REPARATION
I. _Undertakings given prior to the Peace Negotiations_
The categories of damage in respect of which the Allies were entitled to
ask for Reparation are governed by the relevant passages in President
Wilson's Fourteen Points of January 8, 1918, as modified by the Allied
Governments in their qualifying Note, the text of which the President
formally communicated to the German Government as the basis of peace on
November 5, 1918. These passages have been quoted in full at the
beginning of Chapter IV. That is to say, "compensation will be made by
Germany for all damage done to the civilian population of the Allies and
to their property by the aggression of Germany by land, by sea, and from
the air." The limiting quality of this sentence is reinforced by the
passage in the President's speech before Congress on February 11, 1918
(the terms of this speech being an express part of the contract with the
enemy), that there shall be "no contributions" and "no punitive
damages."
It has sometimes been argued that the preamble to paragraph 19[76] of
the Armistice Terms, to the effect "that any future claims and demands
of the Allies and the United States of America remain unaffected," wiped
out all precedent conditions, and left the Allies free to make whatever
demands they chose. But it is not possible to maintain that this casual
protective phrase, to which no one at the time attached any particular
importance, did away with all the formal communications which passed
between the President and the German Government as to the basis of the
Terms of Peace during the days preceding the Armistice, abolished the
Fourteen Points, and converted the German acceptance of the Armistice
Terms into unconditional surrender, so far as it affects the Financial
Clauses. It is merely the usual phrase of the draftsman, who, about to
rehearse a list of certain claims, wishes to guard himself from the
implication that such list is exhaustive. In any case, this contention
is disposed of by the Allied reply to the German observations on the
first draft of the Treaty, where it is admitted that the terms of the
Reparation Chapter must be governed by the President's Note of November
5.
Assuming then that the terms of this Note are binding, we are left to
elucidate the precise force of the phrase--"all damage done to the
civilian population of the Allies and to their property by the
aggression of Germany by land, by sea, and from the air." Few sentences
in history have given so much work to the sophists and the lawyers, as
we shall see in the next section of this chapter, as this apparently
simple and unambiguous statement. Some have not scrupled to argue that
it covers the entire cost of the war; for, they point out, the entire
cost of the war has to be met by taxation, and such taxation is
"damaging to the civilian population." They admit that the phrase is
cumbrous, and that it would have been simpler to have said "all loss and
expenditure of whatever description"; and they allow that the apparent
emphasis of damage to the persons and property of _civilians_ is
unfortunate; but errors of draftsmanship should not, in their opinion,
shut off the Allies from the rights inherent in victors.
But there are not only the limitations of the phrase in its natural
meaning and the emphasis on civilian damages as distinct from military
expenditure generally; it must also be remembered that the context of
the term is in elucidation of the meaning of the term "restoration" in
the President's Fourteen Points. The Fourteen Points provide for damage
in invaded territory--Belgium, France, Roumania, Serbia, and Montenegro
(Italy being unaccountably omitted)--but they do not cover losses at sea
by submarine, bombardments from the sea (as at Scarborough), or damage
done by air raids. It was to repair these omissions, which involved
losses to the life and property of civilians not really distinguishable
in kind from those effected in occupied territory, that the Supreme
Council of the Allies in Paris proposed to President Wilson their
qualifications. At that time--the last days of October, 1918--I do not
believe that any responsible statesman had in mind the exaction from
Germany of an indemnity for the general costs of the war. They sought
only to make it clear (a point of considerable importance to Great
Britain) that reparation for damage done to non-combatants and their
property was not limited to invaded territory (as it would have been by
the Fourteen Points unqualified), but applied equally to _all_ such
damage, whether "by land, by sea, or from the air" It was only at a
later stage that a general popular demand for an indemnity, covering
the full costs of the war, made it politically desirable to practise
dishonesty and to try to discover in the written word what was not
there.
What damages, then, can be claimed from the enemy on a strict
interpretation of our engagements?[77] In the case of the United Kingdom
the bill would cover the following items:--
(a) Damage to civilian life and property by the acts of an enemy
Government including damage by air raids, naval bombardments, submarine
warfare, and mines.
(b) Compensation for improper treatment of interned civilians.
It would not include the general costs of the war, or (_e.g._) indirect
damage due to loss of trade.
The French claim would include, as well as items corresponding to the
above:--
(c) Damage done to the property and persons of civilians in the war
area, and by aerial warfare behind the enemy lines.
(d) Compensation for loot of food, raw materials, live-stock, machinery,
household effects, timber, and the like by the enemy Governments or
their nationals in territory occupied by them.
(e) Repayment of fines and requisitions levied by the enemy Governments
or their officers on French municipalities or nationals.
(f) Compensation to French nationals deported or compelled to do forced
labor.
In addition to the above there is a further item of more doubtful
character, namely--
(g) The expenses of the Relief Commission in providing necessary food
and clothing to maintain the civilian French population in the
enemy-occupied districts.
The Belgian claim would include similar items.[78] If it were argued
that in the case of Belgium something more nearly resembling an
indemnity for general war costs can be justified, this could only be on
the ground of the breach of International Law involved in the invasion
of Belgium, whereas, as we have seen, the Fourteen Points include no
special demands on this ground.[79] As the cost of Belgian Belief under
(g), as well as her general war costs, has been met already by advances
from the British, French, and United States Governments, Belgium would
presumably employ any repayment of them by Germany in part discharge of
her debt to these Governments, so that any such demands are, in effect,
an addition to the claims of the three lending Governments.
The claims of the other Allies would be compiled on similar lines. But
in their case the question arises more acutely how far Germany can be
made contingently liable for damage done, not by herself, but by her
co-belligerents, Austria-Hungary, Bulgaria, and Turkey. This is one of
the many questions to which the Fourteen Points give no clear answer; on
the one hand, they cover explicitly in Point 11 damage done to Roumania,
Serbia, and Montenegro, without qualification as to the nationality of
the troops inflicting the damage; on the other hand, the Note of the
Allies speaks of "German" aggression when it might have spoken of the
aggression of "Germany and her allies." On a strict and literal
interpretation, I doubt if claims lie against Germany for damage
done,--_e.g._ by the Turks to the Suez Canal, or by Austrian submarines
in the Adriatic. But it is a case where, if the Allies wished to strain
a point, they could impose contingent liability on Germany without
running seriously contrary to the general intention of their
engagements.
As between the Allies themselves the case is quite different. It would
be an act of gross unfairness and infidelity if France and Great Britain
were to take what Germany could pay and leave Italy and Serbia to get
what they could out of the remains of Austria-Hungary. As amongst the
Allies themselves it is clear that assets should be pooled and shared
out in proportion to aggregate claims.
In this event, and if my estimate is accepted, as given below, that
Germany's capacity to pay will be exhausted by the direct and legitimate
claims which the Allies hold against her, the question of her contingent
liability for her allies becomes academic. Prudent and honorable
statesmanship would therefore have given her the benefit of the doubt,
and claimed against her nothing but the damage she had herself caused.
What, on the above basis of claims, would the aggregate demand amount
to? No figures exist on which to base any scientific or exact estimate,
and I give my own guess for what it is worth, prefacing it with the
following observations.
The amount of the material damage done in the invaded districts has been
the subject of enormous, if natural, exaggeration. A journey through the
devastated areas of France is impressive to the eye and the imagination
beyond description. During the winter of 1918-19, before Nature had
cast over the scene her ameliorating mantle, the horror and desolation
of war was made visible to sight on an extraordinary scale of blasted
grandeur. The completeness of the destruction was evident. For mile
after mile nothing was left. No building was habitable and no field fit
for the plow. The sameness was also striking. One devastated area was
exactly like another--a heap of rubble, a morass of shell-holes, and a
tangle of wire.[80] The amount of human labor which would be required to
restore such a countryside seemed incalculable; and to the returned
traveler any number of milliards of dollars was inadequate to express in
matter the destruction thus impressed upon his spirit. Some Governments
for a variety of intelligible reasons have not been ashamed to exploit
these feelings a little.
