Iron Man & Velvet Glove

Iron Man & Velvet Glove (See Front Cover.)

A tall impetuous Teuton held the Reparations stage in Paris all last week. Speaking for Germany in gruff, rasping English, he seemed to epitomize the Nietzschean commandment, " Behard!" As a matter of fact anyone who has been spoken to for five minutes by Dr. Hjalmar Schacht, President of the German Reichsbank, and, today, Chairman of the German Delegation to the Second Dawes Committee in Paris (TIME, Feb 11), knows that the man is as drastically metallic as his pistol-shot name--Schacht!

For four hours a day or more, last week, the famed "Iron Man" of German finance faced the fiscal representatives of six creditor states,* thrusting at them reasons why Germany must not pay, either quickly or in full, the bills they have presented. With a studious, almost pugnacious restraint Dr. Schacht stopped time and again on the brink of saying, "Germany cannot pay." His manner bristled with the confidence that this conclusion would be reached by anyone not a nincompoop. Hour after hour the U. S. Chairman of the Committee, Owen D. Young, sat slightly reclined, with his long lawyer-legs comfortably crossed. He puffed a pale cigar. He let Dr. Schacht talk.

Was not Germany, asked Iron Man Schacht, like a sick man recently taken to the seaside, whose suntanned skin gives a false impression of renewed strength and abundant vitality? With an adverse trade balance of $240,000,000, how can Germany be really strong? Granted that the British taxpayer is paying $1,250,000,000 a year, the French $800,000,000, and the German only $600,000,000, even so, said Dr. Schacht, it is paradoxically true that Germany is the most heavily taxed country of all. Reason: while the Briton's and the Frenchman's tax money is spent at home, to his indirect enrichment, the German's tax payments are largely wrested from the Fatherland in the form of Reparations thus impoverishing instead of enriching, as all other nations' are.

Perhaps the most ingenious argument advanced by the Iron Man, last week, sought to prove that the huge U. S. loans made to Germany since the War provide not the best reason why Germany must pay her Reparations debt in full, but rather one of the best reasons why she should not pay. These U. S. bonds, reasoned Dr. Schacht, saddle Germany with the necessity of paying $240,000,000 interest, every year, and that stupendous charge obviously curtails the Reich's ability to continue paying the present $595,000,000 annual scale of Reparations.

Thus the Iron Man craftily raised the slumbering issue of whether U. S. holders of German bonds or the allied powers would have first claim upon the resources of the Reich. From the standpoint of the U. S. and Germany--and from their standpoint alone--the payments of both bond and reparations indebtedness are of approximately equal importance. The allied governments could watch Germany default on her U. S. bonds with relative unconcern; but any representative of U. S. interests must take care that the whole burden imposed on Germany is not too heavy for her to bear--even if that means somes calling down of reparations.

Clearly the Iron Man from across the Rhine was addressing himself, last week, chiefly to the men from across the Atlantic, and especially to one of them whose strong fist is invariably mantled in a metaphorical Velvet Glove--John Pierpont Morgan.

Enigmatic Morgan. The foremost financier on this round Earth favored the Second Dawes Committee, last week, with an address lasting only a few seconds. At an early session of the Committee, when the other delegates each made succinct 10 minute speeches outlining the policies of their governments, Mr. Morgan rose, indicated his U. S. colleague Mr. Young, and said:

"We have come to help."

Without being profound, this remark was perhaps quite as characteristic and quite as adequate as the single sentence which Tycoon Morgan was persuaded to utter in 1924, just after he had granted a credit of $100,000,000 to stabilize the tottering French franc. Said he then-- and could he wisely have said more?--: "France has taken the necessary steps to stabilize the situation in the face of all contingencies."

Ex-Plowboy Owen D. Young, now Chairman of General Electric Co. and Radio Corp. of America, proved unable or unwilling to duplicate the blooded, Bourbon role of aloofness played, last week, by the "last of the J. P. Morgans." As one who had had a leading part in drafting the original Dawes Plan, Tycoon Young began to show pique when Dr. Schacht neared the climax of his argument as to why Germany must not pay all she owes. A passing reference made by Berlin's Iron Man to the fact that Germany has met all her Dawes payments thus far, caused Mr. Young to remark ironically to Dr. Schacht:

"Thanks for your implied appreciation of the Dawes Plan."

Bourbon Morgan. During the U. S. Civil War, Mr. Junius Spencer Morgan of London observed historically to his English banker colleagues:

"Anyone who sells a bear on the United States will go broke."

Thus the grandsire of today's J. P. Morgan actually coined Hearst Editor Brisbane's famed slogan: "Don't sell the country short." Mr. Junius Spencer Morgan had participated in the dry-goods business at Boston, Mass, before he removed to London and founded the English firm of J. S. Morgan & Co. Later, this became Morgan, Grenfell & Co., which is today the London office of Morgan's.

