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ican public. The sum total of these advances is mounting rapidly. American investors are said thus to have lent fully a billion dollars to Germany alone. Operations on so large a scale as this ordinarily result in a great extension of banking credit. European borrowers have begun to resort regularly to the American money market for accommodation. That market is called upon to underwrite Europe's commercial operations, to furnish her liquid capital, to float new companies, to finance trade between Europe and America and between Europe and the Orient, and so on. The United States has thus acquired a strong hold upon European industry, and in connection with this hold new responsibilities and risks.

Now, if American savings continue to be invested upon this extensive scale in European enterprises, an interesting rivalry is sure to develop between the Treasury at Washington and the financiers in Wall Street. When Italy, France, and England are paying the maximum annual installment on their debts, America will receive from us about $360,000,000 gold annually. Europe will never be able to pay this sum unless her factories and fields are operated with the utmost economy and efficiency, and with a minimum profit, after taxes are paid, to the owners. But American citizens will be heavily interested in the earnings of these foreign companies. Whatever the Washington Government collects from European treasuries will thus be taken out of these American investors' profits, in the form of taxes levied by European Governments upon the enterprises in which the latter are interested in order to pay their public obligations to the Treasury of the United States.

A third element in the Interallied debt situation threatens to sow dissension between different interests in

America. Her consumers are likely to favor the importation of cheap merchandise from abroad, while her manufacturers and bankers will bitterly oppose this competition. The only way to reconcile that divergence of interests will be for Americans to reinvest in foreign enterprises the profits they receive from capital placed abroada policy that will steadily increase their preponderance in the economic life of Europe.

On the other hand, it is as erroneous as it is ingenuous to jump at the conclusion that the only way to cut this Gordian knot is to cancel Germany's debts to the Allies and the Allies' debts to England and the United States. There are three reasons why this is impracticable. In the first place, France's claims against Germany exceed her debts to England and America. In the second place, such a solution, if adopted now, would make Germany the real winner in the war; for she has a more efficient industrial plant, a better business organization, and a more stable monetary system than any of her rivals. Moreover, she has wiped out her domestic debt, and would enjoy the advantage of lower taxes than her competitors. In the third place, as I pointed out at the beginning, the result of this would be to benefit American financiers who have heavy loans on their private account abroad, at the cost of American taxpayers, who would then have to pay out of their own pockets the interest and principal of the money borrowed by their Government to lend to Europe.

Still another aspect of this broad question, and one that is often overlooked, thrusts itself upon our attention. The history of the rise and fall of nations, and of the successive supremacy of one country or of one continent over its neighbors, shows

that intellectual values count quite as much as material resources in international competition, and that the sceptre eventually passes to the country that is best able to combine vast wealth with cultural progress. Industrial and commercial expansion is the product of three factors: of the discoveries that pure science makes in the laboratory, and generally bestows gratuitously upon the world; of the volume of production, which, when it reaches a certain level, enables all the people of a country to enjoy a high standard of living, and thus reduces the likelihood of class conflicts; and of the constantly increasing number and variety of physical and intellectual needs that this ever-augmenting wealth enables the people to gratify.

To-day, and ever since the beginning of the World War, the people of America have been advancing in these respects, while Continental Europe has stood still or retrograded. We read, or hear from our colleagues across the water, with a feeling of appreciative envy, what they are doing over there for education, for the refinement of living, for the welfare of their teachers, for the extension of libraries, laboratories, and research institutions to promote the physical and social sciences. Great captains of industry and finance rival each other in founding technical and business schools, in establishing new chairs at universities, and in providing endowments to support special studies and lines of research and to enable investigators to travel all over the world in the quest of knowledge. The effect of all this is cumulative. We behold American scholars and scientists invading with the élan of a young and optimistic race

every field of inquiry and learning and competing with the greatest names of ancient Europe.

We fail to realize fully how profound the changes now occurring are, because our old continent is still filled with scholars and students who are a product of the wealth and ease we enjoyed before the war. They still survive, resigned to continue their old pursuits in honorable poverty. But the climate of post-war Europe has changed. It has now become so difficult for us to earn a living, the value of material things has been so emphasized in our lives, that the younger generation naturally asks itself whether it is not better to devote the energy and the genius that would have given its members distinction in the arts and sciences to acquiring a material competence, which now seems the only guaranty of individual independence.