Popular sentiment is most at fault, I think, in the case of Belgium. In
any event Belgium is a small country, and in its case the actual area of
devastation is a small proportion of the whole. The first onrush of the
Germans in 1914 did some damage locally; after that the battle-line in
Belgium did not sway backwards and forwards, as in France, over a deep
belt of country. It was practically stationary, and hostilities were
confined to a small corner of the country, much of which in recent times
was backward, poor, and sleepy, and did not include the active industry
of the country. There remains some injury in the small flooded area, the
deliberate damage done by the retreating Germans to buildings, plant,
and transport, and the loot of machinery, cattle, and other movable
property. But Brussels, Antwerp, and even Ostend are substantially
intact, and the great bulk of the land, which is Belgium's chief wealth,
is nearly as well cultivated as before. The traveler by motor can pass
through and from end to end of the devastated area of Belgium almost
before he knows it; whereas the destruction in France is on a different
kind of scale altogether. Industrially, the loot has been serious and
for the moment paralyzing; but the actual money cost of replacing
machinery mounts up slowly, and a few tens of millions would have
covered the value of every machine of every possible description that
Belgium ever possessed. Besides, the cold statistician must not overlook
the fact that the Belgian people possess the instinct of individual
self-protection unusually well developed; and the great mass of German
bank-notes[81] held in the country at the date of the Armistice, shows
that certain classes of them at least found a way, in spite of all the
severities and barbarities of German rule, to profit at the expense of
the invader. Belgian claims against Germany such as I have seen,
amounting to a sum in excess of the total estimated pre-war wealth of
the whole country, are simply irresponsible.[82]
It will help to guide our ideas to quote the official survey of Belgian
wealth, published in 1913 by the Finance Ministry of Belgium, which was
as follows:
Land $1,320,000,000
Buildings 1,175,000,000
Personal wealth 2,725,000,000
Cash 85,000,000
Furniture, etc 600,000,000
--------------
$5,905,000,000
This total yields an average of $780 per inhabitant, which Dr. Stamp,
the highest authority on the subject, is disposed to consider as _prima
facie_ too low (though he does not accept certain much higher estimates
lately current), the corresponding wealth per head (to take Belgium's
immediate neighbors) being $835 for Holland, $1,220 for Germany, and
$1,515 for France.[83] A total of $7,500,000,000, giving an average of
about $1,000 per head, would, however, be fairly liberal. The official
estimate of land and buildings is likely to be more accurate than the
rest. On the other hand, allowance has to be made for the increased
costs of construction.
Having regard to all these considerations, I do not put the money value
of the actual _physical_ loss of Belgian property by destruction and
loot above $750,000,000 _as a maximum_, and while I hesitate to put yet
lower an estimate which differs so widely from those generally current,
I shall be surprised if it proves possible to substantiate claims even
to this amount. Claims in respect of levies, fines, requisitions, and so
forth might possibly amount to a further $500,000,000. If the sums
advanced to Belgium by her allies for the general costs of the war are
to be included, a sum of about $1,250,000,000 has to be added (which
includes the cost of relief), bringing the total to $2,500,000,000.
The destruction in France was on an altogether more significant scale,
not only as regards the length of the battle line, but also on account
of the immensely deeper area of country over which the battle swayed
from time to time. It is a popular delusion to think of Belgium as the
principal victim of the war; it will turn out, I believe, that taking
account of casualties, loss of property and burden of future debt,
Belgium has made the least relative sacrifice of all the belligerents
except the United States. Of the Allies, Serbia's sufferings and loss
have been proportionately the greatest, and after Serbia, France. France
in all essentials was just as much the victim of German ambition as was
Belgium, and France's entry into the war was just as unavoidable.
France, in my judgment, in spite of her policy at the Peace Conference,
a policy largely traceable to her sufferings, has the greatest claims on
our generosity.
The special position occupied by Belgium in the popular mind is due, of
course, to the fact that in 1914 her sacrifice was by far the greatest
of any of the Allies. But after 1914 she played a minor rÙle.
Consequently, by the end of 1918, her relative sacrifices, apart from
those sufferings from invasion which cannot be measured in money, had
fallen behind, and in some respects they were not even as great, for
example, as Australia's. I say this with no wish to evade the
obligations towards Belgium under which the pronouncements of our
responsible statesmen at many different dates have certainly laid us.
Great Britain ought not to seek any payment at all from Germany for
herself until the just claims of Belgium have been fully satisfied. But
this is no reason why we or they should not tell the truth about the
amount.
While the French claims are immensely greater, here too there has been
excessive exaggeration, as responsible French statisticians have
themselves pointed out. Not above 10 per cent of the area of France was
effectively occupied by the enemy, and not above 4 per cent lay within
the area of substantial devastation. Of the sixty French towns having a
population exceeding 35,000, only two were destroyed--Reims (115,178)
and St. Quentin (55,571); three others were occupied--Lille, Roubaix,
and Douai--and suffered from loot of machinery and other property, but
were not substantially injured otherwise. Amiens, Calais, Dunkerque, and
Boulogne suffered secondary damage by bombardment and from the air; but
the value of Calais and Boulogne must have been increased by the new
works of various kinds erected for the use of the British Army.
The _Annuaire Statistique de la France, 1917_, values the entire house
property of France at $11,900,000,000 (59.5 milliard francs).[84] An
estimate current in France of $4,000,000,000 (20 milliard francs) for
the destruction of house property alone is, therefore, obviously wide of
the mark.[85] $600,000,000 at pre-war prices, or say $1,250,000,000 at
the present time, is much nearer the right figure. Estimates of the
value of the land of France (apart from buildings) vary from
$12,400,000,000 to $15,580,000,000, so that it would be extravagant to
put the damage on this head as high as $500,000,000. Farm Capital for
the whole of France has not been put by responsible authorities above
$2,100,000,000.[86] There remain the loss of furniture and machinery,
the damage to the coal-mines and the transport system, and many other
minor items. But these losses, however serious, cannot be reckoned in
value by hundreds of millions of dollars in respect of so small a part
of France. In short, it will be difficult to establish a bill exceeding
$2,500,000,000 for _physical and material_ damage in the occupied and
devastated areas of Northern France.[87] I am confirmed in this estimate
by the opinion of M. RenÈ Pupin, the author of the most comprehensive
and scientific estimate of the pre-war wealth of France,[88] which I did
not come across until after my own figure had been arrived at. This
authority estimates the material losses of the invaded regions at from
$2,000,000,000 to $3,000,000,000 (10 to 15 milliards),[89] between which
my own figure falls half-way.
Nevertheless, M. Dubois, speaking on behalf of the Budget Commission of
the Chamber, has given the figure of $13,000,000,000 (65 milliard
francs) "as a minimum" without counting "war levies, losses at sea, the
roads, or the loss of public monuments." And M. Loucheur, the Minister
of Industrial Reconstruction, stated before the Senate on the 17th
February, 1919, that the reconstitution of the devastated regions would
involve an expenditure of $15,000,000,000 (75 milliard francs),--more
than double M. Pupin's estimate of the entire wealth of their
inhabitants. But then at that time M. Loucheur was taking a prominent
part in advocating the claims of France before the Peace Conference,
and, like others, may have found strict veracity inconsistent with the
demands of patriotism.[90]
The figure discussed so far is not, however, the totality of the French
claims. There remain, in particular, levies and requisitions on the
occupied areas and the losses of the French mercantile marine at sea
from the attacks of German cruisers and submarines. Probably
$1,000,000,000 would be ample to cover all such claims; but to be on the
safe side, we will, somewhat arbitrarily, make an addition to the French
claim of $1,500,000,000 on all heads, bringing it to $4,000,000,000 in
all.
The statements of M. Dubois and M. Loucheur were made in the early
spring of 1919. A speech delivered by M. Klotz before the French Chamber
six months later (Sept. 5, 1919) was less excusable. In this speech the
French Minister of Finance estimated the total French claims for damage
to property (presumably inclusive of losses at sea, etc., but apart from
pensions and allowances) at $26,800,000,000 (134 milliard francs), or
more than six times my estimate. Even if my figure prove erroneous, M.
Klotz's can never have been justified. So grave has been the deception
practised on the French people by their Ministers that when the
inevitable enlightenment comes, as it soon must (both as to their own
claims and as to Germany's capacity to meet them), the repercussions
will strike at more than M. Klotz, and may even involve the order of
Government and Society for which he stands.
British claims on the present basis would be practically limited to
losses by sea--losses of hulls and losses of cargoes. Claims would lie,
of course, for damage to civilian property in air raids and by
bombardment from the sea, but in relation to such figures as we are now
dealing with, the money value involved is insignificant,--$25,000,000
might cover them all, and $50,000,000 would certainly do so.
The British mercantile vessels lost by enemy action, excluding fishing
vessels, numbered 2479, with an aggregate of 7,759,090 tons gross.[91]
There is room for considerable divergence of opinion as to the proper
rate to take for replacement cost; at the figure of $150 per gross ton,
which with the rapid growth of shipbuilding may soon be too high but can
be replaced by any other which better authorities[92] may prefer, the
aggregate claim is $1,150,000,000. To this must be added the loss of
cargoes, the value of which is almost entirely a matter of guesswork. An
estimate of $200 per ton of shipping lost may be as good an
approximation as is possible, that is to say $1,550,000,000, making
$2,700,000,000 altogether.
