Treaty prior to May, 1921 (for which I have not as yet made any
allowance), the Allies have held out the hope that they will allow
Germany to receive back such sums for the purchase of necessary food and
raw materials as the former deem it essential for her to have. It is not
possible at the present time to form an accurate judgment either as to
the money-value of the goods which Germany will require to purchase from
abroad in order to re-establish her economic life, or as to the degree
of liberality with which the Allies will exercise their discretion. If
her stocks of raw materials and food were to be restored to anything
approaching their normal level by May, 1921, Germany would probably
require foreign purchasing power of from $500,000,000 to $1,000,000,000
at least, in addition to the value of her current exports. While this is
not likely to be permitted, I venture to assert as a matter beyond
reasonable dispute that the social and economic condition of Germany
cannot possibly permit a surplus of exports over imports during the
period prior to May, 1921, and that the value of any payments in kind
with which she may be able to furnish the Allies under the Treaty in the
form of coal, dyes, timber, or other materials will have to be returned
to her to enable her to pay for imports essential to her existence.[126]
The Reparation Commission can, therefore, expect no addition from other
sources to the sum of from $500,000,000 to $1,000,000,000 with which we
have hypothetically credited it after the realization of Germany's
immediately transferable wealth, the calculation of the credits due to
Germany under the Treaty, and the discharge of the cost of the Armies of
Occupation. As Belgium has secured a private agreement with France, the
United States, and Great Britain, outside the Treaty, by which she is to
receive, towards satisfaction of her claims, the _first_ $500,000,000
available for Reparation, the upshot of the whole matter is that Belgium
may _possibly_ get her $500,000,000 by May, 1921, but none of the other
Allies are likely to secure by that date any contribution worth speaking
of. At any rate, it would be very imprudent for Finance Ministers to lay
their plans on any other hypothesis.
3. _Annual Payments spread over a Term of Years_
It is evident that Germany's pre-war capacity to pay an annual foreign
tribute has not been unaffected by the almost total loss of her
colonies, her overseas connections, her mercantile marine, and her
foreign properties, by the cession of ten per cent of her territory and
population, of one-third of her coal and of three-quarters of her iron
ore, by two million casualties amongst men in the prime of life, by the
starvation of her people for four years, by the burden of a vast war
debt, by the depreciation of her currency to less than one-seventh its
former value, by the disruption of her allies and their territories, by
Revolution at home and Bolshevism on her borders, and by all the
unmeasured ruin in strength and hope of four years of all-swallowing war
and final defeat.
All this, one would have supposed, is evident. Yet most estimates of a
great indemnity from Germany depend on the assumption that she is in a
position to conduct in the future a vastly greater trade than ever she
has had in the past.
For the purpose of arriving at a figure it is of no great consequence
whether payment takes the form of cash (or rather of foreign exchange)
or is partly effected in kind (coal, dyes, timber, etc.), as
contemplated by the Treaty. In any event, it is only by the export of
specific commodities that Germany can pay, and the method of turning the
value of these exports to account for Reparation purposes is,
comparatively, a matter of detail.
We shall lose ourselves in mere hypothesis unless we return in some
degree to first principles, and, whenever we can, to such statistics as
there are. It is certain that an annual payment can only be made by
Germany over a series of years by diminishing her imports and increasing
her exports, thus enlarging the balance in her favor which is available
for effecting payments abroad. Germany can pay in the long-run in goods,
and in goods only, whether these goods are furnished direct to the
Allies, or whether they are sold to neutrals and the neutral credits so
arising are then made over to the Allies. The most solid basis for
estimating the extent to which this process can be carried is to be
found, therefore, in an analysis of her trade returns before the war.
Only on the basis of such an analysis, supplemented by some general data
as to the aggregate wealth-producing capacity of the country, can a
rational guess be made as to the maximum degree to which the exports of
Germany could be brought to exceed her imports.
In the year 1913 Germany's imports amounted to $2,690,000,000, and her
exports to $2,525,000,000, exclusive of transit trade and bullion. That
is to say, imports exceeded exports by about $165,000,000. On the
average of the five years ending 1913, however, her imports exceeded her
exports by a substantially larger amount, namely, $370,000,000. It
follows, therefore, that more than the whole of Germany's pre-war
balance for new foreign investment was derived from the interest on her
existing foreign securities, and from the profits of her shipping,
foreign banking, etc. As her foreign properties and her mercantile
marine are now to be taken from her, and as her foreign banking and
other miscellaneous sources of revenue from abroad have been largely
destroyed, it appears that, on the pre-war basis of exports and imports,
Germany, so far from having a surplus wherewith to make a foreign
payment, would be not nearly self-supporting. Her first task, therefore,
must be to effect a readjustment of consumption and production to cover
this deficit. Any further economy she can effect in the use of imported
commodities, and any further stimulation of exports will then be
available for Reparation.
Two-thirds of Germany's import and export trade is enumerated under
separate headings in the following tables. The considerations applying
to the enumerated portions may be assumed to apply more or less to the
remaining one-third, which is composed of commodities of minor
importance individually.
-----------------------------------------+---------+---------------
| Amount: | Percentage of
German Exports, 1913 | Million | Total Exports
| Dollars |
-----------------------------------------+---------+---------------
Iron goods (including tin plates, etc.) | 330.65 | 13.2
Machinery and parts (including | |
motor-cars) | 187.75 | 7.5
Coal, coke, and briquettes | 176.70 | 7.0
Woolen goods (including raw and | |
combed wool and clothing) | 147.00 | 5.9
Cotton goods (including raw cotton, | |
yarn, and thread) | 140.75 | 5.6
+---------+---------------
| 982.85 | 39.2
+---------+---------------
Cereals, etc. (including rye, oats, | |
wheat, hops) | 105.90 | 4.1
Leather and leather goods | 77.35 | 3.0
Sugar | 66.00 | 2.6
Paper, etc. | 65.50 | 2.6
Furs | 58.75 | 2.2
Electrical goods (installations, | |
machinery, lamps, cables) | 54.40 | 2.2
Silk goods | 50.50 | 2.0
Dyes | 48.80 | 1.9
Copper goods | 32.50 | 1.3
Toys | 25.75 | 1.0
Rubber and rubber goods | 21.35 | 0.9
Books, maps, and music | 18.55 | 0.8
Potash | 15.90 | 0.6
Glass | 15.70 | 0.6
Potassium chloride | 14.55 | 0.6
Pianos, organs, and parts | 13.85 | 0.6
Raw zinc | 13.70 | 0.5
Porcelain | 12.65 | 0.5
+---------+---------------
| 711.70 | 67.2
+---------+---------------
Other goods, unenumerated | 829.60 | 32.8
+---------+---------------
Total |2,524.15 | 100.0
-----------------------------------------+---------+---------------
-----------------------------------------+---------+---------------
| Amount: | Percentage of
German Imports, 1913 | Million | Total Imports
| Dollars |
-----------------------------------------+---------+---------------
I. Raw materials:-- | |
Cotton | 151.75 | 5.6
Hides and skins | 124.30 | 4.6
Wool | 118.35 | 4.4
Copper | 83.75 | 3.1
Coal | 68.30 | 2.5
Timber | 58.00 | 2.2
Iron ore | 56.75 | 2.1
Furs | 46.75 | 1.7
Flax and flaxseed | 46.65 | 1.7
Saltpetre | 42.75 | 1.6
Silk | 39.50 | 1.5
Rubber | 36.50 | 1.4
Jute | 23.50 | 0.9
Petroleum | 17.45 | 0.7
Tin | 14.55 | 0.5
Phosphorus chalk | 11.60 | 0.4
Lubricating oil | 11.45 | 0.4
+---------+---------------
| 951.90 | 35.3
+---------+---------------
II. Food, tobacco, etc.:-- | |
Cereals, etc. (wheat, barley, | |
bran, rice, maize, oats, rye, | |
clover) | 327.55 | 12.2
Oil seeds and cake, etc. | |
(including palm kernels, copra,| |
cocoa, beans) | 102.65 | 3.8
Cattle, lamb fat, bladders | 73.10 | 2.8
Coffee | 54.75 | 2.0
Eggs | 48.50 | 1.8
Tobacco | 33.50 | 1.2
Butter | 29.65 | 1.1
Horses | 29.05 | 1.1
Fruit | 18.25 | 0.7
Fish | 14.95 | 0.6
Poultry | 14.00 | 0.5
Wine | 13.35 | 0.5
+---------+---------------
| 759.30 | 28.3
-----------------------------------------+---------+---------------
-----------------------------------------+---------+---------------
| Amount: | Percentage of
German Imports, 1913 | Million | Total Imports
| Dollars |
-----------------------------------------+---------+---------------
III. Manufactures:-- | |
Cotton yarn and thread and | |
cotton goods | 47.05 | 1.8
Woolen yarn and woolen | |
goods | 37.85 | 1.4
Machinery | 20.10 | 0.7
+---------+---------------
| 105.00 | 3.9
+---------+---------------
IV. Unenumerated | 876.40 | 32.5
+---------+---------------
Total |2,692.60 | 100.0
-----------------------------------------+---------+---------------
These tables show that the most important exports consisted of:--
(1) Iron goods, including tin plates (13.2 per cent),
(2) Machinery, etc. (7.5 per cent),
(3) Coal, coke, and briquettes (7 per cent),
(4) Woolen goods, including raw and combed wool (5.9 per
cent), and
(5) Cotton goods, including cotton yarn and thread and raw
cotton (5.6 per cent),
these five classes between them accounting for 39.2 per cent. of the
total exports. It will be observed that all these goods are of a kind in
which before the war competition between Germany and the United Kingdom
was very severe. If, therefore, the volume of such exports to overseas
or European destinations is very largely increased the effect upon
British export trade must be correspondingly serious. As regards two of
the categories, namely, cotton and woolen goods, the increase of an
export trade is dependent upon an increase of the import of the raw
material, since Germany produces no cotton and practically no wool.
