Johnson Debt Default Act of 1934

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The Johnson Debt Default Act of 1934 is a U.S. law prohibiting future loans to nations that have defaulted on repayment of previous loans to the U.S. This law came about following the collapse of the international financial situation created by the Dawes Plan and subsequently modified by the Young Plan as a result of the Great Depression. The Dawes Plan kept the system of international capitalism afloat following the near-collapse of the German economy after institution of war reparations. Because U.S. Republican leaders Presidents Harding and Coolidge refused to even consider forgiving the Allies' war debts to the U.S. (it has long been attributed that Calvin Coolidge once remarked in response to the question of forgiving war debts, "They hired the money, didn't they?"), Britain and France had few other good alternatives than trying to bleed Germany of every last cent.[1]

By the time of the Great Depression, the U.S. could no longer keep the international system of finance afloat with its own loans. Herbert Hoover suggested an international moratorium on war debt repayments and reparations until 1932. Britain, France, and Germany readily agreed. But after 1932, Hoover was unwilling to continue the moratorium. Furthermore, the conservatives had passed the Hawley-Smoot Tariff, a protectionist tariff which made repayment almost impossible during the pit of the Great Depression. Britain, France, and nearly every other nation that owed the U.S. debts from World War One defaulted on their repayment. The U.S. was owed some $22 billions.

In retaliation, Senator Hiram Johnson introduced and shepherded through Congress the Johnson Debt Default bill. It passed on April 13, 1934. The law forbids any new loans to nations that have not repaid their World War One debts. This law further contracted the liquidity of international markets and contributed towards making the depression worse. Furthermore, since Britain was a principle defaulter, it made aid to Britain during the early years of World War Two particularly problematic; thus President Roosevelt and Congress had to resort to interesting ways around the law, such as the Lend-Lease Act.

This law is still part of U.S. foreign policy.


  1. Paul F. Boller Jr. and John George, They Never Said It: A Book of Fake Quotes, Misquotes, and Misleading Attributions (Oxford University Press, 1989), 18.