and to the fellow nationals of the creditors (who may indeed change from day to day), that the government of the creditor should make the breach of such a contractual obligation to a citizen who accidentally holds a foreign public bond a cause for armed international action involving the whole nation in the burden, and making the government in effect the underwriter and guarantor of his investment in the securities of a foreign government.

This is the principal argument of the Drago Doctrine, first advanced in the celebrated note of December 29, 1902, from Dr. Luis Drago, Minister of Foreign Affairs of Argentine, to the Argentine Minister at Washington, and by him submitted to the Department of State, on the occasion of the joint intervention of Great Britain, Italy and Germany against Venezuela. The argument led up to the recommendation of proposed policy, intended to be a corollary to the Monroe Doctrine, that "the public debt [of an American state] cannot occasion armed intervention, nor even the actual occupation of the territory of American nations by a European power.1

It may be noted that Drago protests only against the use of armed force in the collection of public debts and not directly against diplomatic interposition. Most of the writers who have discussed the question have failed to note this distinction, possibly because a denial of forcible measures deprives interposition of its most effective sanction.

1 The text of the Drago note will be found in Foreign Relations 1903, 1-5. Dr. Drago has written the following monographs on the doctrine which has been named after him: Cobro coercitivo de deudas publicas, Buenos Aires, 1906; Les emprunts d'Etat et leurs rapports avec la politique internationale, 14 R. G. D. I. P. 251, translated practically in full in his article "State loans in their relation to international policy," in 1 A. J. I. L. (1907), 692-726. Among the best literature in English are two thoughtful articles by George Winfield Scott, “International law and the Drago doctrine" in North American Review, Oct., 1906, 602-610, and "Hague convention restricting the use of force to recover contract claims" in 2 A. J. I. L. (1908), 78–94; an article by Amos S. Hershey, The Calvo and Drago doctrines, in 1 A. J. I. L. (1907), 26-45; and Chapter VIII, vol. 1, pp. 386-422, of James Brown Scott's The Hague Peace conferences of 1899 and 1907, Baltimore, 1909. One of the best books is Moulin's La doctrine de Drago, Paris, 1908, and a useful collection of documents is to be found in S. Perez Triana, La doctrina Drago, Londres, 1908. Alvarez in 3 A. J. I. L. (1909), 335 contests Moulin's view that the Drago doctrine is a necessary complement of the Monroe doctrine. Further references to foreign literature may be found in Bonfils, Manuel (6th ed., 1912), 186, n. 4. See also a recent work by Vivot, A. N., La doctrina Drago, Buenos Aires, 1911.

They therefore consider the protest against the sanction as directed against the whole remedy, although even without the potential use of force it still has some room for application. In expressly stating that he did not intend to make his "doctrine" a defense "for bad faith, disorder, and deliberate and voluntary insolvency," Dr. Drago has, it is believed, set the proper bounds to his principle, although, as will be pointed out, the creditor state is still (except as restrained by the Porter proposition) left the sole judge of the existence of these limiting conditions.

§ 120. Diplomatic Interposition and Intervention. Opinions of Publicists.

Before proceeding further, it may be appropriate to discuss briefly the opinions of publicists and the practice of nations in the matter of intervention to collect public debts, by which is meant diplomatic interposition followed by force. Westlake, as has been observed (supra, p. 283), has properly recognized the distinction in substance and in remedial process between contracts made with the state in its character as a fiscus or business administrator and those arising out of subscription to or transfer of a public bond. He regards honest inability to pay as a title to consideration, and unless the defaulting government presumes to treat its internal and external debts on terms of inequality unfavorable to the latter, he thinks "the assistance of their state ought not to be granted to the bondholders of public loans."