These trades are therefore incapable of expansion unless Germany is
given facilities for securing these raw materials (which can only be at
the expense of the Allies) in excess of the pre-war standard of
consumption, and even then the effective increase is not the gross value
of the exports, but only the difference between the value of the
manufactured exports and of the imported raw material. As regards the
other three categories, namely, machinery, iron goods, and coal,
Germany's capacity to increase her exports will have been taken from her
by the cessions of territory in Poland, Upper Silesia, and
Alsace-Lorraine. As has been pointed out already, these districts
accounted for nearly one-third of Germany's production of coal. But they
also supplied no less than three-quarters of her iron-ore production, 38
per cent of her blast furnaces, and 9.5 per cent of her iron and steel
foundries. Unless, therefore, Alsace-Lorraine and Upper Silesia send
their iron ore to Germany proper, to be worked up, which will involve an
increase in the imports for which she will have to find payment, so far
from any increase in export trade being possible, a decrease is
inevitable.[127]
Next on the list come cereals, leather goods, sugar, paper, furs,
electrical goods, silk goods, and dyes. Cereals are not a net export and
are far more than balanced by imports of the same commodities. As
regards sugar, nearly 90 per cent of Germany's pre-war exports came to
the United Kingdom.[128] An increase in this trade might be stimulated
by a grant of a preference in this country to German sugar or by an
arrangement by which sugar was taken in part payment for the indemnity
on the same lines as has been proposed for coal, dyes, etc. Paper
exports also might be capable of some increase. Leather goods, furs, and
silks depend upon corresponding imports on the other side of the
account. Silk goods are largely in competition with the trade of France
and Italy. The remaining items are individually very small. I have heard
it suggested that the indemnity might be paid to a great extent in
potash and the like. But potash before the war represented 0.6 per cent
of Germany's export trade, and about $15,000,000 in aggregate value.
Besides, France, having secured a potash field in the territory which
has been restored to her, will not welcome a great stimulation of the
German exports of this material.
An examination of the import list shows that 63.6 per cent are raw
materials and food. The chief items of the former class, namely, cotton,
wool, copper, hides, iron-ore, furs, silk, rubber, and tin, could not be
much reduced without reacting on the export trade, and might have to be
increased if the export trade was to be increased. Imports of food,
namely, wheat, barley, coffee, eggs, rice, maize, and the like, present
a different problem. It is unlikely that, apart from certain comforts,
the consumption of food by the German laboring classes before the war
was in excess of what was required for maximum efficiency; indeed, it
probably fell short of that amount. Any substantial decrease in the
imports of food would therefore react on the efficiency of the
industrial population, and consequently on the volume of surplus exports
which they could be forced to produce. It is hardly possible to insist
on a greatly increased productivity of German industry if the workmen
are to be underfed. But this may not be equally true of barley, coffee,
eggs, and tobacco. If it were possible to enforce a rÈgime in which for
the future no German drank beer or coffee, or smoked any tobacco, a
substantial saving could be effected. Otherwise there seems little room
for any significant reduction.
The following analysis of German exports and imports, according to
destination and origin, is also relevant. From this it appears that of
Germany's exports in 1913, 18 per cent went to the British Empire, 17
per cent to France, Italy, and Belgium, 10 per cent to Russia and
Roumania, and 7 per cent to the United States; that is to say, more than
half of the exports found their market in the countries of the Entente
nations. Of the balance, 12 per cent went to Austria-Hungary, Turkey,
and Bulgaria, and 35 per cent elsewhere. Unless, therefore, the present
Allies are prepared to encourage the importation of German products, a
substantial increase in total volume can only be effected by the
wholesale swamping of neutral markets.
GERMAN TRADE (1913) ACCORDING TO DESTINATION AND ORIGIN.
----------------------+--------------------+--------------------
| Destination of | Origin of
| Germany's Exports | Germany's Imports
----------------------+--------------------+--------------------
| Million Per cent | Million Per cent
| Dollars | Dollars
Great Britain | 359.55 14.2 | 219.00 8.1
India | 37.65 1.5 | 135.20 5.0
Egypt | 10.85 0.4 | 29.60 1.1
Canada | 15.10 0.6 | 16.00 0.6
Australia | 22.10 0.9 | 74.00 2.8
South Africa | 11.70 0.5 | 17.40 0.6
| ------ ---- | ------ ----
Total: British Empire | 456.95 18.1 | 491.20 18.2
| |
France | 197.45 7.8 | 146.05 5.4
Belgium | 137.75 5.5 | 86.15 3.2
Italy | 98.35 3.9 | 79.40 3.0
U.S.A. | 178.30 7.1 | 427.80 15.9
Russia | 220.00 8.7 | 356.15 13.2
Roumania | 35.00 1.4 | 19.95 0.7
Austria-Hungary | 276.20 10.9 | 206.80 7.7
Turkey | 24.60 1.0 | 18.40 0.7
Bulgaria | 7.55 0.3 | 2.00 ...
Other countries | 890.20 35.3 | 858.70 32.0
| ------ ---- | ------ ----
| 2,522.35 100.0 | 2,692.60 100.0
----------------------+--------------------+--------------------
The above analysis affords some indication of the possible magnitude of
the maximum modification of Germany's export balance under the
conditions which will prevail after the Peace. On the assumptions (1)
that we do not specially favor Germany over ourselves in supplies of
such raw materials as cotton and wool (the world's supply of which is
limited), (2) that France, having secured the iron-ore deposits, makes a
serious attempt to secure the blast-furnaces and the steel trade also,
(3) that Germany is not encouraged and assisted to undercut the iron and
other trades of the Allies in overseas market, and (4) that a
substantial preference is not given to German goods in the British
Empire, it is evident by examination of the specific items that not much
is practicable.
Let us run over the chief items again: (1) Iron goods. In view of
Germany's loss of resources, an increased net export seems impossible
and a large decrease probable. (2) Machinery. Some increase is possible.
(3) Coal and coke. The value of Germany's net export before the war was
$110,000,000; the Allies have agreed that for the time being 20,000,000
tons is the maximum possible export with a problematic (and in fact)
impossible increase to 40,000,000 tons at some future time; even on the
basis of 20,000,000 tons we have virtually no increase of value,
measured in pre-war prices;[129] whilst, if this amount is exacted,
there must be a decrease of far greater value in the export of
manufactured articles requiring coal for their production. (4) Woolen
goods. An increase is impossible without the raw wool, and, having
regard to the other claims on supplies of raw wool, a decrease is
likely. (5) Cotton goods. The same considerations apply as to wool. (6)
Cereals. There never was and never can be a net export. (7) Leather
goods. The same considerations apply as to wool.