Junius begat "J. P." Dry goods receded into oblivion and the House of Morgan had its Louis XIV. Perhaps prosaic Americans never quite realized that in gigantic, predatory J. P. Morgan I they had an authentic Emperor of Railways and Commerce, a sovereign whose technically free serfs were trainmen, and who levied legal tribute on the public. Italians, quicker to perceive such romantic truths, commonly referred to Morgan in his latter years as Il Magnifico. The numberless art treasures which he carried off from Italy--by no better right than his irresistible power to pay any price--doubtless clinched the Italian conviction that he was indeed Il Magnifico.

Old "J. P." begat "Jack"--the present "J. Pierpont Morgan" (as he signs himself with nice filial deference). When introduced as "Mr. Morgan" at a recent smoker of his Harvard class of '89, he promptly cried: "Oh Hell, call me Jack!" Of course only his closest intimates and partners ever do. In common converse with the public a partner of the House of Morgan avoids mentioning his colleagues by any name or nickname. "One of our partners in Philadelphia" is supposed to be a designation so august that it would be fiscal sacrilege to ask "Which one?"

To ask "Which was greater, Morgan I or Morgan II?" is as futile as to inquire "Which were better, the years 1880 to 1910, or the years 1910 to 1929?" In the early primeval times of Big Business the Elder Morgan was simply the biggest, most voracious brontosaurus. In the present years of Titanic Business it is the Morgan hand in a velvet glove which directs a fiscal juggernaut capable of thun dering over mere business brontosauri. Il Magnifico in all his purple pride never had to do with a loan of more than 200 million dollars; but austere, reserved, patrician "Mr. Morgan" quietly arranged the Anglo-French loan of a half-billion dollars in 1915. It is said that the Allies wanted to borrow a round billion at that time; but Mr. Morgan led the British fiscal representative, Lord Reading, into his sanctum, and thoughtfully observed: "Reading, I wouldn't ask a billion if I were you. I think you'd best limit the issue to half a billion."

The spending of that prodigious sum in the U. S. for War supplies was the biggest single event in the annals of U. S. Labor.

Banker Morgan. Since the House of Morgan has deep, traditional roots in England, young "Jack" served his ap prenticeship in the city of biggest banks -- London. There are no less than five British banks ("The Big Five") bigger than any in the U. S.-- Midland Bank, Ltd., Lloyds Bank, Ltd., Barclay's Bank, Ltd., Westminster Bank, Ltd., National Provincial Bank, Ltd.

Not until "Jack" had worked 15 years in London was he allowed to graduate into the Manhattan House of Morgan as "J. Pierpont" in 1905. Nothing proves more conclusively that the fiscal centre of the world has shifted since then from London to New York than the fact that "J. Pierpont's" two sons have served their apprenticeship in Wall Street. The elder, Junius Spencer (called "Junior"), is now one of the most potent Morgan partners; but the younger, Henry Sturges ("Harry"), who started as a messenger boy at 23 Wall, has only just been taken into partnership.

During the panic (1907), 40-year-old "J. Pierpont" acted as chief-of-staff to his doughty sire. After the death of "J. P." in 1913, "J. Pierpont" signalized his ascension by a bold decision: namely that he and his partners would withdraw from active direction of the corporations in whose finances the House of Morgan was chiefly interested; would confide their management to such capable "outsiders" as the Owen D. Young of today; and would assume on a grand scale what has become the House of Morgan's paternal role toward such high bouncing babes as General Motors.

Since his original decision of 1913 Mr. Morgan has refused the chair of innumerable mighty corporations; but the death of Judge Elbert H. Gary (TIME, Aug. 22, 1927) induced him to become Chairman of U. S. Steel Corp.

What looms ahead? Last week as Mr. Morgan sat on the Second Dawes Committee, he was undoubtedly pondering a fiscal operation beside which the half-billion-dollar loan to France and England would seem picayune. This project is spoken of as "Commercializing" the German reparations debt. By this is meant (TIME, Oct. 29) that long term "reparations bonds" may be issued against the resources of the German State, sold to the public, and the money used to pay off at once Germany's debt to the Powers.

This operation might involve the flotation of 30 billions of dollars worth of "reparations bonds," a task too titanic even for the House of Morgan. Collaboration would have to be sought from perhaps half the great financial houses of the world. Even then the project might prove unfeasible--possibly for political reasons. However, it is expected that in about two months' time, the Second Dawes Committee will have worked through its other problems to the point of deciding whether "commercialization" is practicable.

The major purpose of commercialization would be to transform the political debts of Germany to the powers into purely business debts to individuals. Then if by any chance Germany should go bankrupt or bolshevik, the bond salesmen would have made their commissions, the Great Powers would have their money, and only the individuals who bought bonds would be out of pocket. Though the roulette wheel of peoples and politics spins and spins--red or black the bank will win.

Conceivably, however, in the event of Germany's default the Great Powers would find it necessary to themselves to pay up the reparations bonds, if only to stave off a crash that might disrupt the fiscal world.

* Belgium, France, Great Britain, Italy, Japan, the U. S.