Jeremiah Smith, Jr. and Hungary, 1924–1926:
the United States, the League of Nations, and the Financial Reconstruction of Hungary
Introduction
The International Landscape in the early 1920s
After the devastating World War I, most of Europe lay in ruin. The so far
unknown destruction in both human life and material value left an indelible
mark on the continent. As a consequence of the four years of bloodletting,
many European countries found themselves economically and financially in
dire straits. Moreover, the map of Europe was redrawn—new states were born,
old empires were gone, and some defeated countries survived only at the great
cost of territories and population detached. The most spectacular changes
happened in Central Europe. The Austro-Hungarian Empire vanished and in
its place no fewer than four new countries emerged. While Czechoslovakia
or the Serb-Croat-Slovene Kingdom, for example, found in the new situation
ample justification and the embodiment of Wilson’s quest for nations’ selfdetermination, Austria and Hungary were left with smaller population and
territory than before. In the case of Hungary, the differences to its prewar
status were dramatic: it lost two-thirds of its former territory and almost the
same percentage of its population.
As time passed, it was clear that some rehabilitation would be needed. Mainly
with Great Britain in the lead, Europe tried to put its house in order. The reasoning
was that economic revitalization must work in parallel with financial recovery. It
is little wonder that Great Britain was the main force behind the initiation of a
European reconstruction. Although it had lost a lot of men too in the war, its
territory was not under actual fighting, and of all the belligerent countries it
remained relatively the most intact. This was of great importance since London
had been the capital of the financial world for many decades. Any real organizing
power with effect on a possible rebuilding of the European continent could have
come only from London: the banks and financial houses here alone in Europe
had the necessary resources to finance the bulk of the reconstruction. The
majority of the loans could not have been raised without these institutions as
the main agents.
The other reason why Great Britain had to take on the leading role was the
conspicuous absence of the new number one power, the United States of
America. America, after somewhat reluctantly joining the war in 1917, was
on the verge of becoming a major force on the European Continent. However,
Woodrow Wilson’s dream of a postwar international organization to guard over
the peace came into being without the United States itself. The US Senate voted
against such an international commitment. Thus the League of Nations, formally
established on January 10, 1920, already at the outset, suffered a great loss in
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terms of worldwide influence, power, credibility, and sufficiency. Moreover, other
important countries were missing to give the organization more credit: Germany
(becoming a member in 1926) and the Soviet Union (not a member till 1934).
The lack of the country’s participation did not exclude the possibility of
American contribution to financial affairs in Europe. But the subsequent
Republican governments made such a course by all means more difficult. When
European reconstruction became an issue in which American participation was
sought, the main difficulty lay in the fact that such initiatives emanated from the
League of Nations. Since the United States was not a member, the large American
financial houses, the most prominent being J. P. Morgan & Co., were more careful
in joining deals, even if possible profits were alluring. In addition to political
differences, the relations between the Allied Powers and the United States
were heavily burdened with the debt questions and reparations. The Europeans
wanted to squeeze reparations out of the defeated states, mainly from Germany,
and they thought to repay the American credits from this sum, a course the
United States was not willing to accept. It seemed that until this problem was
solved, there could be no lasting cooperation between the two sides.
Since there was no hope for official support, the League of Nations had to count on
private collaboration with Americans. Next to bankers, American private citizens were
working for the League, most often in an unofficial capacity, since the United States
government tried to avoid any official contact with the organization. So, when the
financial reconstruction of European countries came to the forefront, the League of
Nations hoped to secure the support of both American bankers and private citizens.
The first group was crucial for their money, the latter for their work in the schemes—a
concept that was to strengthen both halves of such a vision.
The United States could not afford to turn away from Europe in an all-out
fashion. If nothing else, the huge sum of debts that the European countries had
accumulated during the years of war was a link that connected the two continents.
Williams’ famous claim that the United States’ isolationism was “no more than a
legend,” however, needs some qualifications.1 On the political level, isolationism
did occur to a large degree: the United States withdrew from the international
landscape after World War I, especially what regards Europe. Aside from small steps
and the only big spectacular political event, the Washington Naval Conference in
1921–22, American official circles really showed no inclination to find themselves
inside a European web they abhorred. On the financial level though, the picture
is quite different. With the emergence of the United States as the new number
one country with its apparently infinite capital, the American government found
it to its advantage as well to let the private financial sphere to use its power and
1 William Appleman Williams, “The Legend of Isolationism in the 1920s,” Science & Society
18, no. 1 (Winter 1954): 1.