We have now covered nearly half of Germany's pre-war exports, and there
is no other commodity which formerly represented as much as 3 per cent
of her exports. In what commodity is she to pay? Dyes?--their total
value in 1913 was $50,000,000. Toys? Potash?--1913 exports were worth
$15,000,000. And even if the commodities could be specified, in what
markets are they to be sold?--remembering that we have in mind goods to
the value not of tens of millions annually, but of hundreds of millions.
On the side of imports, rather more is possible. By lowering the
standard of life, an appreciable reduction of expenditure on imported
commodities may be possible. But, as we have already seen, many large
items are incapable of reduction without reacting on the volume of
exports.
Let us put our guess as high as we can without being foolish, and
suppose that after a time Germany will be able, in spite of the
reduction of her resources, her facilities, her markets, and her
productive power, to increase her exports and diminish her imports so as
to improve her trade balance altogether by $500,000,000 annually,
measured in pre-war prices. This adjustment is first required to
liquidate the adverse trade balance, which in the five years before the
war averaged $370,000,000; but we will assume that after allowing for
this, she is left with a favorable trade balance of $250,000,000 a year.
Doubling this to allow for the rise in pre-war prices, we have a figure
of $500,000,000. Having regard to the political, social, and human
factors, as well as to the purely economic, I doubt if Germany could be
made to pay this sum annually over a period of 30 years; but it would
not be foolish to assert or to hope that she could.
Such a figure, allowing 5 per cent for interest, and 1 per cent for
repayment of capital, represents a capital sum having a present value of
about $8,500,000,000.[130]
I reach, therefore, the final conclusion that, including all methods of
payment--immediately transferable wealth, ceded property, and an annual
tribute--$10,000,000,000 is a safe maximum figure of Germany's capacity
to pay. In all the actual circumstances, I do not believe that she can
pay as much. Let those who consider this a very low figure, bear in mind
the following remarkable comparison. The wealth of France in 1871 was
estimated at a little less than half that of Germany in 1913. Apart from
changes in the value of money, an indemnity from Germany of
$2,500,000,000 would, therefore, be about comparable to the sum paid by
France in 1871; and as the real burden of an indemnity increases more
than in proportion to its amount, the payment of $10,000,000,000 by
Germany would have far severer consequences than the $1,000,000,000 paid
by France in 1871.
There is only one head under which I see a possibility of adding to the
figure reached on the line of argument adopted above; that is, if German
labor is actually transported to the devastated areas and there engaged
in the work of reconstruction. I have heard that a limited scheme of
this kind is actually in view. The additional contribution thus
obtainable depends on the number of laborers which the German Government
could contrive to maintain in this way and also on the number which,
over a period of years, the Belgian and French inhabitants would
tolerate in their midst. In any case, it would seem very difficult to
employ on the actual work of reconstruction, even over a number of
years, imported labor having a net present value exceeding (say)
$1,250,000,000; and even this would not prove in practice a net addition
to the annual contributions obtainable in other ways.
A capacity of $40,000,000,000 or even of $25,000,000,000 is, therefore,
not within the limits of reasonable possibility. It is for those who
believe that Germany can make an annual payment amounting to hundreds of
millions sterling to say _in what specific commodities_ they intend this
payment to be made and _in what markets_ the goods are to be sold. Until
they proceed to some degree of detail, and are able to produce some
tangible argument in favor of their conclusions, they do not deserve to
be believed.[131]
I make three provisos only, none of which affect the force of my
argument for immediate practical purposes.
_First_: if the Allies were to "nurse" the trade and industry of Germany
for a period of five or ten years, supplying her with large loans, and
with ample shipping, food, and raw materials during that period,
building up markets for her, and deliberately applying all their
resources and goodwill to making her the greatest industrial nation in
Europe, if not in the world, a substantially larger sum could probably
be extracted thereafter; for Germany is capable of very great
productivity.
_Second_: whilst I estimate in terms of money, I assume that there is no
revolutionary change in the purchasing power of our unit of value. If
the value of gold were to sink to a half or a tenth of its present
value, the real burden of a payment fixed in terms of gold would be
reduced proportionately. If a sovereign comes to be worth what a
shilling is worth now, then, of course, Germany can pay a larger sum
than I have named, measured in gold sovereigns.
_Third_: I assume that there is no revolutionary change in the yield of
Nature and material to man's labor. It is not _impossible_ that the
progress of science should bring within our reach methods and devices by
which the whole standard of life would be raised immeasurably, and a
given volume of products would represent but a portion of the human
effort which it represents now. In this case all standards of "capacity"
would be changed everywhere. But the fact that all things are _possible_
is no excuse for talking foolishly.
It is true that in 1870 no man could have predicted Germany's capacity
in 1910. We cannot expect to legislate for a generation or more. The
secular changes in man's economic condition and the liability of human
forecast to error are as likely to lead to mistake in one direction as
in another. We cannot as reasonable men do better than base our policy
on the evidence we have and adapt it to the five or ten years over which
we may suppose ourselves to have some measure of prevision; and we are
not at fault if we leave on one side the extreme chances of human
existence and of revolutionary changes in the order of Nature or of
man's relations to her. The fact that we have no adequate knowledge of
Germany's capacity to pay over a long period of years is no
justification (as I have heard some people claim that, it is) for the
statement that she can pay $50,000,000,000.
Why has the world been so credulous of the unveracities of politicians?
If an explanation is needed, I attribute this particular credulity to
the following influences in part.
In the first place, the vast expenditures of the war, the inflation of
prices, and the depreciation of currency, leading up to a complete
instability of the unit of value, have made us lose all sense of number
and magnitude in matters of finance. What we believed to be the limits
of possibility have been so enormously exceeded, and those who founded
their expectations on the past have been so often wrong, that the man in
the street is now prepared to believe anything which is told him with
some show of authority, and the larger the figure the more readily he
swallows it.
But those who look into the matter more deeply are sometimes misled by a
fallacy, much more plausible to reasonableness. Such a one might base
his conclusions on Germany's total surplus of annual productivity as
distinct from her export surplus. Helfferich's estimate of Germany's
annual increment of wealth in 1913 was $2,000,000,000 to $2,125,000,000
(exclusive of increased money value of existing land and property).
Before the war, Germany spent between $250,000,000 and $500,000,000 on
armaments, with which she can now dispense. Why, therefore, should she
not pay over to the Allies an annual sum of $2,500,000,000? This puts
the crude argument in its strongest and most plausible form.
But there are two errors in it. First of all, Germany's annual savings,
after what she has suffered in the war and by the Peace, will fall far
short of what they were before, and, if they are taken from her year by
year in future, they cannot again reach their previous level. The loss
of Alsace-Lorraine, Poland, and Upper Silesia could not be assessed in
terms of surplus productivity at less than $250,000,000 annually.
Germany is supposed to have profited about $500,000,000 per annum from
her ships, her foreign investments, and her foreign banking and
connections, all of which have now been taken from her. Her saving on
armaments is far more than balanced by her annual charge for pensions
now estimated at $1,250,000,000,[132] which represents a real loss of
productive capacity. And even if we put on one side the burden of the
internal debt, which amounts to 24 milliards of marks, as being a
question of internal distribution rather than of productivity, we must
still allow for the foreign debt incurred by Germany during the war, the
exhaustion of her stock of raw materials, the depletion of her
live-stock, the impaired productivity of her soil from lack of manures
and of labor, and the diminution in her wealth from the failure to keep
up many repairs and renewals over a period of nearly five years. Germany
is not as rich as she was before the war, and the diminution in her
future savings for these reasons, quite apart from the factors
previously allowed for, could hardly be put at less than ten per cent,
that is $200,000,000 annually.
These factors have already reduced Germany's annual surplus to less than
the $500,000,000 at which we arrived on other grounds as the maximum of
her annual payments. But even if the rejoinder be made, that we have not
yet allowed for the lowering of the standard of life and comfort in
Germany which may reasonably be imposed on a defeated enemy,[133] there
is still a fundamental fallacy in the method of calculation. An annual
surplus available for home investment can only be converted into a
surplus available for export abroad by a radical change in the kind of
work performed. Labor, while it may be available and efficient for
domestic services in Germany, may yet be able to find no outlet in
foreign trade. We are back on the same question which faced us in our
examination of the export trade--in _what_ export trade is German labor
going to find a greatly increased outlet? Labor can only he diverted
into new channels with loss of efficiency, and a large expenditure of
capital. The annual surplus which German labor can produce for capital
improvements at home is no measure, either theoretically or practically,
of the annual tribute which she can pay abroad.
