THE "ARABIC" INCIDENT

A few days after the dispatch of the last American Note concerning the Lusitania incident, on July 21st, 1915, Mr. Lansing asked me to call on him. He then told me that the American Government had come to the end of its resources, and if any further cases occurred of loss of American lives by the torpedoing of merchant ships, war must inevitably result. The United States Government intended to write no more Notes, which had been proved useless, but would request me to undertake further negotiations in person. My action in the Lusitania incident had given proof of my earnest desire to avoid war, and the American Government were confident that I should succeed, even under such difficult conditions in finding some way out of the present impasse.

From this time onwards, Mr. Lansing agreed with me that, as a regular thing, I should be permitted, whatever negotiations were going on, to send cipher dispatches to my Government through the channels of the State Department and the American Embassy in Berlin. It will be remembered that a similar privilege had been granted me at the time of the Lusitania incident.

My sole ground of hope for success lay in one passage of the American Note of July 21st, which read as follows:

"The Government of the United States and the Imperial German Government, contending for the same great object, long stood together in urging the very principles Page 167 on which the Government of the United States now so solemnly insists. They are both contending for the freedom of the seas. The Government of the United States will continue to contend for that freedom from whatever quarter it is violated, without compromise and at any cost. It invites the practical co-operation of the Imperial German Government at this time, when co-operation may accomplish most, and this great common object can be most strikingly and effectively achieved. The Imperial German Government expresses the hope that this object may in some measure be accomplished even before the present war ends. It can be.

"The Government of the United States not only feels obliged to insist upon it, by whomsoever it is violated or ignored, in the protection of its own citizens, but it is also deeply interested in seeing it made practicable between the belligerents themselves. It holds itself ready at any time to act as a common friend who may be privileged to suggest a way."

It seemed possible to reach some sort of agreement on the basis of the above request from America that we should co-operate in endeavoring to restore the freedom of the seas; but there remained the question of finding a formula which should serve as a basis for the settlement of the Lusitania question and prevent any repetition of such incidents.

I was aware that there were two political counter-currents in Berlin: the one party desiring at all costs to prevent war with the United States, the other preferring to risk war for the sake of continuing the submarine campaign. I was clearly bound to co-operate with the first named, as I was convinced that America\'s participation in the war would certainly result in our eventual defeat; this view was, I knew, that Von Jagow, Secretary Page 168 of State for Foreign Affairs, whose opinion on this point was identical with mine. Up to January 31st, 1917, however, I could never ascertain which of these two views was the accepted one in Berlin, although, of course, I always hoped that the party of common sense would eventually prevail, nor was I able to discover what degree of success, if any, Meyer Gerhardt, who had been sent to represent my views to the authorities in Berlin, or Dr. Dernburg, who was working for the same end, had managed to achieve. As will be seen from my account of the subsequent course of events, my information on this point was very insufficient, and I was not even made acquainted with the views of the Berlin Government, on the conduct of the submarine campaign, or on the subsequent peace proposals put forward by the President. I was never informed beforehand as to the real intentions of Berlin, and I cannot understand, even to-day, why I was not told, until after the Arabic incident, that the German submarine commanders had been instructed immediately after the torpedoing of the Lusitania not to attack liners. A knowledge of this fact at the time would have assisted me greatly in my dealings with Washington. I do not intend to assert that in all this there was any deliberate neglect on the part of the Berlin Government but neither, on, the other hand, can I credit the commonly accepted explanation that the technical difficulties of transmitting reports were insuperable. It should have been possible to give me definite information on these matters by any one of the various channels of communication which were available between the Foreign Office and the Embassy at Washington. No other explanation is possible, except that which is to be found in the conflict of the two parties in Germany. The head of the Foreign Office was well aware that my policy in Washington was the same as his own in Berlin, but he Page 169 was frequently unable to send me definite and early information because he, himself, could not tell whether his own views could be accepted and acted upon.

At this time I sent the following report to Berlin:

"Cedarhurst, 28th July, 1915.