Some of the earlier writers, prominent among them Grotius and Vattel, admitted the legitimacy of reprisals against a sovereign who refused to pay a lawful debt (supra, p. 286). Inability and refusal to pay are not, however, identical. Phillimore and Hall, supporting the views of the British government, contend that a debt contracted by a foreign government toward a citizen constitutes an obligation of which the country of the lender has a right to require and enforce the fulfillment.1 Yet Phillimore approves, as he says, the proposition of Martens that, in the absence of flagrant misconduct, the foreigner can only

1 Phillimore, 3rd ed., II, ch. III, 8 et seq.; Hall, 6th ed., 275-276. See also Pomeroy, Int. law (Woolsey's ed.), Boston, 1886, §§ 213, 214, and Lorimer, Institutes, Edinburgh, 1883, I, 447-448, who would hold a borrowing nation at least to good

claim to be put on the same footing as the native creditor of the state." 1 Rivier, one of the foremost authorities, has in this respect asserted a far-reaching right of intervention under circumstances far more unreasonable than those admitted by other publicists. Unless it may be assumed that the words italicized below presuppose fraud and bad faith, his doctrine will hardly find general support, though it must be admitted that the weaker states have at times found themselves intervened against under circumstances no harsher than those mentioned by Rivier:

"The fortune of individuals, subjects of the state, forms an element of the riches and prosperity of the state itself. It has an interest in the maintenance and increase of that fortune. If it is compromised by the act of a foreign state which administers its finances badly, which betrays the confidence individuals placed in it when they subscribed to loans on conditions that are not observed, and which violates its engagements in regard to them, the state to which the injured individuals belong is evidently authorized to take their interests in hand in any manner which it shall deem suitable; it may proceed either by diplomacy or by reprisals. Individuals have not, as a general rule, the right to require of the state that it shall thus take their cause in hand. The state may refuse to act in their favor for reasons of which it is the sole judge; but if it acts, it only exercises its right. It may see to it, perchance, according to the circumstances, that its subjects are better treated than those of other states, or than those of the insolvent state. This is, from the legal point of view, a matter of absolute indifference." 2

G. F. de Martens sanctions intervention in case of "violent financial operations" of the debtor state depriving creditors of their loans, but he adds that foreign creditors cannot demand better treatment than nationals. Although cited by Phillimore as an advocate of in

1 Phillimore, op. cit., II, 14.

2 Rivier, Alphonse, Principes du droit des gens, Paris, 1896, I, 272. *This was in effect the decision of the Hague Tribunal in the claim of Canevaro (Italy) v. Peru, April 25, 1910, 6 A. J. I. L. (1912), 746, based on the fact that certain bonds of the internal debt of Peru, subsequently reduced in value by the refunding of that debt into consolidated bonds, had by assignment passed into the hands of Italian subjects, who had sustained injury by the reduction of the debt. Although Italy cited numerous authorities in support of its argument that as to aliens a state incurs international responsibility by the reduction of its debt, the Tribunal declined to view the refunding as the reduction of a foreign debt, but considered the transfer of the bonds of an internal debt from nationals to aliens as not conferring greater rights upon aliens than nationals possessed. See an illuminating article by Ch. de Boeck, discussing the Peruvian and Italian contentions, with citations of authorities, in 20 R. G. D. I. P. (1913), 355 et seq., 365, 369.

tervention, opponents may also find support in his ambiguous doctrines.1

The majority of writers consider armed intervention for the mere non-payment of public debts an unjustifiable procedure, upon reasons similar to those advanced by Dr. Drago, namely: that hazardous loans should be discouraged; that those making them have full notice of the risks; that foreigners cannot expect to be preferred to native creditors; that force is never resorted to except against weak states and is often a pretext for aggression or conquest; and, finally, that the loss of credit and standing incurred by the state is an ample and effective penalty for the failure to fulfill its obligations.2 The objections of writers, however, are directed not to diplomatic interposition, but rather to an excess of interposition in the use of armed force to collect unpaid public loans.