IV. _The Reparation Commission_.
This body is so remarkable a construction and may, if it functions at
all, exert so wide an influence on the life of Europe, that its
attributes deserve a separate examination.
There are no precedents for the indemnity imposed on Germany under the
present Treaty; for the money exactions which formed part of the
settlement after previous wars have differed in two fundamental respects
from this one. The sum demanded has been determinate and has been
measured in a lump sum of money; and so long as the defeated party was
meeting the annual instalments of cash no consequential interference was
necessary.
But for reasons already elucidated, the exactions in this case are not
yet determinate, and the sum when fixed will prove in excess of what can
be paid in cash and in excess also of what can be paid at all. It was
necessary, therefore, to set up a body to establish the bill of claim,
to fix the mode of payment, and to approve necessary abatements and
delays. It was only possible to place this body in a position to exact
the utmost year by year by giving it wide powers over the internal
economic life of the enemy countries, who are to be treated henceforward
as bankrupt estates to be administered by and for the benefit of the
creditors. In fact, however, its powers and functions have been enlarged
even beyond what was required for this purpose, and the Reparation
Commission has been established as the final arbiter on numerous
economic and financial issues which it was convenient to leave unsettled
in the Treaty itself.[134]
The powers and constitution of the Reparation Commission are mainly laid
down in Articles 233-241 and Annex II. of the Reparation Chapter of the
Treaty with Germany. But the same Commission is to exercise authority
over Austria and Bulgaria, and possibly over Hungary and Turkey, when
Peace is made with these countries. There are, therefore, analogous
articles _mutatis mudandis_ in the Austrian Treaty[135] and in the
Bulgarian Treaty.[136]
The principal Allies are each represented by one chief delegate.
The delegates of the United States, Great Britain, France, and
Italy take part in all proceedings; the delegate of Belgium in all
proceedings except those attended by the delegates of Japan or the
Serb-Croat-Slovene State; the delegate of Japan in all proceedings
affecting maritime or specifically Japanese questions; and the
delegate of the Serb-Croat-Slovene State when questions relating to
Austria, Hungary, or Bulgaria are under consideration. Other allies
are to be represented by delegates, without the power to vote,
whenever their respective claims and interests are under examination.
In general the Commission decides by a majority vote, except in certain
specific cases where unanimity is required, of which the most important
are the cancellation of German indebtedness, long postponement of the
instalments, and the sale of German bonds of indebtedness. The
Commission is endowed with full executive authority to carry out its
decisions. It may set up an executive staff and delegate authority to
its officers. The Commission and its staff are to enjoy diplomatic
privileges, and its salaries are to be paid by Germany, who will,
however, have no voice in fixing them, If the Commission is to discharge
adequately its numerous functions, it will be necessary for it to
establish a vast polyglot bureaucratic organization, with a staff of
hundreds. To this organization, the headquarters of which will be in
Paris, the economic destiny of Central Europe is to be entrusted.
Its main functions are as follows:--
1. The Commission will determine the precise figure of the claim against
the enemy Powers by an examination in detail of the claims of each of
the Allies under Annex I. of the Reparation Chapter. This task must be
completed by May, 1921. It shall give to the German Government and to
Germany's allies "a just opportunity to be heard, but not to take any
part whatever in the decisions of the Commission." That is to say, the
Commission will act as a party and a judge at the same time.
2. Having determined the claim, it will draw up a schedule of payments
providing for the discharge of the whole sum with interest within thirty
years. From time to time it shall, with a view to modifying the schedule
within the limits of possibility, "consider the resources and capacity
of Germany ... giving her representatives a just opportunity to be heard."
"In periodically estimating Germany's capacity to pay, the Commission
shall examine the German system of taxation, first, to the end that the
sums for reparation which Germany is required to pay shall become a
charge upon all her revenues prior to that for the service or discharge
of any domestic loan, and secondly, so as to satisfy itself that, in
general, the German scheme of taxation is fully as heavy proportionately
as that of any of the Powers represented on the Commission."
3. Up to May, 1921, the Commission has power, with a view to securing
the payment of $5,000,000,000, to demand the surrender of any piece of
German property whatever, wherever situated: that is to say, "Germany
shall pay in such installments and in such manner, whether in gold,
commodities, ships, securities, or otherwise, as the Reparation
Commission may fix."
4. The Commission will decide which of the rights and interests of
German nationals in public utility undertakings operating in Russia,
China, Turkey, Austria, Hungary, and Bulgaria, or in any territory
formerly belonging to Germany or her allies, are to be expropriated and
transferred to the Commission itself; it will assess the value of the
interests so transferred; and it will divide the spoils.
5 The Commission will determine how much of the resources thus stripped
from Germany must be returned to her to keep enough life in her economic
organization to enable her to continue to make Reparation payments in
future.[137]
6. The Commission will assess the value, without appeal or arbitration,
of the property and rights ceded under the Armistice, and under the
Treaty,--roiling-stock, the mercantile marine, river craft, cattle, the
Saar mines, the property in ceded territory for which credit is to be
given, and so forth.
7. The Commission will determine the amounts and values (within certain
defined limits) of the contributions which Germany is to make in kind
year by year under the various Annexes to the Reparation Chapter.
8. The Commission will provide for the restitution by Germany of
property which can be identified.
9. The Commission will receive, administer, and distribute all receipts
from Germany in cash or in kind. It will also issue and market German
bonds of indebtedness.
10. The Commission will assign the share of the pre-war public debt to
be taken over by the ceded areas of Schleswig, Poland, Danzig, and Upper
Silesia. The Commission will also distribute the public debt of the late
Austro-Hungarian Empire between its constituent parts.
11. The Commission will liquidate the Austro-Hungarian Bank, and will
supervise the withdrawal and replacement of the currency system of the
late Austro-Hungarian Empire.
12. It is for the Commission to report if, in their judgment, Germany is
falling short in fulfillment of her obligations, and to advise methods
of coercion.
13. In general, the Commission, acting through a subordinate body, will
perform the same functions for Austria and Bulgaria as for Germany, and
also, presumably, for Hungary and Turkey.[138]
There are also many other relatively minor duties assigned to the
Commission. The above summary, however, shows sufficiently the scope and
significance of its authority. This authority is rendered of far greater
significance by the fact that the demands of the Treaty generally exceed
Germany's capacity. Consequently the clauses which allow the Commission
to make abatements, if in their judgment the economic conditions of
Germany require it, will render it in many different particulars the
arbiter of Germany's economic life. The Commission is not only to
inquire into Germany's general capacity to pay, and to decide (in the
early years) what import of foodstuffs and raw materials is necessary;
it is authorized to exert pressure on the German system of taxation
(Annex II. para. 12(_b_))[139] and on German internal expenditure, with
a view to insuring that Reparation payments are a first charge on the
country's entire resources; and it is to decide on the effect on German
economic life of demands for machinery, cattle, etc., and of the
scheduled deliveries of coal.
By Article 240 of the Treaty Germany expressly recognizes the Commission
and its powers "as the same may be constituted by the Allied and
Associated Governments," and "agrees irrevocably to the possession and
exercise by such Commission of the power and authority given to it under
the present Treaty." She undertakes to furnish the Commission with all
relevant information. And finally in Article 241, "Germany undertakes to
pass, issue, and maintain in force any legislation, orders, and decrees
that may be necessary to give complete effect to these provisions."
The comments on this of the German Financial Commission at Versailles
were hardly an exaggeration:--"German democracy is thus annihilated at
the very moment when the German people was about to build it up after a
severe struggle--annihilated by the very persons who throughout the war
never tired of maintaining that they sought to bring democracy to us....
Germany is no longer a people and a State, but becomes a mere trade
concern placed by its creditors in the hands of a receiver, without its
being granted so much as the opportunity to prove its willingness to
meet its obligations of its own accord. The Commission, which is to have
its permanent headquarters outside Germany, will possess in Germany
incomparably greater rights than the German Emperor ever possessed, the
German people under its rÈgime would remain for decades to come shorn
of all rights, and deprived, to a far greater extent than any people in
the days of absolutism, of any independence of action, of any individual
aspiration in its economic or even in its ethical progress."