"I have on more than one occasion respectfully begged your Excellency to be so good as to wait for my report before deciding whether the last American Lusitania Note is to be answered, and if a reply is to be sent, in what sense it should be drafted. Neither the Government nor public opinion considers such a reply absolutely necessary, so that there is no danger in delay; but I respectfully request that I may be permitted at all events to undertake further negotiations here, verbally and confidentially, even if my instructions have to be sent by letter. Experience has proved that negotiations, if they are to have any prospect of success with the American Government, must be carried on in Washington. Both President Wilson and Mr. Lansing are now prepared to attempt to reach an agreement by this means. In Germany, where the tone of the American Note must have appeared unnecessarily abrupt, this fact is perhaps not realized the explanation of course is that Mr. Wilson was carried away by the popular excitement over the Lusitania incident, and was, thus, compelled to adopt an intransigent attitude, from which he cannot now recede, without making his position impossible here. Then besides the resignation of Mr. Bryan, and that unfortunate telegram of Dr. Dumba\'s, which has become known here has convinced him that we are not in earnest. Finally, he wishes to come to some kind of settlement with us by means of this exchange of Notes, in order that he may then turn his attention to England; and his well-known pride confirms him in the view that only after he Page 170 has concluded his negotiations with us, can he take up the matter with her. It should be clearly understood that Mr. Wilson does not want war with us, nor does he wish to side with England, despite all statements to the contrary in the Press of the Eastern States. This Press, in agreement with other powerful and influential circles is Anglophile to a degree and not altogether averse to a war with Germany; but this view is not shared by Mr. Wilson, or the large majority of the American people.

"The great danger of the present situation is that we may be driven to war, either by the efforts of this Press, or by a new Lusitania incident. What Mr. Wilson wants is to satisfy public opinion here, by the serious tone of the Note sent to us, and at the same time to induce us to make certain concessions and thus carry out his darling project of the freedom of the seas, by finding some middle course between the German and English views. In his last note, the President has certainly modified his views in our favor by his admission that submarine warfare is legitimate, whereas he formerly maintained that it could not be regarded as permissible from the point of view of international law.

"It is not my business, even were I in possession of all the necessary facts, to say whether it would be better policy from our point of view, to reply to this Note, or to leave it unanswered; I can only describe the situation, as it appears to me at the moment. From that point of view the decision must depend very largely on the results which we expect to follow from the submarine campaign. If this campaign is regarded as an end in itself, and we are justified in believing that it can bring about the overthrow of England, it would be wiser to leave the American note unanswered, and carry on with the submarine campaign and turn a deaf ear to neutral protests. If, on the other hand, this campaign is only a means to an end, the Page 171 end being the removal or slackening of the British blockade restrictions, then I beg respectfully to urge that it would be worth our while to make some concessions to President Wilson\'s convictions, in the hope of achieving our object through his co-operation. He is reported by a witness in whom I have complete confidence, to have said: \'If I receive a favorable answer from Germany I will see this thing through with England to the end.\'

"Before this report reaches your Excellency, Wilson\'s Note will have been delivered to the English Government. If this is couched in as peremptory a tone as the one addressed to us, then I urgently recommend that we should endeavor to come to an agreement with the American Government on the basis of the following draft note. I hope that your Excellency will send me an authorization by wireless—it should be sent in duplicate for greater safety\'s sake—to enter into negotiations on this basis; I believe that I can guarantee to find a satisfactory principle to serve as a weapon for Wilson in his attack on England. If we show ourselves ready to help him out of his present difficulties, I am sure he for his part will energetically prosecute against England his design of vindicating the validity of international law. \'It can be,\' said the President himself in his last Note. In these three words may be seen the conviction of Mr. Wilson, that he can impose his will upon England in this matter.

"As I have already reported, I earnestly hope that it will be decided to reply to the American note; and a reply should, to my mind, deal with these three points:

"(1) Settlement of the Lusitania incident. In this connection it would be well to state that from the point of view of reprisals we were entirely justified in attacking the Lusitania. In so doing, however, we had no intention of taking American lives, and deeply regret that through a combination of unfortunate circumstances this has Page 172 actually occurred. If any distress still exists among the survivors of the disaster, we should be quite prepared to leave the amount of financial compensation to be decided by a later agreement.

"(2) We propose in the future course of the submarine campaign to abide by the practice recently adopted. As things stand at present, the arrangement is that no liner is to be torpedoed without warning.

"(3) We should be prepared to support to the utmost of our power the efforts of President Wilson, to insist on the observation of the dictates of international law during the present conflict, and leave it to his discretion to enter into conversations to this end with the British Government. The Declaration of London might serve as a basis for these conversations, more especially as it was drawn up at the time by the American Government.

