States to advocate such a policy and insist upon it, I think that the committee will decide the other way. Now, that is set forth in this brief. The CHAIRMAN. And the brief is on file. Mr. BLYMYER. There is just one copy of it, unfortunately, for such. a large committee. The CHAIRMAN. Probably you would be able to furnish extra copies for the members who might want to read it. Mr. BLYMYER. I have a couple that I can give. The CHAIRMAN. Very well. The committee will stand adjourned until 10.30 o'clock to-morrow morning. (Whereupon, at 4.46 o'clock p. m., the committee took an adjournment until Wednesday morning, November 24, 1926, at 10.30 o'clock a. m.) HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, November, 24, 1926. The committee met at 10.30 o'clock a. m., Hon. William R. Green (chairman) presiding. The CHAIRMAN. morning. Colonel McMullen is the first witness this FURTHER STATEMENT OF LIEUT. COL. J. I. MCMULLEN Colonel MCMULLEN. Mr. Chairman, at the request of the committee, I have revised the plan to include the new figures furnished by the Alien Property Custodian. I should like, if it is agreeable to the committee, to proceed to present the plan and then to suggest any alternatives the committee desire. The CHAIRMAN. Very well; we will let the colonel proceed and conclude his statement, then, before we ask questions. Colonel MCMULLEN. The plan suggested yesterday was to set up an agency as a sort of clearing house to which would be assigned all of the assets. Those assets would include the seized alien. property amounting to $266,537,000; the undisclosed enemy assets. amounting to $5,000,000; the unallocated interest amounting to $26,000,000; the estimated value of the ships, radio station, and patents $40,960,000; reparation payments amounting to $25,000,000, to 1928; army of occupation payments amounting to $27,725,000 making a total of $391,222,000 of so-called assets. Now the proposed disbursements from this fund by the agency I have spoken of would be, first, the payment of the awards of the Mixed Claims Commission amounting approximately to $250,000,000. Mr. HAWLEY. Going back for a minute to the amount of the assets, you gave the total as $391,000,000. If I have figured it correctly, I only make it $299,000,000. Colonel MCMULLEN. There are $266,537,000 of alien property plus the undisclosed enemy assets. The first payment would be the awards of the Mixed ClaimsCommission, estimated at $250,000,000; then a pro rata distribution to alien enemies of the value of the seized property, including the ships, radio station, and patents. This would amount to $141,222,000, leaving a balance due the enemy aliens of $166,275,000. This amount could be reduced annually by payments of the reparation and Army of occupation costs, amounting approximately to $25,000,000 per year, which would complete the payments in six years and eight months. Thus the amount returned at once to the alien enemies would amount to 45.9 per cent, leaving a balance of 54.1 per cent of the property at present held and adding to the amount we now return the amount returned under the Winslow Act, it would amount to $189,907,000, and would, in percentage, amount to 53.3 returned. The advantages of applying such a plan to the settlement of this situation are several. First, it would require no bond issue or other drain upon the Treasury or taxpayers of the United States; it would require no bond issue in Germany, which might otherwise embarrass them in meeting their obligations under the Dawes plan, and would be helpful to Germany in meeting her obligations in that the reparation payments and army of occupation cost payments would be paid directly to German nationals in Germany in marks, and would not involve the conversion of German money into foreign currency. Another advantage of the plan is that it would place any burden of waiting for payment upon the German nationals, on whom it must be admitted it properly belongs; but, at the same time, the burden on them would be only nominal-that is to say, their payments would extend over a period of six years and eight months, as compared with the delay the American nationals would have to suffer if the plan of making them wait for the payments on the reparations payments is adopted, which would extend over a period of approximately 80 years. Another advantage is that the Germans would immediately receive at least 45.9 per cent of their former property and would not, as they would if we adopted the plan of holding it until the other was settled, have to wait for it for 80 years. I would set up an agency to determine the value of ships, patents, and radio stations to the United States and limit the authority of that commission only to the extent of requiring it to base its awards, under any of the heads or categories, upon a fair value, under the