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Jeremiah Smith, Jr. and Hungary, 1924–1926:
the United States, the League of Nations, and the Financial Reconstruction of Hungary
influence all over the world. They were basically free to choose the country in
which they wanted to invest in the hope of profits and hopefully establishing
financial structures that would closely follow the American model. Their selection
reflected their pecuniary interests above all, but it was also a reflection of the
moral conviction that Europe had to be reconstructed in order to create a healthy
world environment for business.
The aim of this book is threefold. First, it wants to fill a void that is conspicuous
in the studies of the 1920s concerning the financial reconstruction in Europe and
the role of American capital and personnel. While there are major works on many
countries in English, starting from France all the way to Poland, Hungary for some
reason is left out.2 Even those works that deal with it are not comprehensive
enough or focus on other aspects.3 Therefore, the second aim is to concentrate
on the Central European financial reconstruction with a special emphasis on the
American participation in Hungary, which, again just like in any other case, was
private and unofficial. Third, I want to add an important chapter to the growing
literature of the Hungarian-American historical relations by putting Jeremiah
Smith, Jr., the American Commissioner-General for Hungary from 1924 to 1926,
in the limelight. Smith, who had been one of the center figures of the financial
reconstruction of Hungary, and therefore one of the leading foreign personalities
in the interwar years of Hungary, has conspicuously been unspoken of in works
2 See the following works concentrating on various aspects of the era. Carl Parrini, Heir to
Empire: United States Economic Diplomacy, 1916-1923 (Pittsburgh: University of Pittsburgh,
1969); Richard Hemmig Meyer, Bankers’ Diplomacy. Monetary Stabilization in the Twenties
(New York: Columbia University Press, 1970); Joan Hoff Wilson, American Business &
Foreign Policy, 1920–1933 (Lexington, KY: The University Press of Kentucky, 1971) and
Ideology and Economics: U.S. Relations with the Soviet Union, 1918–1933 (Columbia, Mo.,
1974); Melvyn P. Leffler, The Elusive Quest: America’s Pursuit of European Stability and
French Security, 1919–1933 (Chapel Hill, NC: University of North Carolina Press, 1979);
Frank Costigliola, Awkward Dominion: American Political Economic, and Cultural Relations
With Europe, 1919–1933 (Ithaca, NY: Cornell University Press, 1984); Neal Pease, Poland,
the United States, and the Stabilization of Europe, 1919–1933 (New York: Oxford University
Press, 1986); Michael J. Hogan, Informal Entente. The Private Structure of Cooperation in
Anglo-American Economic Diplomacy, 1918–1928 (Chicago: Imprint Publications, 1991);
Philip L. Cottrell, Rebuilding the Financial System in Central and Eastern Europe, 1918–1944
(Aldershot: Scolar Press, 1997); Aldcroft, Derek H. The European Economy 1914-2000. 4th
ed. (London and New York: Routledge, 2002); Emily S. Rosenberg, Financial Missionaries to
the World. The Politics and Culture of Dollar Diplomacy, 1900–1930 (Durham and London:
Duke University Press, 2003).
3 The major works concentrating on some aspect of the League of Nations loan to
Hungary in 1924 are Ormos, Mária, Az 1924. évi magyar államkölcsön megszerzése [Raising
the Hungarian State Loan of 1924] (Budapest: Akadémiai Kiadó, 1964); György Péteri,
Revolutionary Twenties. Essays on International Monetary and Financial Relations after World
War I (Trondheim: University of Trondheim, 1995) and Global Monetary Regime and National
Central Banking. The Case of Hungary, 1921-1929 (Boulder, Colorado: Social Science
Monographs, 2002); Miklós Lojkó, Meddling in Middle Europe (Budapest: Central European
University Press, 2006).
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about the loan or the period done by other authors. It is still all the stranger, since
after World War I all of Europe looked to the United States as a possible savior
in the political and economic quagmire that was created after the peace treaties.
Serving the League as an American in an influential position attracts attention in
itself, but Smith fulfilled much more than a post under the League of Nations. He
was a special “envoy,” or “ambassador,” who had to represent the United States
even if he consciously did not want to and officially could not do so. Still, in him
all Hungary saw was America, and the way he acted and carried out his duties left
a lasting impression on Hungarians. By writing in detail about Smith, I hope that
his role in Hungary will be both known and appreciated not only among scholars
but in the public’s mind as well. It is maybe time to put him next to Harry Hill
Bandholtz on the pedestal the latter physically enjoys.4
4 Bandholtz, who helped save treasures of the National Museum in Budapest from the
Romanians in 1919, has a statue commemorating this heroic deed.
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