"If we act in accordance with these my respectful recommendations, the breakdown of the negotiations with England is the worst that can happen; and then it would be clear for all the world to see that our enemies were to blame for this breakdown, and Mr. Wilson would come over to our side. Knowing the President as I do, I have not the slightest doubt of this."

I gather from the account in Karl Helfferich\'s "World War," Vol. II., p. 322, that the Secretary of the Treasury in Berlin was in favor of this policy, which I held to be the only possible one. When he stated, as before mentioned, that his proposal had found no support from the Foreign Office, I was much astonished.

I was instructed to commence negotiations verbally and confidentially with Mr. Lansing on these lines, and was convinced myself that these would lead to nothing, so long as we persisted in carrying on our submarine campaign on the old lines. Policy should be based on what is Page 173 possible; now it was not really possible to unite these two contradictory methods, and to come to an understanding with the United States over the freedom of the seas, and at the same time to bring her to agree to the continuation of submarine warfare on the existing lines. We were bound to decide once for all on the one policy or the other. I supposed that Berlin had decided for the former course of action, as I knew that our submarine commanders had lately been ordered to arrange for the rescue of noncombatants before torpedoing merchantmen, and I was confirmed in my supposition by the very fact that I had been authorized to open conversations with Mr. Lansing.

Scarcely had these conversations begun, when on August 19th the passenger steamer Arabic was sunk, and again some American lives were lost. Excitement at once attained a high pitch, and once more we seemed to be on the brink of war.

On August 20th I dispatched by one of my usual routes the following wire (written for reasons of safety in French) to the Foreign Office:

"I fear I cannot prevent rupture this time if our answer in Arabic matter is not conciliatory; I advise dispatch of instructions to me at once to negotiate whole question. Situation may thus perhaps be saved."

At the same time, without writing for instructions, I explained both officially and also through the Press that on our side the United States would be given full compensation, if the commander of the Arabic should be found to have been treacherously dealt with. It was my first preoccupation to calm the public excitement before it overflowed all bounds; and I succeeded in so calming it. The action I thus took on my own responsibility turned out later to have been well advised, as, although Page 174 I did not know this at the time, the submarine commander\'s instructions had, in fact, been altered as a result of the disaster to the Lusitania.

On the 24th of August, in accordance with instructions from Berlin, I wrote to Mr. Lansing the following letter, which was immediately published:

"I have received instructions from my Government to address to you the following observations: Up to the present no reliable information has been received as to the circumstances of the torpedoing of the Arabic. The Imperial Government, therefore, trusts that the Government of the United States will refrain from taking any decided steps, so long as it only has before it one-sided reports which my Government believe do not in any way correspond to the facts. The Imperial Government hopes that it may be allowed an opportunity of being heard. It has no desire to call in question the good faith of those eyewitnesses whose stories have been published by the European Press, but it considers that account should be taken of the state of emotion, under the influence of which, this evidence was given, and which might well give rise to false impressions. If American subjects have really lost their lives by the torpedoing of this ship, it was entirely contrary to the intentions of my Government, which has authorized me to express to the Government of the United States their deepest regrets, and their most heartfelt sympathy."

Fortunately, as already mentioned, orders had been given before the torpedoing of the Arabic, to all submarine commanders that no liner should be sunk before preliminary warning had been given, and the non-combatants had been placed in safety, unless any ships tried to escape or offered resistance. At the end of August I Page 175 received an official statement to this effect, intended for my use in the negotiations over the Lusitania question. This statement caused the first hitch in these negotiations. The American Government regarded the term "liner" as comprising every steamer plying on recognized routes as distinguished from the so-called "tramp steamer." The German Naval authorities, on the other hand, averred that their reservation only applied to the large ships of the regular passenger services. However, this divergence of opinion only became important at a later date, and was not for the moment an obstacle to our proceedings.

On the other hand, it was certainly unfortunate for us that up to the 31st January, 1917, neither of the two contending parties in Berlin were able to gain complete control in the matter of policy. I, myself, was never in favor of the submarine campaign, because I was convinced that it could not fulfil its avowed object, and would probably involve us in hostilities with the United States; but bad as this policy was, it would have been better to follow it consistently than to halt between two opinions.