An addition to this of $150,000,000, to cover air raids, bombardments,
claims of interned civilians, and miscellaneous items of every
description, should be more than sufficient,--making a total claim for
Great Britain of $2,850,000,000. It is surprising, perhaps, that the
money value of Great Britain's claim should be so little short of that
of France and actually in excess of that of Belgium. But, measured
either by pecuniary loss or real loss to the economic power of the
country, the injury to her mercantile marine was enormous.
There remain the claims of Italy, Serbia, and Roumania for damage by
invasion and of these and other countries, as for example Greece,[93]
for losses at sea. I will assume for the present argument that these
claims rank against Germany, even when they were directly caused not by
her but by her allies; but that it is not proposed to enter any such
claims on behalf of Russia.[94] Italy's losses by invasion and at sea
cannot be very heavy, and a figure of from $250,000,000 to $500,000,000
would be fully adequate to cover them. The losses of Serbia, although
from a human point of view her sufferings were the greatest of all,[95]
are not measured _pecuniarily_ by very great figures, on account of her
low economic development. Dr. Stamp (_loc. cit._) quotes an estimate by
the Italian statistician Maroi, which puts the national wealth of Serbia
at $2,400,000,000 or $525 per head,[96] and the greater part of this
would be represented by land which has sustained no permanent
damage.[97] In view of the very inadequate data for guessing at more
than the _general magnitude_ of the legitimate claims of this group of
countries, I prefer to make one guess rather than several and to put the
figure for the whole group at the round sum of $1,250,000,000.
We are finally left with the following--
Belgium $ 2,500,000,000[98]
France 4,000,000,000
Great Britain 2,850,000,000
Other Allies 1,250,000,000
---------------
Total $10,600,000,000
I need not impress on the reader that there is much guesswork in the
above, and the figure for France in particular is likely to be
criticized. But I feel some confidence that the _general magnitude_, as
distinct from the precise figures, is not hopelessly erroneous; and this
may be expressed by the statement that a claim against Germany, based on
the interpretation of the pre-Armistice engagements of the Allied
Powers which is adopted above, would assuredly be found to exceed
$8,000,000,000 and to fall short of $15,000,000,000.
This is the amount of the claim which we were entitled to present to the
enemy. For reasons which will appear more fully later on, I believe that
it would have been a wise and just act to have asked the German
Government at the Peace Negotiations to agree to a sum of
$10,000,000,000 in final settlement, without further examination of
particulars. This would have provided an immediate and certain solution,
and would have required from Germany a sum which, if she were granted
certain indulgences, it might not have proved entirely impossible for
her to pay. This sum should have been divided up amongst the Allies
themselves on a basis of need and general equity.
But the question was not settled on its merits.
II. _The Conference and the Terms of the Treaty_
I do not believe that, at the date of the Armistice, responsible
authorities in the Allied countries expected any indemnity from Germany
beyond the cost of reparation for the direct material damage which had
resulted from the invasion of Allied territory and from the submarine
campaign. At that time there were serious doubts as to whether Germany
intended to accept our terms, which in other respects were inevitably
very severe, and it would have been thought an unstatesmanlike act to
risk a continuance of the war by demanding a money payment which Allied
opinion was not then anticipating and which probably could not be
secured in any case. The French, I think, never quite accepted this
point of view; but it was certainly the British attitude; and in this
atmosphere the pre-Armistice conditions were framed.
A month later the atmosphere had changed completely. We had discovered
how hopeless the German position really was, a discovery which some,
though not all, had anticipated, but which no one had dared reckon on as
a certainty. It was evident that we could have secured unconditional
surrender if we had determined to get it.
But there was another new factor in the situation which was of greater
local importance. The British Prime Minister had perceived that the
conclusion of hostilities might soon bring with it the break-up of the
political _bloc_ upon which he was depending for his personal
ascendency, and that the domestic difficulties which would be attendant
on demobilization, the turn-over of industry from war to peace
conditions, the financial situation, and the general psychological
reactions of men's minds, would provide his enemies with powerful
weapons, if he were to leave them time to mature. The best chance,
therefore, of consolidating his power, which was personal and exercised,
as such, independently of party or principle, to an extent unusual in
British politics, evidently lay in active hostilities before the
prestige of victory had abated, and in an attempt to found on the
emotions of the moment a new basis of power which might outlast the
inevitable reactions of the near future. Within a brief period,
therefore, after the Armistice, the popular victor, at the height of his
influence and his authority, decreed a General Election. It was widely
recognized at the time as an act of political immorality. There were no
grounds of public interest which did not call for a short delay until
the issues of the new age had a little defined themselves and until the
country had something more specific before it on which to declare its
mind and to instruct its new representatives. But the claims of private
ambition determined otherwise.
For a time all went well. But before the campaign was far advanced
Government candidates were finding themselves handicapped by the lack of
an effective cry. The War Cabinet was demanding a further lease of
authority on the ground of having won the war. But partly because the
new issues had not yet defined themselves, partly out of regard for the
delicate balance of a Coalition Party, the Prime Minister's future
policy was the subject of silence or generalities. The campaign seemed,
therefore, to fall a little flat. In the light of subsequent events it
seems improbable that the Coalition Party was ever in real danger. But
party managers are easily "rattled." The Prime Minister's more neurotic
advisers told him that he was not safe from dangerous surprises, and the
Prime Minister lent an ear to them. The party managers demanded more
"ginger." The Prime Minister looked about for some.
On the assumption that the return of the Prime Minister to power was the
primary consideration, the rest followed naturally. At that juncture
there was a clamor from certain quarters that the Government had given
by no means sufficiently clear undertakings that they were not going "to
let the Hun off." Mr. Hughes was evoking a good deal of attention by his
demands for a very large indemnity,[99] and Lord Northcliffe was lending
his powerful aid to the same cause. This pointed the Prime Minister to
a stone for two birds. By himself adopting the policy of Mr. Hughes and
Lord Northcliffe, he could at the same time silence those powerful
critics and provide his party managers with an effective platform cry to
drown the increasing voices of criticism from other quarters.
The progress of the General Election of 1918 affords a sad, dramatic
history of the essential weakness of one who draws his chief inspiration
not from his own true impulses, but from the grosser effluxions of the
atmosphere which momentarily surrounds him. The Prime Minister's natural
instincts, as they so often are, were right and reasonable. He himself
did not believe in hanging the Kaiser or in the wisdom or the
possibility of a great indemnity. On the 22nd of November he and Mr.
Bonar Law issued their Election Manifesto. It contains no allusion of
any kind either to the one or to the other but, speaking, rather, of
Disarmament and the League of Nations, concludes that "our first task
must be to conclude a just and lasting peace, and so to establish the
foundations of a new Europe that occasion for further wars may be for
ever averted." In his speech at Wolverhampton on the eve of the
Dissolution (November 24), there is no word of Reparation or Indemnity.
On the following day at Glasgow, Mr. Bonar Law would promise nothing.
"We are going to the Conference," he said, "as one of a number of
allies, and you cannot expect a member of the Government, whatever he
may think, to state in public before he goes into that Conference, what
line he is going to take in regard to any particular question." But a
few days later at Newcastle (November 29) the Prime Minister was warming
to his work: "When Germany defeated France she made France pay. That is
the principle which she herself has established. There is absolutely no
doubt about the principle, and that is the principle we should proceed
upon--that Germany must pay the costs of the war up to the limit of her
capacity to do so." But he accompanied this statement of principle with
many "words of warning" as to the practical difficulties of the case:
"We have appointed a strong Committee of experts, representing every
shade of opinion, to consider this question very carefully and to advise
us. There is no doubt as to the justice of the demand. She ought to pay,
she must pay as far as she can, but we are not going to allow her to pay
in such a way as to wreck our industries." At this stage the Prime
Minister sought to indicate that he intended great severity, without
raising excessive hopes of actually getting the money, or committing
himself to a particular line of action at the Conference. It was
rumored that a high city authority had committed himself to the opinion
that Germany could certainly pay $100,000,000,000 and that this
authority for his part would not care to discredit a figure of twice
that sum. The Treasury officials, as Mr. Lloyd George indicated, took a
different view. He could, therefore, shelter himself behind the wide
discrepancy between the opinions of his different advisers, and regard
the precise figure of Germany's capacity to pay as an open question in
the treatment of which he must do his best for his country's interests.