principles of American law, reduced in each case, as might be affirmatively shown, by reason of use of that property inimical to the neutrality or the national defense interests of the United States, or a use which militated against the public health of the United States. To the tribunal mentioned would be submitted the question of any alien property seized other than the classes just enumerated, and if affirmatively shown that such property was used in a manner and with an intent inimical to the neutrality or the national defense of the United States, or to militate against the public health, such property would not be compensated for or returned; or, in the light of the facts, would be reduced in accordance therewith. That would only be in case it were affirmatively shown that there were such use. Mr. GARNER. It would not affect any awards that have now been made by the Mixed Claims Commission. Colonel McMULLEN. Not at all. Mr. GARNER. Only additional claims that might be presented of a similar nature? Colonel MCMULLEN. Yes, sir. There are a number of questions which might be voiced against some features of this proposal and one of the important questions would be the right of the United States to subrogate the rights of American claimants to the reparations payments in the manner I have set forth, either with respect to the application of those payments to recoup the United States for advances made out of the Army occupational costs or in effect to recoup the United States for the bookkeeping means used in advancing the payment of German nationals. The right of subrogation at international law is of a somewhat higher character than that in domestic law and the reason for that is this: The right of subrogation in domestic law is more or less a contractual right founded upon conveniences of trade and commerce, whereas the right of subrogation at international law is founded upon the fundamental right of government to adjust matters in a manner to insure tranquillity and pleasant relations with its sister nations and to eliminate national prejudice in the matter of claims of the nationals against the States involved. This right of subrogation has been a principle recognized by this Government since its institution and is first recognized in our treaty with Great Britain, article 9, 1784; again in article 5 of the treaty of France of 1800; in article 13 of the treaty of Hidalgo with Mexico in 1848; and in article 7 of the treaty with Spain, 1898. So that the right of subrogation is not only a well-established principle of our Government, but is also recognized by other governments. Mr. Frazier, who appeared before this committee a few days ago.. is the general counsel of the Dawes plan, and I submitted to him (he being an old member of our office in France during the war) the plan I have outlined, to see what he thought of it with respect to the Dawes plan. He went over it very carefully and said he could find no difficulty in that regard. To summarize: This plan will insure prompt payment of all American claims, both private and governmental Mr. HAWLEY. Except the Army of occupation costs. Colonel MCMULLEN. Yes, sir; I am going to cover that in just a minute. It will insure the prompt return to the Germans of more than 53 per cent of the property held; insure the complete return of German property in a short period of time; avoid any accusation of confiscation; require no bond issue either by the United States or Germany; involve no conflict with the Dawes plan; involve no conflict with our international obligations; and will facilitate the exchange problem in settlements under the Dawes plan. Now, with respect to the question of using the Army of occupa tion costs, my proposition is that, at most, it would only divert those payments for six years and eight months; but, at the end of that period the matter could be so administratively set up that the reparation payments would continue to run and would immediately apply to the payments of the interest on the occupation costs, upon which we receive no interest now-I mean, if thus diverted for a period of six years and eight months-and after that interest had been recouped, would continue to apply until the Army occupation costs had been recouped to the United States. Mr. HAWLEY. Does that claim for the army occupation costs bear interest? Colonel McMULLEN. None at all, sir. Mr. GARNER. The only difference, Colonel, would be this, as I see it: You would take the property belonging to the Treasury, the payments on account of occupation costs, and devote it to the payment of the German claims practically for the next five and a half years, or for six years and eight months? Colonel McMULLEN. Yes, sir. Mr. GARNER. And that would be the only difference, of whether the German claim should wait until it was amortized by the