The submarine campaign was in the end gradually and unwillingly sacrificed, owing to our desire to placate the United States. If we had made a clean sweep of it, once and for all, after the Lusitania incident, or, at any rate, after the sinking of the Arabic, as we actually did after the torpedoing of the Sussex, considerable advantages would have been gained from the diplomatic point of view. To my mind, there was now only one thing to be done—to abandon our pretensions that the submarine campaign was being conducted in accordance with the recognized principles of cruiser warfare, laid down by international law, and to offer compensation for the loss of the Lusitania and the Arabic. Having done this, we could then proceed to recall to the American Government Page 176 their oft-expressed original view of the freedom of the seas. As a matter of fact, immediately after the settlement of the Arabic incident, Mr. Lansing sent a peremptory Note to England. But the prospect of any favorable result for ourselves from this exchange of Notes was never fulfilled, as our methods of war at sea always resulted in fresh incidents and fresh conflicts. There was, of course, a second possibility: that is, while persisting in the submarine campaign to recognize that it was inevitably bound to lead to friction with America, and to discount all the ensuing consequences.

Neither of these two courses was consistently followed in our policy. We were for ever trying to square the circle, and to conduct a submarine campaign which should be from a military point of view effective, without at the same time leading to a breach with America. The order that "liners" should not be torpedoed under any circumstances was regarded simply as a piece of red tape, and not applicable to war conditions, as the submarine was not in a position to distinguish through its periscope between "liners" and other craft. We thus contrived at one and the same time to cripple our submarines, and yet to fail to give satisfaction to America. Probably the German Government did not venture in face of public opinion in the country to desist altogether from the use of submarines.

It has been said that "the freedom of the seas" was an unattainable ideal, a mere phrase, a red herring drawn across our track; but it was in reality none of these things. America attached to this phrase a definite and concrete meaning; namely, the abolition of the law of capture at sea, and I am convinced that after the World War America will yet fall out with England over this question, and will not rest till she has achieved her object. Certainly the original sin of the United States against Page 177 the spirit of neutrality lay in the fact that she suffered the violation of her admitted rights by England\'s interference with the reciprocal trade of the neutral States. Messrs. Wilson and House often talked with me about this matter of the law of capture at sea. It would be a complete misconception of American policy to deny that in this phrase, "the freedom of the seas," one of their dearest desires found expression.

When I informed Mr. Lansing confidentially at the end of August of the latest instructions to our submarine commanders, he was much gratified, but explained at once that the fact of its being confidential would deprive the information of all its value; something must, at all costs, be done to reassure public opinion. I could not but admit that the view of the Secretary of State was correct in this respect. The factor of public opinion obviously appeared of less importance in Berlin than in Washington; besides, I knew from experience that no secret could be kept in Washington for long, and that in a few days this, our first sign of yielding, would be common knowledge. I thought it best, therefore, to get the full diplomatic advantage from the new situation, and took it upon myself, on September 1st, to publish my instructions. This exercise of initiative got me a reprimand from Berlin, but I attained my object none the less, in that I avoided any immediate danger of war.

Concerning these negotiations the following correspondence took place with Berlin:

(1) Cipher

"Cedarhurst, August 30th, 1915.

"I have tried to wire reports to your Excellency by the route placed at our disposal, and inform you as to the progress of the negotiations between myself and Mr. Lansing over the Arabic incident. In consequence of the Page 178 instructions given to me and the information given by your Excellency to the Associated Press in Berlin, the general situation here has taken a turn for the better. The prospect of war is becoming more remote; there are signs of returning confidence on the Stock Exchange, and I have even succeeded in inducing the Press to see things in a more reasonable light.

"Thus up to the present, everything seems to be going well, and a rupture of diplomatic relations appears once more to be indefinitely postponed. None the less, our difficulties are really much greater than at the time of the Lusitania incident. The American Government\'s intentions are undoubtedly peaceful, and the case of the Arabic, involving as it did the loss of only two American lives, may be said to be in itself comparatively unimportant. There are other factors, however, to be considered. Both the Government and the people are beginning to have shrewd suspicions, which for reasons of policy they refrain from expressing at present, that we cheated the United States in the matter of the Lusitania, that we spun out the discussion as long as possible, and then replied to President Wilson\'s last and most peremptory Note, by torpedoing the Arabic. I am convinced that Mr. Lansing, who is an able lawyer, and as a result of his American training alive to every possible move of an opponent, expects us to follow the same policy over the matter of the Arabic. He has thus no great confidence in our good faith, though the President, I am told, is more optimistic, his friend House having informed him that his policy of the \'freedom of the seas\' commands general assent in Berlin. The facts of the situation, then, are that the President will not permit any procrastination in the negotiations over the Arabic affair, for should no more satisfactory conclusion be reached now than was the case after the Lusitania incident, Wilson would Page 179 forfeit the respect of his countrymen, and would have no other resource but to forego his cherished design with what face he might, or else break off diplomatic relations with Germany. There can be no doubt in the minds of any who are well versed in American affairs that he would elect for the latter course. The Spanish-American War arose out of just such a situation.