As to our engagements under the Fourteen Points he was always silent.
On November 30, Mr. Barnes, a member of the War Cabinet, in which he was
supposed to represent Labor, shouted from a platform, "I am for hanging
the Kaiser."
On December 6, the Prime Minister issued a statement of policy and aims
in which he stated, with significant emphasis on the word _European_,
that "All the European Allies have accepted the principle that the
Central Powers must pay the cost of the war up to the limit of their
capacity."
But it was now little more than a week to Polling Day, and still he had
not said enough to satisfy the appetites of the moment. On December 8,
the _Times_, providing as usual a cloak of ostensible decorum for the
lesser restraint of its associates, declared in a leader entitled
"Making Germany Pay," that "The public mind was still bewildered by the
Prime Minister's various statements." "There is too much suspicion,"
they added, "of influences concerned to let the Germans off lightly,
whereas the only possible motive in determining their capacity to pay
must be the interests of the Allies." "It is the candidate who deals
with the issues of to-day," wrote their Political Correspondent, "who
adopts Mr. Barnes's phrase about 'hanging the Kaiser' and plumps for the
payment of the cost of the war by Germany, who rouses his audience and
strikes the notes to which they are most responsive."
On December 9, at the Queen's Hall, the Prime Minister avoided the
subject. But from now on, the debauchery of thought and speech
progressed hour by hour. The grossest spectacle was provided by Sir Eric
Geddes in the Guildhall at Cambridge. An earlier speech in which, in a
moment of injudicious candor, he had cast doubts on the possibility of
extracting from Germany the whole cost of the war had been the object of
serious suspicion, and he had therefore a reputation to regain. "We will
get out of her all you can squeeze out of a lemon and a bit more," the
penitent shouted, "I will squeeze her until you can hear the pips
squeak"; his policy was to take every bit of property belonging to
Germans in neutral and Allied countries, and all her gold and silver and
her jewels, and the contents of her picture-galleries and libraries, to
sell the proceeds for the Allies' benefit. "I would strip Germany," he
cried, "as she has stripped Belgium."
By December 11 the Prime Minister had capitulated. His Final Manifesto
of Six Points issued on that day to the electorate furnishes a
melancholy comparison with his program of three weeks earlier. I quote
it in full:
"1. Trial of the Kaiser.
2. Punishment of those responsible for atrocities.
3. Fullest Indemnities from Germany.
4. Britain for the British, socially and industrially.
5. Rehabilitation of those broken in the war.
6. A happier country for all."
Here is food for the cynic. To this concoction of greed and sentiment,
prejudice and deception, three weeks of the platform had reduced the
powerful governors of England, who but a little while before had spoken
not ignobly of Disarmament and a League of Nations and of a just and
lasting peace which should establish the foundations of a new Europe.
On the same evening the Prime Minister at Bristol withdrew in effect his
previous reservations and laid down four principles to govern his
Indemnity Policy, of which the chief were: First, we have an absolute
right to demand the whole cost of the war; second, we propose to demand
the whole cost of the war; and third, a Committee appointed by direction
of the Cabinet believe that it can be done.[100] Four days later he went
to the polls.
The Prime Minister never said that he himself believed that Germany
could pay the whole cost of the war. But the program became in the
mouths of his supporters on the hustings a great deal more than
concrete. The ordinary voter was led to believe that Germany could
certainly be made to pay the greater part, if not the whole cost of the
war. Those whose practical and selfish fears for the future the expenses
of the war had aroused, and those whose emotions its horrors had
disordered, were both provided for. A vote for a Coalition candidate
meant the Crucifixion of Anti-Christ and the assumption by Germany of
the British National Debt.
It proved an irresistible combination, and once more Mr. George's
political instinct was not at fault. No candidate could safely denounce
this program, and none did so. The old Liberal Party, having nothing
comparable to offer to the electorate, was swept out of existence.[101]
A new House of Commons came into being, a majority of whose members had
pledged themselves to a great deal more than the Prime Minister's
guarded promises. Shortly after their arrival at Westminster I asked a
Conservative friend, who had known previous Houses, what he thought of
them. "They are a lot of hard-faced men," he said, "who look as if they
had done very well out of the war."
This was the atmosphere in which the Prime Minister left for Paris, and
these the entanglements he had made for himself. He had pledged himself
and his Government to make demands of a helpless enemy inconsistent with
solemn engagements on our part, on the faith of which this enemy had
laid down his arms. There are few episodes in history which posterity
will have less reason to condone,--a war ostensibly waged in defense of
the sanctity of international engagements ending in a definite breach of
one of the most sacred possible of such engagements on the part of
victorious champions of these ideals.[102]
Apart from other aspects of the transaction, I believe that the
campaign for securing out of Germany the general costs of the war was
one of the most serious acts of political unwisdom for which our
statesmen have ever been responsible. To what a different future Europe
might have looked forward if either Mr. Lloyd George or Mr. Wilson had
apprehended that the most serious of the problems which claimed their
attention were not political or territorial but financial and economic,
and that the perils of the future lay not in frontiers or sovereignties
but in food, coal, and transport. Neither of them paid adequate
attention to these problems at any stage of the Conference. But in any
event the atmosphere for the wise and reasonable consideration of them
was hopelessly befogged by the commitments of the British delegation on
the question of Indemnities. The hopes to which the Prime Minister had
given rise not only compelled him to advocate an unjust and unworkable
economic basis to the Treaty with Germany, but set him at variance with
the President, and on the other hand with competing interests to those
of France and Belgium. The clearer it became that but little could be
expected from Germany, the more necessary it was to exercise patriotic
greed and "sacred egotism" and snatch the bone from the juster claims
and greater need of France or the well-founded expectations of Belgium.
Yet the financial problems which were about to exercise Europe could not
be solved by greed. The possibility of _their_ cure lay in magnanimity.
Europe, if she is to survive her troubles, will need so much magnanimity
from America, that she must herself practice it. It is useless for the
Allies, hot from stripping Germany and one another, to turn for help to
the United States to put the States of Europe, including Germany, on to
their feet again. If the General Election of December, 1918, had been
fought on lines of prudent generosity instead of imbecile greed, how
much better the financial prospect of Europe might now be. I still
believe that before the main Conference, or very early in its
proceedings, the representatives of Great Britain should have entered
deeply, with those of the United States, into the economic and financial
situation as a whole, and that the former should have been authorized to
make concrete proposals on the general lines (1) that all inter-allied
indebtedness be canceled outright; (2) that the sum to be paid by
Germany be fixed at $10,000,000,000; (3) that Great Britain renounce all
claim to participation in this sum and that any share to which she
proves entitled be placed at the disposal of the Conference for the
purpose of aiding the finances of the New States about to be
established; (4) that in order to make some basis of credit immediately
available an appropriate proportion of the German obligations
representing the sum to be paid by her should be guaranteed by all
parties to the Treaty; and (5) that the ex-enemy Powers should also be
allowed, with a view to their economic restoration, to issue a moderate
amount of bonds carrying a similar guarantee. Such proposals involved an
appeal to the generosity of the United States. But that was inevitable;
and, in view of her far less financial sacrifices, it was an appeal
which could fairly have been made to her. Such proposals would have been
practicable. There is nothing in them quixotic or Utopian. And they
would have opened up for Europe some prospect of financial stability and
reconstruction.
The further elaboration of these ideas, however, must be left to Chapter
VII., and we must return to Paris. I have described the entanglements
which Mr. Lloyd George took with him. The position of the Finance
Ministers of the other Allies was even worse. We in Great Britain had
not based our financial arrangements on any expectations of an
indemnity. Receipts from such a source would have been more or less in
the nature of a windfall; and, in spite of subsequent developments,
there was an expectation at that time of balancing our budget by normal
methods. But this was not the case with France or Italy. Their peace
budgets made no pretense of balancing and had no prospects of doing so,
without some far-reaching revision of the existing policy. Indeed, the
position was and remains nearly hopeless. These countries were heading
for national bankruptcy. This fact could only be concealed by holding
out the expectation of vast receipts from the enemy. As soon as it was
admitted that it was in fact impossible to make Germany pay the expenses
of both sides, and that the unloading of their liabilities upon the
enemy was not practicable, the position of the Ministers of Finance of
France and Italy became untenable.