In their reply to these observations the Allies refused to admit that
there was any substance, ground, or force in them. "The observations of
the German Delegation," they pronounced, "present a view of this
Commission so distorted and so inexact that it is difficult to believe
that the clauses of the Treaty have been calmly or carefully examined.
It is not an engine of oppression or a device for interfering with
German sovereignty. It has no forces at its command; it has no executive
powers within the territory of Germany; it cannot, as is suggested,
direct or control the educational or other systems of the country. Its
business is to ask what is to be paid; to satisfy itself that Germany
can pay; and to report to the Powers, whose delegation it is, in case
Germany makes default. If Germany raises the money required in her own
way, the Commission cannot order that it shall be raised in some other
way; if Germany offers payment in kind, the Commission may accept such
payment, but, except as specified in the Treaty itself, the Commission
cannot require such a payment."
This is not a candid statement of the scope and authority of the
Reparation Commission, as will be seen by a comparison of its terms with
the summary given above or with the Treaty itself. Is not, for example,
the statement that the Commission "has no forces at its command" a
little difficult to justify in view of Article 430 of the Treaty, which
runs:--"In case, either during the occupation or after the expiration of
the fifteen years referred to above, the Reparation Commission finds
that Germany refuses to observe the whole or part of her obligations
under the present Treaty with regard to Reparation, the whole or part of
the areas specified in Article 429 will be reoccupied immediately by the
Allied and Associated Powers"? The decision, as to whether Germany has
kept her engagements and whether it is possible for her to keep them, is
left, it should be observed, not to the League of Nations, but to the
Reparation Commission itself; and an adverse ruling on the part of the
Commission is to be followed "immediately" by the use of armed force.
Moreover, the depreciation of the powers of the Commission attempted in
the Allied reply largely proceeds from the assumption that it is quite
open to Germany to "raise the money required in her own way," in which
case it is true that many of the powers of the Reparation Commission
would not come into practical effect; whereas in truth one of the main
reasons for setting up the Commission at all is the expectation that
Germany will not be able to carry the burden nominally laid upon her.
* * * * *
It is reported that the people of Vienna, hearing that a section of the
Reparation Commission is about to visit them, have decided
characteristically to pin their hopes on it. A financial body can
obviously take nothing from them, for they have nothing; therefore this
body must be for the purpose of assisting and relieving them. Thus do
the Viennese argue, still light-headed in adversity. But perhaps they
are right. The Reparation Commission will come into very close contact
with the problems of Europe; and it will bear a responsibility
proportionate to its powers. It may thus come to fulfil a very different
rÙle from that which some of its authors intended for it. Transferred to
the League of Nations, an appanage of justice and no longer of interest,
who knows that by a change of heart and object the Reparation Commission
may not yet be transformed from an instrument of oppression and rapine
into an economic council of Europe, whose object is the restoration of
life and of happiness, even in the enemy countries?
_V_. _The German Counter-Proposals_
The German counter-proposals were somewhat obscure, and also rather
disingenuous. It will be remembered that those clauses of the Reparation
Chapter which dealt with the issue of bonds by Germany produced on the
public mind the impression that the Indemnity had been fixed at
$25,000,000,000, or at any rate at this figure as a minimum. The German
Delegation set out, therefore, to construct their reply on the basis of
this figure, assuming apparently that public opinion in Allied countries
would not be satisfied with less than the appearance of $25,000,000,000;
and, as they were not really prepared to offer so large a figure, they
exercised their ingenuity to produce a formula which might be
represented to Allied opinion as yielding this amount, whilst really
representing a much more modest sum. The formula produced was
transparent to any one who read it carefully and knew the facts, and it
could hardly have been expected by its authors to deceive the Allied
negotiators. The German tactic assumed, therefore, that the latter were
secretly as anxious as the Germans themselves to arrive at a settlement
which bore some relation to the facts, and that they would therefore be
willing, in view of the entanglements which they had got themselves into
with their own publics, to practise a little collusion in drafting the
Treaty,--a supposition which in slightly different circumstances might
have had a good deal of foundation. As matters actually were, this
subtlety did not benefit them, and they would have done much better with
a straightforward and candid estimate of what they believed to be the
amount of their liabilities on the one hand, and their capacity to pay
on the other.
The German offer of an alleged sum of $25,000,000,000 amounted to the
following. In the first place it was conditional on concessions in the
Treaty insuring that "Germany shall retain the territorial integrity
corresponding to the Armistice Convention,[140] that she shall keep her
colonial possessions and merchant ships, including those of large
tonnage, that in her own country and in the world at large she shall
enjoy the same freedom of action as all other peoples, that all war
legislation shall be at once annulled, and that all interferences during
the war with her economic rights and with German private property, etc.,
shall be treated in accordance with the principle of reciprocity";--that
is to say, the offer is conditional on the greater part of the rest of
the Treaty being abandoned. In the second place, the claims are not to
exceed a maximum of $25,000,000,000, of which $5,000,000,000 is to be
discharged by May 1, 1926; and no part of this sum is to carry interest
pending the payment of it.[141] In the third place, there are to be
allowed as credit against it (amongst other things): (_a_) the value of
all deliveries under the Armistice, including military material (_e.g._
Germany's navy); (_b_) the value of all railways and State property in
ceded territory; (_c_) the _pro rata_ share of all ceded territory in
the German public debt (including the war debt) and in the Reparation
payments which this territory would have had to bear if it had remained
part of Germany; and (_d_) the value of the cession of Germany's claims
for sums lent by her to her allies in the war.[142]
The credits to be deducted under (_a_), (_b_), (_c_), and (_d_) might be
in excess of those allowed in the actual Treaty, according to a rough
estimate, by a sum of as much as $10,000,000,000, although the sum to be
allowed under (_d_) can hardly be calculated.
If, therefore, we are to estimate the real value of the German offer of
$25,000,000,000 on the basis laid down by the Treaty, we must first of
all deduct $10,000,000,000 claimed for offsets which the Treaty does not
allow, and then halve the remainder in order to obtain the present value
of a deferred payment on which interest is not chargeable. This reduces
the offer to $7,500,000,000, as compared with the $40,000,000,000 which,
according to my rough estimate, the Treaty demands of her.
This in itself was a very substantial offer--indeed it evoked widespread
criticism in Germany--though, in view of the fact that it was
conditional on the abandonment of the greater part of the rest of the
Treaty, it could hardly be regarded as a serious one.[143] But the
German Delegation would have done better if they had stated in less
equivocal language how far they felt able to go.
In the final reply of the Allies to this counter-proposal there is one
important provision, which I have not attended to hitherto, but which
can be conveniently dealt with in this place. Broadly speaking, no
concessions were entertained on the Reparation Chapter as it was
originally drafted, but the Allies recognized the inconvenience of the
_indeterminacy_ of the burden laid upon Germany and proposed a method by
which the final total of claim might be established at an earlier date
than May 1, 1921. They promised, therefore, that at any time within four
months of the signature of the Treaty (that is to say, up to the end of
October, 1919), Germany should be at liberty to submit an offer of a
lump sum in settlement of her whole liability as defined in the Treaty,
and within two months thereafter (that is to say, before the end of
1919) the Allies "will, so far as may be possible, return their answers
to any proposals that may be made."
This offer is subject to three conditions. "Firstly, the German
authorities will be expected, before making such proposals, to confer
with the representatives of the Powers directly concerned. Secondly,
such offers must be unambiguous and must be precise and clear. Thirdly,
they must accept the categories and the Reparation clauses as matters
settled beyond discussion."
The offer, as made, does not appear to contemplate any opening up of the
problem of Germany's capacity to pay. It is only concerned with the
establishment of the total bill of claims as defined in the
Treaty--whether (_e.g._) it is $35,000,000,000, $40,000,000,000, or
$50,000,000,000. "The questions," the Allies' reply adds, "are bare
questions of fact, namely, the amount of the liabilities, and they are
susceptible of being treated in this way."