"The following conclusions result from the above: I gather from the Berlin reports of the Associated Press that your Excellency has decided to settle the present dispute with the United States on the lines which I have respectfully suggested to you. If this be so I urge the utmost expedition in the matter, that confidence here may be restored, and the way opened for negotiations with England. It is not so much a matter of making apologies or giving explanations, but rather of making a full statement to this Government as to the instructions given to our submarine commanders. If we can prove by this means that after the Lusitania incident, orders had been given to attack no passenger ships while negotiations with the United States were going on, or to do so only under certain conditions, all outstanding questions could be solved without difficulty."

(2) Cipher Dispatch

"Berlin, September 10th, 1915.

"Daily Telegraph of September 2nd publishes what purports to be extract from your aforesaid letter to Mr. Lansing, informing him of instructions issued to submarine commanders. Extract ends as follows:

"\'I have no objection to your making any use you please of the above information.\'

"If Daily Telegraph has reproduced your letter correctly, Page 180 above statement is contrary to instructions, which authorized you only to give information confidentially to American Government. Premature publication in American Press places us in difficult position here, especially as no official report of actual contents of your communication to Mr. Lansing has reached us. I beg that you will kindly furnish an explanation.

(Signed) Jagow."

(3) Cipher Report

"Cedarhurst, October 2nd, 1915.

"Reference your wire No. A 129 of September 10th, I ask your Excellency to be kind enough to pardon me for having taken upon myself to act on my own responsibility over the submarine question. The position at the end of August rendered some action to pacify public opinion imperative, if a breach were to be avoided. Owing to the difficulties of communication with Berlin I could do nothing but acquaint Mr. Lansing with a portion of my instructions concerning the case of the Lusitania—the only ones which had then reached me. I at once reported my action to your Excellency in my wireless message, No. 179, and in a previous telegram, No. 165, and requested approval of my action; probably these messages have been delayed in transit, or have not reached Berlin. In further explanation, I may add that in this country, confidential matter, in the European sense, does not exist, and such matter can never be kept a secret from the Press. Sometimes I have been able to come to an agreement with the Government over the wording of their communiqués to the Press; that is one of the great advantages of conducting the negotiations on the spot. Had the whole American Press entirely refused to accept Page 181 our official explanations, nothing further could have been done with the Government."

While my negotiations with Mr. Lansing in Washington for a simultaneous settlement of the Arabic and Lusitania questions were still in progress, a memorandum was handed to Mr. Gerard, the American Ambassador in Berlin which purported to justify the action of the offending submarine commanders. Thus the situation once more became acute. The contents of this document were as follows:

"On August 19th a German submarine held up the English steamer Dunele about sixty miles south of Kinsale, and having ordered the crew to leave the ship, were about to sink it by gun-fire when the commander observed a large steamer heading directly towards him. This latter, which afterwards proved to be the Arabic, bore no ensign, or other marks of neutrality, and was thus obviously an enemy. Approaching nearer, she altered her original course, and again made directly for the submarine thus leading the commander of the latter to suppose that she was about to attack and ram him. In order to parry this attack, the submarine dived and fired a torpedo which struck the ship. The submarine commander observed that those on board got away in fifteen boats.

"According to his instructions, the German commander was authorized to attack the Arabic without warning, and without allowing time for the rescue of her crew, in case of an attempt at flight or resistance. The action of the Arabic undoubtedly gave him good grounds for supposing that an attack on him was intended. He was the more inclined to this belief, by the fact that a few days before, on the 14th, he had been fired at from long range Page 182 by a large passenger steamer, apparently belonging to the British Royal Mail Steam Packet Company, which he saw in the Irish Sea, but which he had made no attempt to attack or hold up.