Thus a scientific consideration of Germany's capacity to pay was from
the outset out of court. The expectations which the exigencies of
politics had made it necessary to raise were so very remote from the
truth that a slight distortion of figures was no use, and it was
necessary to ignore the facts entirely. The resulting unveracity was
fundamental. On a basis of so much falsehood it became impossible to
erect any constructive financial policy which was workable. For this
reason amongst others, a magnanimous financial policy was essential. The
financial position of France and Italy was so bad that it was impossible
to make them listen to reason on the subject of the German Indemnity,
unless one could at the same time point out to them some alternative
mode of escape from their troubles.[103] The representatives of the
United States were greatly at fault, in my judgment, for having no
constructive proposals whatever to offer to a suffering and distracted
Europe.
It is worth while to point out in passing a further element in the
situation, namely, the opposition which existed between the "crushing"
policy of M. Clemenceau and the financial necessities of M. Klotz.
Clemenceau's aim was to weaken and destroy Germany in every possible
way, and I fancy that he was always a little contemptuous about the
Indemnity; he had no intention of leaving Germany in a position to
practise a vast commercial activity. But he did not trouble his head to
understand either the indemnity or poor M. Klotz's overwhelming
financial difficulties. If it amused the financiers to put into the
Treaty some very large demands, well there was no harm in that; but the
satisfaction of these demands must not be allowed to interfere with the
essential requirements of a Carthaginian Peace. The combination of the
"real" policy of M. Clemenceau on unreal issues, with M. Klotz's policy
of pretense on what were very real issues indeed, introduced into the
Treaty a whole set of incompatible provisions, over and above the
inherent impracticabilities of the Reparation proposals.
I cannot here describe the endless controversy and intrigue between the
Allies themselves, which at last after some months culminated in the
presentation to Germany of the Reparation Chapter in its final form.
There can have been few negotiations in history so contorted, so
miserable, so utterly unsatisfactory to all parties. I doubt if any one
who took much part in that debate can look back on it without shame. I
must be content with an analysis of the elements of the final compromise
which is known to all the world.
The main point to be settled was, of course, that of the items for which
Germany could fairly be asked to make payment. Mr. Lloyd George's
election pledge to the effect that the Allies were _entitled_ to demand
from Germany the entire costs of the war was from the outset clearly
untenable; or rather, to put it more impartially, it was clear that to
persuade the President of the conformity of this demand with our
pro-Armistice engagements was beyond the powers of the most plausible.
The actual compromise finally reached is to be read as follows in the
paragraphs of the Treaty as it has been published to the world.
Article 231 reads: "The Allied and Associated Governments affirm and
Germany accepts the responsibility of Germany and her allies for causing
all the loss and damage to which the Allied and Associated Governments
and their nationals have been subjected as a consequence of the war
imposed upon them by the aggression of Germany and her allies." This is
a well and carefully drafted Article; for the President could read it as
statement of admission on Germany's part of _moral_ responsibility for
bringing about the war, while the Prime Minister could explain it as an
admission of _financial_ liability for the general costs of the war.
Article 232 continues: "The Allied and Associated Governments recognize
that the resources of Germany are not adequate, after taking into
account permanent diminutions of such resources which will result from
other provisions of the present Treaty, to make complete reparation for
all such loss and damage." The President could comfort himself that this
was no more than a statement of undoubted fact, and that to recognize
that Germany _cannot_ pay a certain claim does not imply that she is
_liable_ to pay the claim; but the Prime Minister could point out that
in the context it emphasizes to the reader the assumption of Germany's
theoretic liability asserted in the preceding Article. Article 232
proceeds: "The Allied and Associated Governments, however, require, and
Germany undertakes, that _she will make compensation for all damage done
to the civilian population of the Allied and Associated Powers and to
their property_ during the period of the belligerency of each as an
Allied or Associated Power against Germany _by such aggression by land,
by sea, and from the air_, and in general all damage as defined in Annex
I. hereto."[104] The words italicized being practically a quotation from
the pre-Armistice conditions, satisfied the scruples of the President,
while the addition of the words "and in general all damage as defined in
Annex I. hereto" gave the Prime Minister a chance in Annex I.
So far, however, all this is only a matter of words, of virtuosity in
draftsmanship, which does no one any harm, and which probably seemed
much more important at the time than it ever will again between now and
Judgment Day. For substance we must turn to Annex I.
A great part of Annex I. is in strict conformity with the pre-Armistice
conditions, or, at any rate, does not strain them beyond what is fairly
arguable. Paragraph 1 claims damage done for injury to the persons of
civilians, or, in the case of death, to their dependents, as a direct
consequence of acts of war; Paragraph 2, for acts of cruelty, violence,
or maltreatment on the part of the enemy towards civilian victims;
Paragraph 3, for enemy acts injurious to health or capacity to work or
to honor towards civilians in occupied or invaded territory; Paragraph
8, for forced labor exacted by the enemy from civilians; Paragraph 9,
for damage done to property "with the exception of naval and military
works or materials" as a direct consequence of hostilities; and
Paragraph 10, for fines and levies imposed by the enemy upon the
civilian population. All these demands are just and in conformity with
the Allies' rights.
Paragraph 4, which claims for "damage caused by any kind of maltreatment
of prisoners of war," is more doubtful on the strict letter, but may be
justifiable under the Hague Convention and involves a very small sum.
In Paragraphs 5, 6, and 7, however, an issue of immensely greater
significance is involved. These paragraphs assert a claim for the amount
of the Separation and similar Allowances granted during the war by the
Allied Governments to the families of mobilized persons, and for the
amount of the pensions and compensations in respect of the injury or
death of combatants payable by these Governments now and hereafter.
Financially this adds to the Bill, as we shall see below, a very large
amount, indeed about twice as much again as all the other claims added
together.
The reader will readily apprehend what a plausible case can be made out
for the inclusion of these items of damage, if only on sentimental
grounds. It can be pointed out, first of all, that from the point of
view of general fairness it is monstrous that a woman whose house is
destroyed should be entitled to claim from the enemy whilst a woman
whose husband is killed on the field of battle should not be so
entitled; or that a farmer deprived of his farm should claim but that a
woman deprived of the earning power of her husband should not claim. In
fact the case for including Pensions and Separation Allowances largely
depends on exploiting the rather _arbitrary_ character of the criterion
laid down in the pre-Armistice conditions. Of all the losses caused by
war some bear more heavily on individuals and some are more evenly
distributed over the community as a whole; but by means of compensations
granted by the Government many of the former are in fact converted into
the latter. The most logical criterion for a limited claim, falling
short of the entire costs of the war, would have been in respect of
enemy acts contrary to International engagements or the recognized
practices of warfare. But this also would have been very difficult to
apply and unduly unfavorable to French interests as compared with
Belgium (whose neutrality Germany had guaranteed) and Great Britain (the
chief sufferer from illicit acts of submarines).
In any case the appeals to sentiment and fairness outlined above are
hollow; for it makes no difference to the recipient of a separation
allowance or a pension whether the State which pays them receives
compensation on this or on another head, and a recovery by the State out
of indemnity receipts is just as much in relief of the general taxpayer
as a contribution towards the general costs of the war would have been.
But the main consideration is that it was too late to consider whether
the pre-Armistice conditions were perfectly judicious and logical or to
amend them; the only question at issue was whether these conditions were
not in fact limited to such classes of direct damage to civilians and
their property as are set forth in Paragraphs 1, 2, 3, 8, 9, and 10 of
Annex I. If words have any meaning, or engagements any force, we had no
more right to claim for those war expenses of the State, which arose out
of Pensions and Separation Allowances, than for any other of the general
costs of the war. And who is prepared to argue in detail that we were
entitled to demand the latter?
What had really happened was a compromise between the Prime Minister's
pledge to the British electorate to claim the entire costs of the war
and the pledge to the contrary which the Allies had given to Germany at
the Armistice. The Prime Minister could claim that although he had not
secured the entire costs of the war, he had nevertheless secured an
important contribution towards them, that he had always qualified his
promises by the limiting condition of Germany's capacity to pay, and
that the bill as now presented more than exhausted this capacity as
estimated by the more sober authorities. The President, on the other
hand, had secured a formula, which was not too obvious a breach of
faith, and had avoided a quarrel with his Associates on an issue where
the appeals to sentiment and passion would all have been against him, in
the event of its being made a matter of open popular controversy. In
view of the Prime Minister's election pledges, the President could
hardly hope to get him to abandon them in their entirety without a
struggle in public; and the cry of pensions would have had an
overwhelming popular appeal in all countries. Once more the Prime
Minister had shown himself a political tactician of a high order.