The preponderance of authority, however, favors the view that under certain circumstances intervention to secure the payment of public loans is legitimate. Authorities differ merely as to the nature of the circumstances. In general, it may be said that intervention is not warranted in the case of an honest inability of a state to pay its debts, but only when, the means being at hand, the debtor state willfully refuses to pay; or further, when foreign creditors are illegally treated, especially if they are discriminated against in favor of national creditors, or if certain categories of creditors are preferred to others; or when special funds assigned as security to the payment of certain debts are diverted or suppressed;-in short, when bad faith may be considered the moving cause 'G. F. de Martens, Précis du droit des gens, Paris, 1864, I, 298, § 110. See also Phillimore, op. cit., 14, and Pradier-Fodéré, Traité, I, § 405, p. 623, note.

2 These authorities are enumerated and citations to their works given in the second part of footnote 34 of Hershey's article in 1 A. J. I. L. (1907), 37; in the work of Wuarin, op. cit., 155–159, and in the address of Gen. Horace Porter before the Second Hague Conference on July 16, 1907, presenting the American proposition for the limitation of force in the collection of contractual debts. La deuxième Conference internationale de la Paix, II, 229-233. Also printed in English (Hague, 1907). The principal publicists who oppose what may be called financial intervention are F. de Martens, Westlake, Holland, Bonfils, Calvo, Pradier-Fodéré, Rolin-Jacquemyns, Despagnet, von Bar, Liszt, Geffcken, Kebedgy, Nys, Merignhac, Féraud-Giraud, Weiss, Olivecrona and Floecker. Gen. Porter also cited Rivier, but this must have been an oversight. See also Collas, Der Staatsbankerott und seine Abwicklung, Stuttgart, 1904, 51, and Freund, Rechtsverhältnisse, etc., 271.

of the non-payment. In the present condition of international law, in which states, large and small, have no common superior to control or check them, each state has the legal right of deciding for itself whether the conditions warranting intervention exist. In the use of this right, the power of enforcing its demands has often been a factor more controlling than the mere legitimacy or fairness of its action.1

There is, in fact, no definite rule as to diplomatic intervention in the matter of unpaid public loans, except in so far as the convention of the Second Hague Conference for the limitation of the use of force in the collection of contractual debts will operate as a check by requiring under certain conditions a preliminary resort to arbitration.

§ 121. Practice of Nations.

The European powers have on several occasions intervened to secure the payment of public loans due their subjects. Their action has taken various forms. Sometimes it has been merely the use of good offices and an approval of arrangements for financial control made by national bankers or associations of bondholders with the debtor state, as in the case of Turkey (1881) and Servia (1904); an assumption of limited governmental control, as in the case of the United States in the Dominican Republic (1907); or joint intervention of several powers assuming financial control as in the case of Tunis (1868), of Greece 2 (1897), and

2

The decision of the Hague Permanent Court of Arbitration in the Preferential Claims case of Germany, Great Britain and Italy against Venezuela has been considered an approval of the use of force in the collection of claims based on contract or public debt. While it is true that the use of force appears to have been sanctioned by the tribunal by the allowance of preferential treatment to the three blockading powers, it is certain that only a small part of the claims pressed arose out of contractual debts. The primary reason of the blockade was the stubborn reiteration by Venezuela of the exclusive jurisdiction of its national courts and the absolute refusal to arbitrate. Castro's arrogance exhausted the patience and temper of the powers. See article by Basdevant, Jules, L'action coercitive Anglo-Germano-Italienne contre le Venezuela (1902–1903), 11 R. G. D. I. P. (1904), 363–458; Hershey, Amos S., The Venezuelan affair in the light of international law, 51 American Law Register, 249– 267. The Hague decision is criticised by André Mallarmé in an article L'arbitrage vénézuélien in 13 R. G. D. I. P. (1906), 423-500. For the correspondence see Asuntos Internacionales, two volumes of the Yellow Book of Venezuela published in 1903 and extracts printed in the Appendix to Ralston's Report of the Venezuelan Arbitrations. Kebedgy, Michel S., Les difficultés financières de la Grèce et l'intervention des