"The German Government deeply regrets that loss of life should have resulted from the action of this officer, and it desires that these sentiments should be conveyed more particularly to the Government of the United States, as American citizens were among the missing. No obligation to make compensation for the damage done can, however, be admitted, even on the hypothesis that the submarine commander mistook the intentions of the Arabic. In the event of an insoluble difference arising on this point between the German and American Governments, the German Government suggests that the matter in dispute should be referred to the Hague Tribunal as a question of international law, in accordance with Article 38 of the Hague convention for the peaceful solution of differences between nations; but it can do so only with this reservation, that the arbitrator\'s award shall not have the validity of a general decision as to the international legality or otherwise of the German submarine warfare."

The following three reports or telegrams dispatched by me to the Imperial Chancellor describe the situation in Washington at this juncture:

(1) Cipher

"Washington, September 14th, 1915.

"Lansing has given me permission to wire you by this route, without the messages being seen by him; he will also forward your Excellency\'s reply, and from this it appears to be the Government\'s view, that any further exchange of Notes, the subsequent publication of which, Page 183 in both countries, would merely involve further misunderstandings, is bound to lead to a breach. It considers the present system of confidential negotiations with me as the only promising method of arriving at an agreement. The memorandum on the Arabic is not understood here, and in so far as it is understood, is considered to be a manifestation of German bad faith—a sign that we may perhaps give way in principle, but will always in practice seek to evade our obligations thus incurred.

"Lest this telegram should, by its length, give offence to the British, Mr. Lansing is forwarding the evidence in the Arabic case to Mr. Gerard for transmission to your Excellency; he is himself quite convinced that the submarine commander was not compelled in self-defense to torpedo the Arabic, and that his action in so doing was therefore unjustified. He hopes that your Excellency will after study of the evidence, agree with him in this.

"To obtain full and complete agreement it is first of all necessary that I should be empowered to publish in full those instructions given to our submarine commanders in so far as these were not given in my previous summaries on the matter. If we still consider ourselves bound to maintain that the officer concerned in the Arabic case was only obeying orders, we can never hope to come to an agreement, for no one can possibly feel any confidence in the sincerity of our intentions. In the meantime I shall try to reach a settlement on the matters now in dispute by means of arbitration. Finally, the question of compensation must, in accordance with my instructions for the Lusitania case, be referred to the Hague Tribunal.

"I am quite certain that if we fail to reach an agreement, severance of diplomatic relations cannot but follow.

"Lansing will not reply to the Arabic memorandum, and, as I said before, will conduct the diplomatic exchanges on this matter only through me. He considers Page 184 this as the only possible course on the ground that Wilson and I are alike committed to the policy of \'the freedom of the seas.\'

"Finally, I may observe that everyone here would be much gratified if we could see our way to extend the scope of our latest instructions to our submarines so as to include all merchant shipping. It is argued that these vessels are slow moving and could easily be warned; the advantage of acting without warning is only of importance in the case of swift passenger ships, which we have, none the less, undertaken not to attack without notice. The suggested proposal, therefore, could not harm us; it would, on the other hand, make us very popular here and give the United States a very strong position in her negotiations with England. Of course, I may be able to effect an agreement without this. The main point in dispute is the verdict on the action of the commander in the Arabic case, because this involves the whole question of our good faith. Anyway, there is no doubt whatever that a second Arabic case is bound to result in war."

(2) Cipher Telegram

"Cedarhurst, September 22nd, 1915.

"As position is still very difficult, I am carrying on conversations in strict confidence through personal friend of Wilson\'s. Request, therefore, that no directions be sent as regards question of responsibility for Arabic incident, till your Excellency hears again from me. Lansing at present gone on leave. Personally I do not believe that I shall manage to secure International Commission of Inquiry. According to present view, main point of dispute is question of disavowing action of submarine commander. I hope, however, that after reviewing American evidence, your Excellency will be able to find formula for Page 185 such disavowal, agreeable to both Governments, especially if I can get concurrence of Wilson before press gets hold of it. Request, therefore, that American correspondents in Germany be told nothing more than that American evidence being carefully gone into in Berlin."

(3) Cipher Report

"Cedarhurst, September 28th, 1915.