Dawes Plan or whether the American people should pay it? Colonel McMULLEN. Yes, sir. I would like to go into that a little bit further. Mr. GARNER. You have the other plan, I assume? Colonel MCMULLEN. Yes, sir; I have four or five other plans here. Mr. KEARNS. How do you figure, if this $25,000,000 should be applied on the American debts, it would take 80 years to pay it? Colonel MCMULLEN. If we applied the $25,000,000, it would not. Colonel MCMULLEN. No; the interest on the American debts, you see, is 5 per cent; so it takes a good bit longer. Mr. KEARNS. Is there not interest on those payments? Colonel McMULLEN. No, sir; there is no interest on those payments at all. Mr. KEARNS. Well, there is interest on the German claims. Colonel McMULLEN. There is at present for those invested in Government securities; they get the regular interest. According to my plan, if this were all turned over to an agency, the interest would cease; it would not be earning interest. Mr. GARNER. Just in that connection: Mr. Kearns, from Ohio, draws attention to the fact the German claims do not bear interest. I presume you have not made any estimate of the time to settle, under this program, if no interest were charged against Germany for the American awards? That would cut it down very materially,. would it not? Colonel MCMULLEN. That would cut it down, I should say, about 40 per cent. Mr. GARNER. Something like 40 per cent; about 35 per cent— somewhere between 30 and 40 per cent. Mr. HAWLEY. If my recollection is correct, Judge Parker stated that those awards could not be disturbed by anybody. Colonel McMULLEN. I think that is correct. Mr. GARNER. That is true; but Congress can decline to pay them, under the method suggested here, and let them wait for 80 years. Mr. BACHARACH. Or we could do this: We could pay the principal sum, then pay the Government's claim, then pay interest later on. Mr. GARNER. Congress can not disturb claims I will agree, but Congress can refuse to pay them. Colonel MCMULLEN. Taking the figures suggested by Mr. Garner, and leaving out the Army occupation costs, the property would be returned, the German property would be returned now to the extent of 36.9 per cent instead of 45.9 per cent, and it would take 17 years and 4 months to return the balance without interest. 1 Mr. GARNER. That is without using any of the taxpayers' money whatever? Colonel McMULLEN. Yes, sir. Mr. GARNER. Let me hear that again. The noise was so great I did not hear that. Let me hear that again, Colonel, if you will. Colonel MCMULLEN. I say, leaving out the use of the Army occu pation costs, it would now return to the Germans 36.9 per cent; if we include the payments made under the Winslow Act, it would amount to 45.5 per cent, and it would require 17 years and 4 months to wipe it out, using only the reparation payments. Mr. GARNER. And that is without any cost whatever to the American taxpayer? Colonel MCMULLEN. Yes, sir. Now I had several other alternatives, which I did not include in the plan. If the committee desire, I will be glad, very briefly, to touch on and explain why I did not use them. Mr. CHINDBLOM. All of your plans contemplate that the Government of the United States, through an act of Congress, should use the property of the German nationals to pay the claims of American nationals. Colonel MCMULLEN. I would not quite say that. I would say that we would use the property that is in the hands of the Alien Property Custodian. The CHAIRMAN. Of course, it is perfectly easy to settle this matter if we take the property in the hands of the Alien Property Custodian and pay the American claims with it. Mr. CHINDBLOM. Is not that property that did belong to German nationals? Colonel MCMULLEN. That is property that did at one time belong to German nationals; yes, sir. Mr. CHINDBLOM. Do you think you have altogether avoided the theory of confiscation by that process? Colonel McMULLEN. Oh, absolutely. Mr. CHINDBLOM. I notice you gave out a statement to the press. Colonel MCMULLEN. No; I did not give out this statement to the press at all, sir. Mr. CHINDBLOM. I found the same thing in the press as you read here. Colonel McMULLEN. Yes. Mr. CHINDBLOM. Exactly the same thing, and I thought possibly it was your statement. Colonel McMULLEN. It is my statement. Mr. CHINDBLOM. In which it is said there is no element of confisca tion in this. Colonel MCMULLEN. No; there is not. The CHAIRMAN. Of course, that is your view of the matter; but you will find a great many people who think otherwise. Colonel McMULLEN. Of course. Mr. CHINDBLOM. It does not avoid confiscation by saying there is no confiscation. Colonel MCMULLEN. Not at all. But I would like to say this about confiscation-and, by the way, at the request of the committee I have submitted a brief here on confiscation-the Supreme Court has said |