A further point of great difficulty may be readily perceived between the
lines of the Treaty. It fixes no definite sum as representing Germany's
liability. This feature has been the subject of very general
criticism,--that it is equally inconvenient to Germany and to the Allies
themselves that she should not know what she has to pay or they what
they are to receive. The method, apparently contemplated by the Treaty,
of arriving at the final result over a period of many months by an
addition of hundreds of thousands of individual claims for damage to
land, farm buildings, and chickens, is evidently impracticable; and the
reasonable course would have been for both parties to compound for a
round sum without examination of details. If this round sum had been
named in the Treaty, the settlement would have been placed on a more
business-like basis.
But this was impossible for two reasons. Two different kinds of false
statements had been widely promulgated, one as to Germany's capacity to
pay, the other as to the amount of the Allies' just claims in respect of
the devastated areas. The fixing of either of these figures presented a
dilemma. A figure for Germany's prospective capacity to pay, not too
much in excess of the estimates of most candid and well-informed
authorities, would have fallen hopelessly far short of popular
expectations both in England and in France. On the other hand, a
definitive figure for damage done which would not disastrously
disappoint the expectations which had been raised in France and Belgium
might have been incapable of substantiation under challenge,[105] and
open to damaging criticism on the part of the Germans, who were believed
to have been prudent enough to accumulate considerable evidence as to
the extent of their own misdoings.
By far the safest course for the politicians was, therefore, to mention
no figure at all; and from this necessity a great deal of the
complication of the Reparation Chapter essentially springs.
The reader may be interested, however, to have my estimate of the claim
which can in fact be substantiated under Annex I. of the Reparation
Chapter. In the first section of this chapter I have already guessed the
claims other than those for Pensions and Separation Allowances at
$15,000,000,000 (to take the extreme upper limit of my estimate). The
claim for Pensions and Separation Allowances under Annex I. is not to be
based on the _actual_ cost of these compensations to the Governments
concerned, but is to be a computed figure calculated on the basis of the
scales in force in France at the date of the Treaty's coming into
operation. This method avoids the invidious course of valuing an
American or a British life at a higher figure than a French or an
Italian. The French rate for Pensions and Allowances is at an
intermediate rate, not so high as the American or British, but above the
Italian, the Belgian, or the Serbian. The only data required for the
calculation are the actual French rates and the numbers of men mobilized
and of the casualties in each class of the various Allied Armies. None
of these figures are available in detail, but enough is known of the
general level of allowances, of the numbers involved, and of the
casualties suffered to allow of an estimate which may not be _very wide_
of the mark. My guess as to the amount to be added in respect of
Pensions and Allowances is as follows:
British Empire $ 7,000,000,000[106]
France 12,000,000,000[106]
Italy 2,500,000,000
Others (including United States) 3,500,000,000
---------------
Total $ 25,000,000,000
I feel much more confidence in the approximate accuracy of the total
figure[107] than in its division between the different claimants. The
reader will observe that in any case the addition of Pensions and
Allowances enormously increases the aggregate claim, raising it indeed
by nearly double. Adding this figure to the estimate under other heads,
we have a total claim against Germany of $40,000,000,000.[108] I believe
that this figure is fully high enough, and that the actual result may
fall somewhat short of it.[109] In the next section of this chapter the
relation of this figure to Germany's capacity to pay will be examined.
It is only necessary here to remind the reader of certain other
particulars of the Treaty which speak for themselves:
1. Out of the total amount of the claim, whatever it eventually turns
out to be, a sum of $5,000,000,000 must be paid before May 1, 1921. The
possibility of this will be discussed below. But the Treaty itself
provides certain abatements. In the first place, this sum is to include
the expenses of the Armies of Occupation since the Armistice (a large
charge of the order of magnitude of $1,000,000,000 which under another
Article of the Treaty--No. 249--is laid upon Germany).[110] But further,
"such supplies of food and raw materials as may be judged by the
Governments of the Principal Allied and Associated Powers to be
essential to enable Germany to meet her obligations for Reparation may
also, with the approval of the said Governments, be paid for out of the
above sum."[111] This is a qualification of high importance. The clause,
as it is drafted, allows the Finance Ministers of the Allied countries
to hold out to their electorates the hope of substantial payments at an
early date, while at the same time it gives to the Reparation Commission
a discretion, which the force of facts will compel them to exercise, to
give back to Germany what is required for the maintenance of her
economic existence. This discretionary power renders the demand for an
immediate payment of $5,000,000,000 less injurious than it would
otherwise be, but nevertheless it does not render it innocuous. In the
first place, my conclusions in the next section of this chapter indicate
that this sum cannot be found within the period indicated, even if a
large proportion is in practice returned to Germany for the purpose of
enabling her to pay for imports. In the second place, the Reparation
Commission can only exercise its discretionary power effectively by
taking charge of the entire foreign trade of Germany, together with the
foreign exchange arising out of it, which will be quite beyond the
capacity of any such body. If the Reparation Commission makes any
serious attempt to administer the collection of this sum of
$5,000,000,000 and to authorize the return to Germany of a part it, the
trade of Central Europe will be strangled by bureaucratic regulation in
its most inefficient form.
2. In addition to the early payment in cash or kind of a sum of
$5,000,000,000, Germany is required to deliver bearer bonds to a further
amount of $10,000,000,000, or, in the event of the payments in cash or
kind before May 1, 1921, available for Reparation, falling short of
$5,000,000,000 by reason of the permitted deductions, to such further
amount as shall bring the total payments by Germany in cash, kind, and
bearer bonds up to May 1, 1921, to a figure of $15,000,000,000
altogether.[112] These bearer bonds carry interest at 2-1/2 per cent per
annum from 1921 to 1925, and at 5 per cent _plus_ 1 per cent for
amortization thereafter. Assuming, therefore, that Germany is not able
to provide any appreciable surplus towards Reparation before 1921, she
will have to find a sum of $375,000,000 annually from 1921 to 1925, and
$900,000,000 annually thereafter.[113]
3. As soon as the Reparation Commission is satisfied that Germany can do
better than this, 5 per cent bearer bonds are to be issued for a further
$10,000,000,000, the rate of amortization being determined by the
Commission hereafter. This would bring the annual payment to
$1,400,000,000 without allowing anything for the discharge of the
capital of the last $10,000,000,000.
4. Germany's liability, however, is not limited to $25,000,000,000, and
the Reparation Commission is to demand further instalments of bearer
bonds until the total enemy liability under Annex I. has been provided
for. On the basis of my estimate of $40,000,000,000 for the total
liability, which is more likely to be criticized as being too low than
as being too high, the amount of this balance will be $15,000,000,000.
Assuming interest at 5 per cent, this will raise the annual payment to
$2,150,000,000 without allowance for amortization.
5. But even this is not all. There is a further provision of devastating
significance. Bonds representing payments in excess of $15,000,000,000
are not to be issued until the Commission is satisfied that Germany can
meet the interest on them. But this does not mean that interest is
remitted in the meantime. As from May 1, 1921, interest is to be debited
to Germany on such part of her outstanding debt as has not been covered
by payment in cash or kind or by the issue of bonds as above,[114] and
"the rate of interest shall be 5 per cent unless the Commission shall
determine at some future time that circumstances justify a variation of
this rate." That is to say, the capital sum of indebtedness is rolling
up all the time at compound interest. The effect of this provision
towards increasing the burden is, on the assumption that Germany cannot
pay very large sums at first, enormous. At 5 per cent compound interest
a capital sum doubles itself in fifteen years. On the assumption that
Germany cannot pay more than $750,000,000 annually until 1936 (_i.e._ 5
per cent interest on $15,000,000,000) the $25,000,000,000 on which
interest is deferred will have risen to $50,000,000,000, carrying an
annual interest charge of $2,500,000,000. That is to say, even if
Germany pays $750,000,000 annually up to 1936, she will nevertheless owe
us at that date more than half as much again as she does now
($65,000,000,000 as compared with $40,000,000,000). From 1936 onwards
she will have to pay to us $3,250,000,000 annually in order to keep pace
with the interest alone. At the end of any year in which she pays less
than this sum she will owe more than she did at the beginning of it. And
if she is to discharge the capital sum in thirty years from 1930, _i.e._
in forty-eight years from the Armistice, she must pay an additional
$650,000,000 annually, making $3,900,000,000 in all.[115]
It is, in my judgment, as certain as anything can be, for reasons which
I will elaborate in a moment, that Germany cannot pay anything
approaching this sum. Until the Treaty is altered, therefore, Germany
has in effect engaged herself to hand over to the Allies the whole of
her surplus production in perpetuity.