If the promised negotiations are really conducted on these lines, they
are not likely to be fruitful. It will not be much easier to arrive at
an agreed figure before the end of 1919 that it was at the time of the
Conference; and it will not help Germany's financial position to know
for certain that she is liable for the huge sum which on any computation
the Treaty liabilities must amount to. These negotiations do offer,
however, an opportunity of reopening the whole question of the
Reparation payments, although it is hardly to be hoped that at so very
early a date, public opinion in the countries of the Allies has changed
its mood sufficiently.[144]
* * * * *
I cannot leave this subject as though its just treatment wholly depended
either on our own pledges or on economic facts. The policy of reducing
Germany to servitude for a generation, of degrading the lives of
millions of human beings, and of depriving a whole nation of happiness
should be abhorrent and detestable,--abhorrent and detestable, even if
it were possible, even if it enriched ourselves, even if it did not sow
the decay of the whole civilized life of Europe. Some preach it in the
name of Justice. In the great events of man's history, in the unwinding
of the complex fates of nations Justice is not so simple. And if it
were, nations are not authorized, by religion or by natural morals, to
visit on the children of their enemies the misdoings of parents or of
rulers.
FOOTNOTES:
[76] "With reservation that any future claims and demands of
the Allies and the United States of America remain unaffected, the
following financial conditions are required: Reparation for damage done.
Whilst Armistice lasts, no public securities shall be removed by the
enemy which can serve as a pledge to the Allies for recovery or
reparation of war losses. Immediate restitution of cash deposit in
National Bank of Belgium, and, in general, immediate return of all
documents, of specie, stock, shares, paper money, together with plant
for issue thereof, touching public or private interests in invaded
countries. Restitution of Russian and Roumanian gold yielded to Germany
or taken by that Power. This gold to be delivered in trust to the Allies
until signature of peace."
[77] It is to be noticed, in passing, that they contain nothing
which limits the damage to damage inflicted contrary to the recognized
rules of warfare. That is to say, it is permissible to include claims
arising out of the legitimate capture of a merchantman at sea, as well
as the costs of illegal submarine warfare.
[78] Mark-paper or mark-credits owned in ex-occupied territory
by Allied nationals should be included, if at all, in the settlement of
enemy debts, along with other sums owed to Allied nationals, and not in
connection with reparation.
[79] A special claim on behalf of Belgium was actually included
In the Peace Treaty, and was accepted by the German representatives
without demur.
[80] To the British observer, one scene, however, stood out
distinguished from the rest--the field of Ypres. In that desolate and
ghostly spot, the natural color and humors of the landscape and the
climate seemed designed to express to the traveler the memories of the
ground. A visitor to the salient early in November, 1918, when a few
German bodies still added a touch of realism and human horror, and the
great struggle was not yet certainly ended, could feel there, as nowhere
else, the present outrage of war, and at the same time the tragic and
sentimental purification which to the future will in some degree
transform its harshness.
[81] These notes, estimated to amount to no less than six
thousand million marks, are now a source of embarrassment and great
potential loss to the Belgian Government, inasmuch as on their recovery
of the country they took them over from their nationals in exchange for
Belgian notes at the rate of Fr. 120 = Mk. 1. This rate of exchange, being
substantially in excess of the value of the mark-notes at the rate of
exchange current at the time (and enormously in excess of the rate to
which the mark notes have since fallen, the Belgian franc being now
worth more than three marks), was the occasion of the smuggling of
mark-notes into Belgium on an enormous scale, to take advantage of the
profit obtainable. The Belgian Government took this very imprudent step,
partly because they hoped to persuade the Peace Conference to make the
redemption of these bank-notes, at the par of exchange, a first charge
on German assets. The Peace Conference held, however, that Reparation
proper must take precedence of the adjustment of improvident banking
transactions effected at an excessive rate of exchange. The possession
by the Belgian Government of this great mass of German currency, in
addition to an amount of nearly two thousand million marks held by the
French Government which they similarly exchanged for the benefit of the
population of the invaded areas and of Alsace-Lorraine, is a serious
aggravation of the exchange position of the mark. It will certainly be
desirable for the Belgian and German Governments to come to some
arrangement as to its disposal, though this is rendered difficult by the
prior lien held by the Reparation Commission over all German assets
available for such purposes.
[82] It should be added, in fairness, that the very high claims
put forward on behalf of Belgium generally include not only devastation
proper, but all kinds of other items, as, for example, the profits and
earnings which Belgians might reasonably have expected to earn if there
had been no war.
[83] "The Wealth and Income of the Chief Powers," by J.C. Stamp
(_Journal of the Royal Statistical Society_, July, 1919).
[84] Other estimates vary from $12,100,000,000 to
$13,400,000,000. See Stamp, _loc. cit._
[85] This was clearly and courageously pointed out by M.
Charles Gide in _L'Emancipation_ for February, 1919.
[86] For details of these and other figures, see Stamp, _loc.
cit._
[87] Even when the extent of the material damage has been
established, it will be exceedingly difficult to put a price on it,
which must largely depend on the period over which restoration is
spread, and the methods adopted. It would be impossible to make the
damage good in a year or two at any price, and an attempt to do so at a
rate which was excessive in relation to the amount of labor and
materials at hand might force prices up to almost any level. We must, I
think, assume a cost of labor and materials about equal to that current
in the world generally. In point of fact, however, we may safely assume
that literal restoration will never be attempted. Indeed, it would be
very wasteful to do so. Many of the townships were old and unhealthy,
and many of the hamlets miserable. To re-erect the same type of building
in the same places would be foolish. As for the land, the wise course
may be in some cases to leave long strips of it to Nature for many years
to come. An aggregate money sum should be computed as fairly
representing the value of the material damage, and France should be left
to expend it in the manner she thinks wisest with a view to her economic
enrichment as a whole. The first breeze of this controversy has already
blown through France. A long and inconclusive debate occupied the
Chamber during the spring of 1919, as to whether inhabitants of the
devastated area receiving compensation should be compelled to expend it
in restoring the identical property, or whether they should be free to
use it as they like. There was evidently a great deal to be said on both
sides; in the former case there would be much hardship and uncertainty
for owners who could not, many of them, expect to recover the effective
use of their property perhaps for years to come, and yet would not be
free to set themselves up elsewhere; on the other hand, if such persons
were allowed to take their compensation and go elsewhere, the
countryside of Northern France would never be put right. Nevertheless I
believe that the wise course will be to allow great latitude and let
economic motives take their own course.
[88] _La Richesse de la France devant la Guerre_, published in
1916.
[89] _Revue Bleue_, February 3, 1919. This is quoted in a very
valuable selection of French estimates and expressions of opinion,
forming chapter iv. of _La Liquidation financiËre de la Guerre_, by H.
Charriaut and R. Hacault. The general magnitude of my estimate is
further confirmed by the extent of the repairs already effected, as set
forth in a speech delivered by M. Tardieu on October 10, 1919, in which
he said: "On September 16 last, of 2246 kilomËtres of railway track
destroyed, 2016 had been repaired; of 1075 kilomËtres of canal, 700; of
1160 constructions, such as bridges and tunnels, which had been blown
up, 588 had been replaced; of 550,000 houses ruined by bombardment,
60,000 had been rebuilt; and of 1,800,000 hectares of ground rendered
useless by battle, 400,000 had been recultivated, 200,000 hectares of
which are now ready to be sown. Finally, more than 10,000,000 mËtres of
barbed wire had been removed."
[90] Some of these estimates include allowance for contingent
and immaterial damage as well as for direct material injury.
[91] A substantial part of this was lost in the service of the
Allies; this must not be duplicated by inclusion both in their claims
and in ours.
[92] The fact that no separate allowance is made in the above
for the sinking of 675 fishing vessels of 71,765 tons gross, or for the
1855 vessels of 8,007,967 tons damaged or molested, but not sunk, may be
set off against what may be an excessive figure for replacement cost.
[93] The losses of the Greek mercantile marine were excessively
high, as a result of the dangers of the Mediterranean; but they were
largely incurred on the service of the other Allies, who paid for them
directly or indirectly. The claims of Greece for maritime losses
incurred on the service of her own nationals would not be very
considerable.
[94] There is a reservation in the Peace Treaty on this
question. "The Allied and Associated Powers formally reserve the right
of Russia to obtain from Germany restitution and reparation based on the
principles of the present Treaty" (Art. 116).