"The negotiations about the submarine campaign are at a standstill at present. From the fact that Lansing has not been recalled from leave and that President Wilson does not seem over-eager to give an opinion on the proposals which I have put forward for his consideration, I consider myself justified in concluding that the Americans do not consider the situation to be any longer critical. Even the Press is no longer agitated, as in all recent cases of attack by German submarines. Their commanders have acted quite in accordance with our assurances. Under these circumstances Mr. Wilson may possibly fall in with our proposal that the particular case of the Arabic should be dealt with by an International Commission of Inquiry. In any case, some means must be found of finishing once for all with the Arabic and Lusitania incidents; only then shall we be in a position to see whether President Wilson will keep his word, and take energetic measures vis à vis England.

"The Anglo-French Loan Commission, assisted by their agency, the Morgan group, are working at high pressure. Stories of Allied victories in Europe are sedulously spread abroad in order to enlist the support of public opinion. Despite these efforts the commission found Chicago so invincibly hostile that they were compelled to proceed there in person, but they will probably, in any case, manage to raise a loan, as the Morgan group Page 186 are quite strong enough for the purpose. The rate of interest they are demanding is very high, as up till now they have financed all English purchases here. By these means, they are, no doubt, making considerable profits, but in order to secure them, they will, of course consolidate their floating debt and unload it on to the public. The only question is to what extent they will be able to do this. Opinion varies as to the size of England\'s present debt; a prominent banker here, in close touch with the Morgan group, estimated the total to 500,000,000 dollars; if this estimate is correct, a loan of 500,000,000 dollars would only just cover the liabilities hitherto existing.

"The Morgan group certainly had to make two great concessions: first, that the proceeds of the new loan shall not be employed for the purchase of munitions, and second, that Russia shall be excluded from the loan; only by these means could they overcome the opposition of the German-Americans and the Jews. Our Jewish friends here are in no easy position. Their action, or rather inaction, takes the form of what is commonly known as \'egg-dancing,\' or \'pussyfooting\'; they wish to stand well with all sides, but have not the courage of their convictions, and are very anxious to make money. All this is very easily understood, when one remembers the ambiguous position of these gentlemen. A regular devil\'s dance around the \'Golden calf\' is now going on here. All the European Governments are coming to buy in the American market, and usually paying double for their goods, as they only purchase what they urgently need. One lesson we may learn for future reference from the present state of affairs, and that is that we must not allow ourselves again to be left to the tender mercies of the German-Jew bankers here. After the war, we must have branches of our large banks in New York just as we Page 187 have in London. All evidence goes to show that New York will then be the center of world-finance, and we should, therefore, take all steps to act on this assumption as soon as possible."

The Foreign Office in Berlin, who naturally wished to avoid a rupture with the United States, accordingly dispatched to me the following telegraphic instructions:

"We have no doubt that in this instance submarine commander believed Arabic intended to ram and had every reason for such belief. However, German Government prepared to give credence to sworn evidence of English officers of Arabic and agree that in reality no such intention existed.

"Attack of submarine thus was unfortunately not in accordance with instructions; communication to this effect will be made to commander. German Government is for sake of final settlement by friendly agreement prepared without admission of responsibility from point of view of international law, to give indemnification for death of American citizens. Your Excellency is empowered to notify American Government of above, and to negotiate with them in case of acceptance concerning amount of compensation, subject to our concurrence. Confidently expect that incident will thus be finally liquidated, as above is limit of possible concessions."

"The American Government during verbal negotiations with me on this matter considered it essential that a phrase expressing Germany\'s disapproval of the commander\'s action should be incorporated in the explanation which I proposed to publish. I was not sure whether I was really authorized by the above instructions to comply with this condition, but in view of the fact that it was the only hope of avoiding a breach and further Page 188 delay in the negotiations would profit us nothing, as we were bound to make some sort of reply to the American demand within a certain definite time, I acted once more on my own responsibility and gave the following explanation to Mr. Lansing:

"The Government of his Majesty the Kaiser, in its orders with which I previously made you acquainted, has so framed its instructions to its submarine commanders as to avoid any repetition of incidents such as that of the Arabic. According to the report of the officer who sank the Arabic and his sworn evidence, together with that of his crew, this commander believed that the Arabic intended to ram the submarine. On the other hand, the Imperial Government does not desire to call in question the good faith of the English officers of the Arabic, who have given evidence on oath that the Arabic had no intention of ramming. The action of the submarine was therefore contrary to orders, and the Imperial Government both disapproves of it and regrets it. A communication to this effect has been made to the officer in question. Under these circumstances my Government is prepared to give compensation for the lives of American subjects drowned, to their great regret, in the Arabic. I am ............