6. This is not less the case because the Reparation Commission has been
given discretionary powers to vary the rate of interest, and to postpone
and even to cancel the capital indebtedness. In the first place, some of
these powers can only be exercised if the Commission or the Governments
represented on it are _unanimous_.[116] But also, which is perhaps more
important, it will be the _duty_ of the Reparation Commission, until
there has been a unanimous and far-reaching change of the policy which
the Treaty represents, to extract from Germany year after year the
maximum sum obtainable. There is a great difference between fixing a
definite sum, which though large is within Germany's capacity to pay and
yet to retain a little for herself, and fixing a sum far beyond her
capacity, which is then to be reduced at the discretion of a foreign
Commission acting with the object of obtaining each year the maximum
which the circumstances of that year permit. The first still leaves her
with some slight incentive for enterprise, energy, and hope. The latter
skins her alive year by year in perpetuity, and however skilfully and
discreetly the operation is performed, with whatever regard for not
killing the patient in the process, it would represent a policy which,
if it were really entertained and deliberately practised, the judgment
of men would soon pronounce to be one of the most outrageous acts of a
cruel victor in civilized history.
There are other functions and powers of high significance which the
Treaty accords to the Reparation Commission. But these will be most
conveniently dealt with in a separate section.
III. _Germany's Capacity to pay_
The forms in which Germany can discharge the sum which she has engaged
herself to pay are three in number--
1. Immediately transferable wealth in the form of gold, ships, and
foreign securities;
2. The value of property in ceded territory, or surrendered under the
Armistice;
3. Annual payments spread over a term of years, partly in cash and
partly in materials such as coal products, potash, and dyes.
There is excluded from the above the actual restitution of property
removed from territory occupied by the enemy, as, for example, Russian
gold, Belgian and French securities, cattle, machinery, and works of
art. In so far as the actual goods taken can be identified and restored,
they must clearly be returned to their rightful owners, and cannot be
brought into the general reparation pool. This is expressly provided for
in Article 238 of the Treaty.
1. _Immediately Transferable Wealth_
(_a_) _Gold_.--After deduction of the gold to be returned to Russia, the
official holding of gold as shown in the Reichsbank's return of the 30th
November, 1918, amounted to $577,089,500. This was a very much larger
amount than had appeared in the Reichsbank's return prior to the
war,[117] and was the result of the vigorous campaign carried on in
Germany during the war for the surrender to the Reichsbank not only of
gold coin but of gold ornaments of every kind. Private hoards doubtless
still exist, but, in view of the great efforts already made, it is
unlikely that either the German Government or the Allies will be able to
unearth them. The return can therefore be taken as probably representing
the maximum amount which the German Government are able to extract from
their people. In addition to gold there was in the Reichsbank a sum of
about $5,000,000 in silver. There must be, however, a further
substantial amount in circulation, for the holdings of the Reichsbank
were as high as $45,500,000 on the 31st December, 1917, and stood at
about $30,000,000 up to the latter part of October, 1918, when the
internal run began on currency of every kind.[118] We may, therefore,
take a total of (say) $625,000,000 for gold and silver together at the
date of the Armistice.
These reserves, however, are no longer intact. During the long period
which elapsed between the Armistice and the Peace it became necessary
for the Allies to facilitate the provisioning of Germany from abroad.
The political condition of Germany at that time and the serious menace
of Spartacism rendered this step necessary in the interests of the
Allies themselves if they desired the continuance in Germany of a stable
Government to treat with. The question of how such provisions were to be
paid for presented, however, the gravest difficulties. A series of
Conferences was held at TrËves, at Spa, at Brussels, and subsequently at
Ch‚teau Villette and Versailles, between representatives of the Allies
and of Germany, with the object of finding some method of payment as
little injurious as possible to the future prospects of Reparation
payments. The German representatives maintained from the outset that the
financial exhaustion of their country was for the time being so complete
that a temporary loan from the Allies was the only possible expedient.
This the Allies could hardly admit at a time when they were preparing
demands for the immediate payment by Germany of immeasurably larger
sums. But, apart from this, the German claim could not be accepted as
strictly accurate so long as their gold was still untapped and their
remaining foreign securities unmarketed. In any case, it was out of the
question to suppose that in the spring of 1919 public opinion in the
Allied countries or in America would have allowed the grant of a
substantial loan to Germany. On the other hand, the Allies were
naturally reluctant to exhaust on the provisioning of Germany the gold
which seemed to afford one of the few obvious and certain sources for
Reparation. Much time was expended in the exploration of all possible
alternatives; but it was evident at last that, even if German exports
and saleable foreign securities had been available to a sufficient
value, they could not be liquidated in time, and that the financial
exhaustion of Germany was so complete that nothing whatever was
immediately available in substantial amounts except the gold in the
Reichsbank. Accordingly a sum exceeding $250,000,000 in all out of the
Reichsbank gold was transferred by Germany to the Allies (chiefly to the
United States, Great Britain, however, also receiving a substantial sum)
during the first six months of 1919 in payment for foodstuffs.
But this was not all. Although Germany agreed, under the first extension
of the Armistice, not to export gold without Allied permission, this
permission could not be always withheld. There were liabilities of the
Reichsbank accruing in the neighboring neutral countries, which could
not be met otherwise than in gold. The failure of the Reichsbank to meet
its liabilities would have caused a depreciation of the exchange so
injurious to Germany's credit as to react on the future prospects of
Reparation. In some cases, therefore, permission to export gold was
accorded to the Reichsbank by the Supreme Economic Council of the
Allies.
The net result of these various measures was to reduce the gold reserve
of the Reichsbank by more than half, the figures falling from
$575,000,000 to $275,000,000 in September, 1919.
It would be _possible_ under the Treaty to take the whole of this latter
sum for Reparation purposes. It amounts, however, as it is, to less
than 4 per cent of the Reichsbank's Note Issue, and the psychological
effect of its total confiscation might be expected (having regard to the
very large volume of mark notes held abroad) to destroy the exchange
value of the mark almost entirely. A sum of $25,000,000, $50,000,000, or
even $100,000,000 might be taken for a special purpose. But we may
assume that the Reparation Commission will judge it imprudent, having
regard to the reaction on their future prospects of securing payment, to
ruin the German currency system altogether, more particularly because
the French and Belgian Governments, being holders of a very large volume
of mark notes formerly circulating in the occupied or ceded territory,
have a great interest in maintaining some exchange value for the mark,
quite apart from Reparation prospects.
It follows, therefore, that no sum worth speaking of can be expected in
the form of gold or silver towards the initial payment of $5,000,000,000
due by 1921.
(_b_) _Shipping_.--Germany has engaged, as we have seen above, to
surrender to the Allies virtually the whole of her merchant shipping. A
considerable part of it, indeed, was already in the hands of the Allies
prior to the conclusion of Peace, either by detention in their ports or
by the provisional transfer of tonnage under the Brussels Agreement in
connection with the supply of foodstuffs.[119] Estimating the tonnage of
German shipping to be taken over under the Treaty at 4,000,000 gross
tons, and the average value per ton at $150 per ton, the total money
value involved is $600,000,000.[120]
(_c_) _Foreign Securities_.--Prior to the census of foreign securities
carried out by the German Government in September, 1916,[121] of which
the exact results have not been made public, no official return of such
investments was ever called for in Germany, and the various unofficial
estimates are confessedly based on insufficient data, such as the
admission of foreign securities to the German Stock Exchanges, the
receipts of the stamp duties, consular reports, etc. The principal
German estimates current before the war are given in the appended
footnote.[122] This shows a general consensus of opinion among German
authorities that their net foreign investments were upwards of
$6,250,000,000. I take this figure as the basis of my calculations,
although I believe it to be an exaggeration; $5,000,000,000 would
probably be a safer figure.
Deductions from this aggregate total have to be made under four heads.
(i.) Investments in Allied countries and in the United States, which
between them constitute a considerable part of the world, have been
sequestrated by Public Trustees, Custodians of Enemy Property, and
similar officials, and are not available for Reparation except in so far
as they show a surplus over various private claims. Under the scheme for
dealing with enemy debts outlined in Chapter IV., the first charge on
these assets is the private claims of Allied against German nationals.
It is unlikely, except in the United States, that there will be any
appreciable surplus for any other purpose.
(ii.) Germany's most important fields of foreign investment before the
war were not, like ours, oversea, but in Russia, Austria-Hungary,
Turkey, Roumania, and Bulgaria. A great part of these has now become
almost valueless, at any rate for the time being; especially those in
Russia and Austria-Hungary. If present market value is to be taken as
the test, none of these investments are now saleable above a nominal
figure. Unless the Allies are prepared to take over these securities
much above their nominal market valuation, and hold them for future
realization, there is no substantial source of funds for immediate
payment in the form of investments in these countries.