Confronting a Europe impoverished and divided against itself, the American Union automatically attracts our gold and our wealth without specially desiring to do so by the mere operation of economic law. Its people live in the free air of a boundless territory almost as large as our continent, and even larger when we consider that Canada is economically a territorial extension of the United States. Living as they do between two oceans, her sons naturally think imperially. Their interests are becoming world-wide; they possess a home market covering an area of more than three million square miles, and inhabited by 120,000,000 people. Assured, therefore, of material abundance and of financial world supremacy, they now seek new fields to conquer in the realms of art and science.

THE STATUS OF RUSSIAN PETROLEUM1

BY AN AMSTERDAM CORRESPONDENT

AFTER the negotiations undertaken at Genoa and The Hague in 1922 for Russia's recognition by Western Europe, the settlement of her foreign debts, and the restoration to their original owners of concessions granted by her former Government, had finally broken down, Moscow's petroleum policy entered a new phase. Prior to this the Standard Oil group, alarmed by the publication of a proposed agreement which gave its Royal Shell rival a practical monopoly of the Russian fields, had got into action, and a syndicate to defend the interests of French and Belgian investors in the Russian oil industry had been organized. At The Hague an agreement was reached by the Royal Shell group, the Noble interests controlled by the Standard Oil, and the Franco-Belgian Syndicate, which resulted in the formation of the International Association of Petroleum Companies in Russia, which was designed to deal as a unit with the Russian Government regarding its members' respective claims in that country.

Less than two years later, after its representatives had tried repeatedly to reach an agreement with the Soviet authorities, this Association went pieces. That was not on account of the rivalry between the Standard Oil and the Royal Shell groups, for they were working hand in hand so far as Russia was concerned, but because a conflict of interests had arisen between the

1 From Frankfurter Zeitung (Liberal daily), April 14

Franco-Belgian shareholders and the British, Dutch, Russian, and American producers. The latter were chiefly interested in securing the right to operate again in Russia and in extending their concessions in that country, while the Franco-Belgian shareholders wanted to get some sort of settlement that would boom their stocks. Consequently the Franco-Belgian group was not particularly interested in new concessions of the sort its associates were seeking, which would benefit principally the latter.

The Soviet Government, notwithstanding the demoralized condition of its petroleum industry at the time, took shrewd advantage of this discord. The men at Moscow were chiefly interested in getting capital to develop and work the wells under their direct control. The only way to do so was to sell oil abroad, for the domestic market brought them little net return. Large foreign sales were impossible, both on account of the opposition of the great petroleum groups just mentioned and on account of inadequate production at home. So the Soviet Government began making small sales to foreign purchasers whenever an opportunity offered. Thus they gradually worked up a business large enough to worry the Royal Shell and Standard Oil interests, and to induce them to buy more freely directly from Soviet stocks. This policy accomplished its object. A big contract for deliveries to the Royal Shell people, which the latter defended with the argument that it was made in

the interests of the British Empire, caused great dissatisfaction in the International Association; and it was this contract that really broke up that body.

All this time the Russians were busily restoring their wells and pipe lines and organizing distributing distributing agencies in Western Europe. Under the competent supervision of Serebrovski, the former engineer of the Noble interests, the 'Asneft,' which handled production in the Baku field, and the 'Grosneft,' which was formed to develop the new and very promising Grosny field, were notably successful. The third Soviet oil syndicate, 'Embaneft,' operating in the Emba district, can be disregarded, for its production is not important. This is shown by the following figures:

District

Baku..

Grosny. Emba.

Gross Product

in Million
Poods

1913 1925 469.0 352.1 73.7 144.0

6.0 16.2

548.7 512.3

The Soviet managers expect to increase the output during the current year to 597.5 million poods, which is considerably more than the maximum production before the war. This larger product, if it is actually attained notwithstanding the present lack of well supplies, cannot perhaps be marketed abroad in the same proportions as the smaller output of previous years; but the domestic market is growing rapidly. One of the reasons why Moscow is endeavoring to secure foreign credits is to purchase tubing and other supplies for developing these fields. How successful Soviet Russia has been in recovering her old market abroad and acquiring new markets is indicated by the fact that her annual exports of petroleum products have increased from 921,000

tons for the best year before the war to 1,338,000 tons in 1924–1925, the most recent year for which we have complete statistics. Of the latter amount, 62,000 tons were crude oil, 276,000 tons gasoline, 391,000 tons illuminating oil, 168,000 tons Diesel engine oil, 426,000 tons fuel oil, and 15,000 tons other petroleum products. Heavy purchases by different foreign Governments, particularly France and Italy, contributed to this increase; but the great petroleum companies, including those of England, have also helped to enlarge the figures. In the latter country the Soviet corporation, Arcos, Limited, has handled wholesale deliveries; and in August 1924 Moscow incorporated in Great Britain 'Russian Oil Products, Limited,' to sell directly to consumers, with the result of appreciably lowering gasoline prices in that country.