[95] Dr. Diouritch in his "Economic and Statistical Survey of
the Southern Slav Nations" (_Journal of Royal Statistical Society_, May,
1919), quotes some extraordinary figures of the loss of life: "According
to the official returns, the number of those fallen in battle or died in
captivity up to the last Serbian offensive, amounted to 320,000, which
means that one half of Serbia's male population, from 18 to 60 years of
age, perished outright in the European War. In addition, the Serbian
Medical Authorities estimate that about 300,000 people have died from
typhus among the civil population, and the losses among the population
interned in enemy camps are estimated at 50,000. During the two Serbian
retreats and during the Albanian retreat the losses among children and
young people are estimated at 200,000. Lastly, during over three years
of enemy occupation, the losses in lives owing to the lack of proper
food and medical attention are estimated at 250,000." Altogether, he
puts the losses in life at above 1,000,000, or more than one-third of
the population of Old Serbia.
[96] _Come si calcola e a quanto ammonta la richezza d'Italia e
delle altre principali nazioni_, published in 1919.
[97] Very large claims put forward by the Serbian authorities
include many hypothetical items of indirect and non-material damage; but
these, however real, are not admissible under our present formula.
[98] Assuming that in her case $1,250,000,000 are included for
the general expenses of the war defrayed out of loans made to Belgium by
her allies.
[99] It must be said to Mr. Hughes' honor that he apprehended
from the first the bearing of the pre-Armistice negotiations on our
right to demand an indemnity covering the full costs of the war,
protested against our ever having entered into such engagements, and
maintained loudly that he had been no party to them and could not
consider himself bound by them. His indignation may have been partly due
to the fact that Australia, not having been ravaged, would have no
claims at all under the more limited interpretation of our rights.
[100] The whole cost of the war has been estimated at from
$120,000,000,000 upwards. This would mean an annual payment for interest
(apart from sinking fund) of $6,000,000,000. Could any expert Committee
have reported that Germany can pay this sum?
[101] But unhappily they did not go down with their flags
flying very gloriously. For one reason or another their leaders
maintained substantial silence. What a different position in the
country's estimation they might hold now if they had suffered defeat
amidst firm protests against the fraud, chicane, and dishonor of the
whole proceedings.
[102] Only after the most painful consideration have I written
these words. The almost complete absence of protest from the leading
Statesmen of England makes one feel that one must have made some
mistake. But I believe that I know all the facts, and I can discover no
such mistake. In any case I have set forth all the relevant engagements
in Chapter IV. and at the beginning of this chapter, so that the reader
can form his own judgment.
[103] In conversation with Frenchmen who were private persons
and quite unaffected by political considerations, this aspect became
very clear. You might persuade them that some current estimates as to
the amount to be got out of Germany were quite fantastic. Yet at the end
they would always come back to where they had started: "But Germany
_must_ pay; for, otherwise, what is to happen to France?"
[104] A further paragraph claims the war costs of Belgium "in
accordance with Germany's pledges, already given, as to complete
restoration for Belgium."
[105] The challenge of the other Allies, as well as the enemy,
had to be met; for in view of the limited resources of the latter, the
other Allies had perhaps a greater interest than the enemy in seeing
that no one of their number established an excessive claim.
[106] M. Klotz has estimated the French claims on this head at
$15,000,000,000 (75 milliard francs, made up of 13 milliard for
allowances, 60 for pensions, and 2 for widows). If this figure is
correct, the others should probably be scaled up also.
[107] That is to say, I claim for the aggregate figure an
accuracy within 25 per cent.
[108] In his speech of September 5, 1919, addressed to the
French Chamber, M. Klotz estimated the total Allied claims against
Germany under the Treaty at $75,000,000,000, which would accumulate at
interest until 1921, and be paid off thereafter by 34 annual
installments of about $5,000,000,000 each, of which France would receive
about $2,750,000,000 annually. "The general effect of the statement
(that France would receive from Germany this annual payment) proved," it
is reported, "appreciably encouraging to the country as a whole, and was
immediately reflected in the improved tone on the Bourse and throughout
the business world in France." So long as such statements can be
accepted in Paris without protest, there can be no financial or economic
future for France, and a catastrophe of disillusion is not far distant.
[109] As a matter of subjective judgment, I estimate for this
figure an accuracy of 10 per cent in deficiency and 20 per cent in
excess, _i.e._ that the result will lie between $32,000,000,000 and
$44,000,000,000.
[110] Germany is also liable under the Treaty, as an addition
to her liabilities for Reparation, to pay all the costs of the Armies of
Occupation _after_ Peace is signed for the fifteen subsequent years of
occupation. So far as the text of the Treaty goes, there is nothing to
limit the size of these armies, and France could, therefore, by
quartering the whole of her normal standing army in the occupied area,
shift the charge from her own taxpayers to those of Germany,--though in
reality any such policy would be at the expense not of Germany, who by
hypothesis is already paying for Reparation up to the full limit of her
capacity, but of France's Allies, who would receive so much less in
respect of Reparation. A White Paper (Cmd. 240) has, however, been
issued, in which is published a declaration by the Governments of the
United States, Great Britain, and France engaging themselves to limit
the sum payable annually by Germany to cover the cost of occupation to
$60,000,000 "as soon as the Allied and Associated Powers _concerned_ are
convinced that the conditions of disarmament by Germany are being
satisfactorily fulfilled." The word which I have italicized is a little
significant. The three Powers reserve to themselves the liberty to
modify this arrangement at any time if they agree that it is necessary.
[111] Art. 235. The force of this Article is somewhat
strengthened by Article 251, by virtue of which dispensations may also
be granted for "other payments" as well as for food and raw material.
[112] This is the effect of Para. 12 (_c_) of Annex II. of the
Reparation Chapter, leaving minor complications on one side. The Treaty
fixes the payments in terms of _gold marks_, which are converted in the
above rate of 20 to $5.
[113] If, _per impossibile_, Germany discharged $2,500,000,000
in cash or kind by 1921, her annual payments would be at the rate of
$312,500,000 from 1921 to 1925 and of $750,000,000 thereafter.
[114] Para. 16 of Annex II. of The Reparation Chapter. There is
also an obscure provision by which interest may be charged "on sums
arising out of _material damage_ as from November 11, 1918, up to May 1,
1921." This seems to differentiate damage to property from damage to the
person in favor of the former. It does not affect Pensions and
Allowances, the cost of which is capitalized as at the date of the
coming into force of the Treaty.
[115] On the assumption which no one supports and even the most
optimistic fear to be unplausible, that Germany can pay the full charge
for interest and sinking fund _from the outset_, the annual payment
would amount to $2,400,000,000.
[116] Under Para. 13 of Annex II. unanimity is required (i.)
for any postponement beyond 1930 of installments due between 1921 and
1926, and (ii.) for any postponement for more than three years of
instalments due after 1926. Further, under Art. 234, the Commission may
not cancel any part of the indebtedness without the specific authority
of _all_ the Governments represented on the Commission.
[117] On July 23, 1914, the amount was $339,000,000.
[118] Owing to the very high premium which exists on German
silver coin, as the combined result of the depreciation of the mark and
the appreciation of silver, it is highly improbable that it will be
possible to extract such coin out of the pockets of the people. But it
may gradually leak over the frontier by the agency of private
speculators, and thus indirectly benefit the German exchange position as
a whole.
[119] The Allies made the supply of foodstuffs to Germany
during the Armistice, mentioned above, conditional on the provisional
transfer to them of the greater part of the Mercantile Marine, to be
operated by them for the purpose of shipping foodstuffs to Europe
generally, and to Germany in particular. The reluctance of the Germans
to agree to this was productive of long and dangerous delays in the
supply of food, but the abortive Conferences of TrËves and Spa (January
16, February 14-16, and March 4-5, 1919) were at last followed by the
Agreement of Brussels (March 14, 1919). The unwillingness of the Germans
to conclude was mainly due to the lack of any absolute guarantee on the
part of the Allies that, if they surrendered the ships, they would get
the food. But assuming reasonable good faith on the part of the latter
(their behavior in respect of certain other clauses of the Armistice,
however, had not been impeccable and gave the enemy some just grounds
for suspicion), their demand was not an improper one; for without the
German ships the business of transporting the food would have been
difficult, if not impossible, and the German ships surrendered or their
equivalent were in fact almost wholly employed in transporting food to
Germany itself. Up to June 30, 1919, 176 German ships of 1,025,388 gross
tonnage had been surrendered, to the Allies in accordance with the
Brussels Agreement.
[120] The amount of tonnage transferred may be rather greater
and the value per ton rather less. The aggregate value involved is not
likely, however, to be less than $500,000,000 or greater than
$750,000,000.