(iii.) While Germany was not in a position to realize her foreign
investments during the war to the degree that we were, she did so
nevertheless in the case of certain countries and to the extent that
she was able. Before the United States came into the war, she is
believed to have resold a large part of the pick of her investments in
American securities, although some current estimates of these sales (a
figure of $300,000,000 has been mentioned) are probably exaggerated. But
throughout the war and particularly in its later stages, when her
exchanges were weak and her credit in the neighboring neutral countries
was becoming very low, she was disposing of such securities as Holland,
Switzerland, and Scandinavia would buy or would accept as collateral. It
is reasonably certain that by June, 1919, her investments in these
countries had been reduced to a negligible figure and were far exceeded
by her liabilities in them. Germany has also sold certain overseas
securities, such as Argentine cedulas, for which a market could be
found.
(iv.) It is certain that since the Armistice there has been a great
flight abroad of the foreign securities still remaining in private
hands. This is exceedingly difficult to prevent. German foreign
investments are as a rule in the form of bearer securities and are not
registered. They are easily smuggled abroad across Germany's extensive
land frontiers, and for some months before the conclusion of peace it
was certain that their owners would not be allowed to retain them if the
Allied Governments could discover any method of getting hold of them.
These factors combined to stimulate human ingenuity, and the efforts
both of the Allied and of the German Governments to interfere
effectively with the outflow are believed to have been largely futile.
In face of all these considerations, it will be a miracle if much
remains for Reparation. The countries of the Allies and of the United
States, the countries of Germany's own allies, and the neutral countries
adjacent to Germany exhaust between them almost the whole of the
civilized world; and, as we have seen, we cannot expect much to be
available for Reparation from investments in any of these quarters.
Indeed there remain no countries of importance for investments except
those of South America.
To convert the significance of these deductions into figures involves
much guesswork. I give the reader the best personal estimate I can form
after pondering the matter in the light of the available figures and
other relevant data.
I put the deduction under (i.) at $1,500,000,000, of which $500,000,000
may be ultimately available after meeting private debts, etc.
As regards (ii.)--according to a census taken by the Austrian Ministry
of Finance on the 31st December, 1912, the nominal value of the
Austro-Hungarian securities held by Germans was $986,500,000. Germany's
pre-war investments in Russia outside Government securities have been
estimated at $475,000,000, which is much lower than would be expected,
and in 1906 Sartorius v. Waltershausen estimated her investments in
Russian Government securities at $750,000,000. This gives a total of
$1,225,000,000, which is to some extent borne out by the figure of
$1,000,000,000 given in 1911 by Dr. Ischchanian as a deliberately modest
estimate. A Roumanian estimate, published at the time of that country's
entry in the war, gave the value of Germany's investments in Roumania at
$20,000,000 to $22,000,000, of which $14,000,000 to $16,000,000 were in
Government securities. An association for the defense of French
interests in Turkey, as reported in the _Temps_ (Sept. 8, 1919), has
estimated the total amount of German capital invested in Turkey at about
$295,000,000, of which, according to the latest Report of the Council of
Foreign Bondholders, $162,500,000 was held by German nationals in the
Turkish External Debt. No estimates are available to me of Germany's
investments in Bulgaria. Altogether I venture a deduction of
$2,500,000,000 in respect of this group of countries as a whole.
Resales and the pledging as collateral of securities during the war
under (iii.) I put at $500,000,000 to $750,000,000, comprising
practically all Germany's holding of Scandinavian, Dutch, and Swiss
securities, a part of her South American securities, and a substantial
proportion of her North American securities sold prior to the entry of
the United States into the war.
As to the proper deduction under (iv.) there are naturally no available
figures. For months past the European press has been full of sensational
stories of the expedients adopted. But if we put the value of securities
which have already left Germany or have been safely secreted within
Germany itself beyond discovery by the most inquisitorial and powerful
methods at $500,000,000, we are not likely to overstate it.
These various items lead, therefore, in all to a deduction of a round
figure of about $5,000,000,000, and leave us with an amount of
$1,250,000,000 theoretically still available.[123]
To some readers this figure may seem low, but let them remember that it
purports to represent the remnant of _saleable_ securities upon which
the German Government might be able to lay hands for public purposes. In
my own opinion it is much too high, and considering the problem by a
different method of attack I arrive at a lower figure. For leaving out
of account sequestered Allied securities and investments in Austria,
Russia, etc., what blocks of securities, specified by countries and
enterprises, can Germany possibly still have which could amount to as
much as $1,250,000,000? I cannot answer the question. She has some
Chinese Government securities which have not been sequestered, a few
Japanese perhaps, and a more substantial value of first-class South
American properties. But there are very few enterprises of this class
still in German hands, and even _their_ value is measured by one or two
tens of millions, not by fifties or hundreds. He would be a rash man, in
my judgment, who joined a syndicate to pay $500,000,000 in cash for the
unsequestered remnant of Germany's overseas investments. If the
Reparation Commission is to realize even this lower figure, it is
probable that they will have to nurse, for some years, the assets which
they take over, not attempting their disposal at the present time.
We have, therefore, a figure of from $500,000,000 to $1,250,000,000 as
the maximum contribution from Germany's foreign securities.
Her immediately transferable wealth is composed, then, of--
(_a_) Gold and silver--say $300,000,000.
(_b_) Ships--$600,000,000.
(_c_) Foreign securities--$500,000,000 to $1,250,000,000.
Of the gold and silver, it is not, in fact, practicable to take any
substantial part without consequences to the German currency system
injurious to the interests of the Allies themselves. The contribution
from all these sources together which the Reparation Commission can hope
to secure by May, 1921, may be put, therefore, at from $1,250,000,000 to
$1,750,000,000 _as a maximum_.[124]
2. _Property in ceded Territory or surrendered under the Armistice_
As the Treaty has been drafted Germany will not receive important
credits available towards meeting reparation in respect of her property
in ceded territory.
_Private_ property in most of the ceded territory is utilized towards
discharging private German debts to Allied nationals, and only the
surplus, if any, is available towards Reparation. The value of such
property in Poland and the other new States is payable direct to the
owners.
_Government_ property in Alsace-Lorraine, in territory ceded to Belgium,
and in Germany's former colonies transferred to a Mandatory, is to be
forfeited without credit given. Buildings, forests, and other State
property which belonged to the former Kingdom of Poland are also to be
surrendered without credit. There remain, therefore, Government
properties, other than the above, surrendered to Poland, Government
properties in Schleswig surrendered to Denmark,[125] the value of the
Saar coalfields, the value of certain river craft, etc., to be
surrendered under the Ports, Waterways, and Railways Chapter, and the
value of the German submarine cables transferred under Annex VII. of the
Reparation Chapter.
Whatever the Treaty may say, the Reparation Commission will not secure
any cash payments from Poland. I believe that the Saar coalfields have
been valued at from $75,000,000 to $100,000,000. A round figure of
$150,000,000 for all the above items, excluding any surplus available in
respect of private property, is probably a liberal estimate.
Then remains the value of material surrendered under the Armistice.
Article 250 provides that a credit shall be assessed by the Reparation
Commission for rolling-stock surrendered under the Armistice as well as
for certain other specified items, and generally for any material so
surrendered for which the Reparation Commission think that credit should
be given, "as having non-military value." The rolling-stock (150,000
wagons and 5,000 locomotives) is the only very valuable item. A round
figure of $250,000,000, for all the Armistice surrenders, is probably
again a liberal estimate.
We have, therefore, $400,000,000 to add in respect of this heading to
our figure of $1,250,000,000 to $1,750,000,000 under the previous
heading. This figure differs from the preceding in that it does not
represent cash capable of benefiting the financial situation of the
Allies, but is only a book credit between themselves or between them and
Germany.
The total of $1,650,000,000 to $2,150,000,000 now reached is not,
however, available for Reparation. The _first_ charge upon it, under
Article 251 of the Treaty, is the cost of the Armies of Occupation both
during the Armistice and after the conclusion of Peace. The aggregate of
this figure up to May, 1921, cannot be calculated until the rate of
withdrawal is known which is to reduce the _monthly_ cost from the
figure exceeding $100,000,000, which prevailed during the first part of
1919, to that of $5,000,000, which is to be the normal figure
eventually. I estimate, however, that this aggregate may be about
$1,000,000,000. This leaves us with from $500,000,000 to $1,000,000,000
still in hand.