This last move doubtless explains the recent agitation against Russian oil, which certain interests in Great Britain started last autumn. The Association of British Creditors of Russia distributed circulars attacking Russian Oil Products, Limited; and a member moved in the House of Commons that the commercial treaty with Russia be abrogated. Sir Henri Wilhelm August Detterding, Director-General of the Royal Shell Company, vigorously backed the Association of British Creditors of Russia in this campaign, and published a violent attack against the Russians.

Thereupon Mr. Lomov, the chairman of the All-Russian Petroleum Syndicate, took up the cudgels for his country. During the controversy that followed, the whole question of credits, prices, and petroleum policies was thoroughly aired. Replying to the charge that the Russians could underbid British gasoline producers in their own market because they paid starvation wages, Lomov pointed out that the

Royal Shell had pursued precisely the same policy in fighting the Soviet industry. Some of the facts that came out in the debate were very interesting. For example, Lomov published the following data regarding the taxes paid by the oil industry in Russia:

'Grosneft and Embaneft pay five kopecks a pood and Asneft pays three and one-half kopecks a pood in excise taxes. The petroleum industry as a whole paid during 1924-1925 the following amounts to the Government: income tax, 9,140,000 rubles; to the Fund for Improving the Physical Condition of the Workers, 3,210,000 rubles; to the General Industry Fund, 5,940,000 rubles; and in profits to the State, 10,000,000 rubles additional. Wages are eighty-four per cent the rate before the war. General benefits provided for the workers make up the deficit. The eight-hour day is universal.'

Of course, Mr. Lomov had no answer to make to the accusation that his Government had profited by confiscating without compensation the capital investments of the former private petroleum owners and operating companies; neither could he deny Mr. Detterding's charge that the Soviets were employing in the production and distribution of petroleum railways, pipe lines, and other improvements paid for with the proceeds of the Tsarist loans floated in Western Europe. Mr. Lomov had rather the advantage of Mr. Detterding, however, in his assertion that the Royal Shell Company had also bought 'stolen goods,' and that it made no difference in morals whether part or all of the goods it bought were stolen.

This controversy should not be allowed to conceal the fact that, behind the screen of this juristic argument over the legality of confiscation when enforced as a general measure and not exclusively against the citizens of a

foreign country, the two parties to the dispute were really jockeying for a bargain. Mr. Lomov kept hinting at a 'businesslike settlement' of the issues in controversy, and one could detect beneath the surface of these mutual recriminations an obvious desire to reach a basis of understanding, not only between the Royal Shell Company and Moscow, but between all the big petroleum companies and the Soviets.

In a recent interview Mr. Detterding alluded to the latest scheme for developing Russia's petroleum resources. A group of financiers headed by the Banque de Paris et des Pays Bas is said to consider advancing long-term credits to Russia in return for a concession in the Caucasus. That concession is to be large enough to supply the entire consumption of France. The same parties are reported to contemplate organizing a monopoly for the sale of Russian petroleum throughout Europe. Mr. Serebrovski, the Soviets' chief oil engineer, is understood to have discussed this plan with leading representatives of the industry during his recent visit to Western Europe. In commenting upon these rumors Mr. Detterding was inclined to give them full credit. To be sure, he said, a man must be a Frenchman to venture upon such an enterprise with the French money market in its present condition. He hoped the scheme would succeed, nevertheless, because it would mean the investment of more foreign capital in Russia, which would have to be guaranteed protection. This would undermine the whole Communist system. He refused to believe, however, that the French would buy 'stolen property,' which, by the way, the Royal Shell people originally bought from the French Rothschilds group, — and assumed that the new concession would lie in fields not previously exploited.

Mr. Detterding's opinions are not

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