[121] This census was carried out by virtue of a Decree of
August 23, 1918. On March 22, 1917, the German Government acquired
complete control over the utilization of foreign securities in German
possession; and in May, 1917, it began to exercise these powers for the
mobilization of certain Swedish, Danish, and Swiss securities.
[122] 1892. Schmoller $2,500,000,000
1892. Christians 3,250,000,000
1893-4. Koch 3,000,000,000
1905. v. Halle 4,000,000,000[A]
1913. Helfferich 5,000,000,000[B]
1914. Ballod 6,250,000,000
1914. Pistorius 6,250,000,000
1919. Hans David 5,250,000,000[C]
[A] Plus $2,500,000 for investments other than securities.
[B] Net investments, _i.e._ after allowance for property in
Germany owned abroad. This may also be the case with some of the other
estimates.
[C] This estimate, given in the _Weltwirtschaftszeitung_ (June
13, 1919), is an estimate of the value of Germany's foreign investments
as at the outbreak of war.
[123] I have made no deduction for securities in the ownership
of Alsace-Lorrainers and others who have now ceased to be German
nationals.
[124] In all these estimates, I am conscious of being driven by
a fear of overstating the case against the Treaty, of giving figures in
excess of my own real judgment. There is a great difference between
putting down on paper fancy estimates of Germany's resources and
actually extracting contributions in the form of cash. I do not myself
believe that the Reparation Commission will secure real resources from
the above items by May, 1921, even as great as the _lower_ of the two
figures given above.
[125] The Treaty (see Art. 114) leaves it very dubious how far
the Danish Government is under an obligation to make payments to the
Reparation Commission in respect of its acquisition of Schleswig. They
might, for instance, arrange for various offsets such as the value of
the mark notes held by the inhabitants of ceded areas. In any case the
amount of money involved is quite small. The Danish Government is
raising a loan for $33,000,000 (kr. 120,000,000) for the joint purposes
of "taking over Schleswig's share of the German debt, for buying German
public property, for helping the Schleswig population, and for settling
the currency question."
[126] Here again my own judgment would carry me much further
and I should doubt the possibility of Germany's exports equaling her
imports during this period. But the statement in the text goes far
enough for the purpose of my argument.
[127] It has been estimated that the cession of territory to
France, apart from the loss of Upper Silesia, may reduce Germany's
annual pre-war production of steel ingots from 20,000,000 tons to
14,000,000 tons, and increase France's capacity from 5,000,000 tons to
11,000,000 tons.
[128] Germany's exports of sugar in 1913 amounted to 1,110,073
tons of the value of $65,471,500, of which 838,583 tons were exported to
the United Kingdom at a value of $45,254,000. These figures were in
excess of the normal, the average total exports for the five years
ending 1913 being about $50,000,000.
[129] The necessary price adjustment, which is required, on
both sides of this account, will be made _en bloc_ later.
[130] If the amount of the sinking fund be reduced, and the
annual payment is continued over a greater number of years, the present
value--so powerful is the operation of compound interest--cannot be
materially increased. A payment of $500,000,000 annually _in
perpetuity_, assuming interest, as before, at 5 per cent, would only
raise the present value to $10,000,000,000.
[131] As an example of public misapprehension on economic
affairs, the following letter from Sir Sidney Low to _The Times_ of the
3rd December, 1918, deserves quotation: "I have seen authoritative
estimates which place the gross value of Germany's mineral and chemical
resources as high as $1,250,000,000,000 or even more; and the Ruhr basin
mines alone are said to be worth over $225,000,000,000. It is certain,
at any rate, that the capital value of these natural supplies is much
greater than the total war debts of all the Allied States. Why should
not some portion of this wealth be diverted for a sufficient period from
its present owners and assigned to the peoples whom Germany has
assailed, deported, and injured? The Allied Governments might justly
require Germany to surrender to them the use of such of her mines, and
mineral deposits as would yield, say, from $500,000,000 to
$1,000,000,000 annually for the next 30, 40, or 50 years. By this means
we could obtain sufficient compensation from Germany without unduly
stimulating her manufactures and export trade to our detriment." It is
not clear why, if Germany has wealth exceeding $1,250,000,000,000. Sir
Sidney Low is content with the trifling sum of $500,000,000 to
$1,000,000,000 annually. But his letter is an admirable _reductio ad
absurdum_ of a certain line of thought. While a mode of calculation,
which estimates the value of coal miles deep in the bowels of the earth
as high as in a coal scuttle, of an annual lease of $5000 for 999 years
at $4,995,000 and of a field (presumably) at the value of all the crops
it will grow to the end of recorded time, opens up great possibilities,
it is also double-edged. If Germany's total resources are worth
$1,250,000,000,000, those she will part with in the cession of
Alsace-Lorraine and Upper Silesia should be more than sufficient to pay
the entire costs of the war and reparation together. In point of fact,
the _present_ market value of all the mines in Germany of every kind has
been estimated at $1,500,000,000, or a little more than one-thousandth
part of Sir Sidney Low's expectations.
[132] The conversion at par of 5,000 million marks overstates,
by reason of the existing depreciation of the mark, the present money
burden of the actual pensions payments, but not, in all probability, the
real loss of national productivity as a result of the casualties
suffered in the war.
[133] It cannot be overlooked, in passing, that in its results
on a country's surplus productivity a lowering of the standard of life
acts both ways. Moreover, we are without experience of the psychology of
a white race under conditions little short of servitude. It is, however,
generally supposed that if the whole of a man's surplus production is
taken from him, his efficiency and his industry are diminished, The
entrepreneur and the inventor will not contrive, the trader and the
shopkeeper will not save, the laborer will not toil, if the fruits of
their industry are set aside, not for the benefit of their children,
their old age, their pride, or their position, but for the enjoyment of
a foreign conqueror.
[134] In the course of the compromises and delays of the
Conference, there were many questions on which, in order to reach any
conclusion at all, it was necessary to leave a margin of vagueness and
uncertainty. The whole method of the Conference tended towards
this,--the Council of Four wanted, not so much a settlement, as a
treaty. On political and territorial questions the tendency was to leave
the final arbitrament to the League of Nations. But on financial and
economic questions, the final decision has generally be a left with the
Reparation Commission,--in spite of its being an executive body composed
of interested parties.
[135] The sum to be paid by Austria for Reparation is left to
the absolute discretion of the Reparation Commission, no determinate
figure of any kind being mentioned in the text of the Treaty Austrian
questions are to be handled by a special section of the Reparation
Commission, but the section will have no powers except such as the main
Commission may delegate.
[136] Bulgaria is to pay an indemnity of $450,000,000 by
half-yearly instalments, beginning July 1, 1920. These sums will be
collected, on behalf of the Reparation Commission, by an Inter-Ally
Commission of Control, with its seat at Sofia. In some respects the
Bulgarian Inter-Ally Commission appears to have powers and authority
independent of the Reparation Commission, but it is to act,
nevertheless, as the agent of the latter, and is authorized to tender
advice to the Reparation Commission as to, for example, the reduction of
the half-yearly instalments.
[137] Under the Treaty this is the function of any body
appointed for the purpose by the principal Allied and Associated
Governments, and not necessarily of the Reparation Commission. But it
may be presumed that no second body will be established for this special
purpose.
[138] At the date of writing no treaties with these countries
have been drafted. It is possible that Turkey might be dealt with by a
separate Commission.
[139] This appears to me to be in effect the position (if this
paragraph means anything at all), in spite of the following disclaimer
of such intentions in the Allies' reply:--"Nor does Paragraph 12(b) of
Annex II. give the Commission powers to prescribe or enforce taxes or to
dictate the character of the German budget."
[140] Whatever that may mean.
[141] Assuming that the capital sum is discharged evenly over a
period as short as thirty-three years, this has the effect of _halving_
the burden as compared with the payments required on the basis of 5 per
cent interest on the outstanding capital.
[142] I forbear to outline the further details of the German
offer as the above are the essential points.
[143] For this reason it is not strictly comparable with my
estimate of Germany's capacity in an earlier section of this chapter,
which estimate is on the basis of Germany's condition as it will be when
the rest of the Treaty has come into effect.
[144] Owing to delays on the part of the Allies in ratifying
the Treaty, the Reparation Commission had not yet been formally
constituted by the end of October, 1919. So far as I am aware,
therefore, nothing has been done to make the above offer effective. But,
perhaps in view of the circumstances, there has been an extension of the
date.