett serve without pay. *The National City Bank. Negotiations are proceeding and a definite announcement placing the issue on the market this month is awaited in Wall St.

/-See p. 44 for a review of Mr. Sullivan's latest book.