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- Title: A Revision of the Treaty
- Being a Sequel of The Economic Consequence of the Peace
- Author: John Maynard Keynes
- Release Date: June 19, 2014 [EBook #46037]
- Language: English
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- *** START OF THIS PROJECT GUTENBERG EBOOK A REVISION OF THE TREATY ***
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- [Illustration: LORD KEYNES.]
- A REVISION OF THE TREATY
- A REVISION
- OF THE TREATY
- BEING A SEQUEL TO
- THE ECONOMIC CONSEQUENCES
- OF THE PEACE
- BY
- JOHN MAYNARD KEYNES, C.B.
- FELLOW OF KING’S COLLEGE, CAMBRIDGE
- [Illustration]
- NEW YORK
- HARCOURT, BRACE AND COMPANY
- 1922
- COPYRIGHT, 1922, BY
- HARCOURT, BRACE AND COMPANY, INC.
- PRINTED IN THE U. S. A. BY
- THE QUINN BODEN & COMPANY
- RAHWAY, N. J.
- PREFACE
- _The Economic Consequences of the Peace_, which I published in
- December 1919, has been reprinted from time to time without revision
- or correction. So much has come to our knowledge since then, that a
- revised edition of that book would be out of place. I have thought it
- better, therefore, to leave it unaltered, and to collect together in
- this _Sequel_ the corrections and additions which the flow of events
- makes necessary, together with my reflections on the present facts.
- But this book is strictly what it represents itself to be—a _Sequel_;
- I might almost have said an Appendix. I have nothing very new to say on
- the fundamental issues. Some of the Remedies which I proposed two years
- ago are now everybody’s commonplaces, and I have nothing startling to
- add to them. My object is a strictly limited one, namely to provide
- facts and materials for an intelligent review of the Reparation Problem
- as it now is.
- “The great thing about this wood,” said M. Clemenceau of his pine
- forest in La Vendée, “is that, here, there is not the slightest chance
- of meeting Lloyd George or President Wilson. Nothing here but the
- squirrels.” I wish that I could claim the same advantages for this book.
- J. M. KEYNES.
- KING’S COLLEGE, CAMBRIDGE,
- _December_ 1921.
- CONTENTS
- CHAPTER I
- PAGE
- THE STATE OF OPINION 3
- CHAPTER II
- FROM THE RATIFICATION OF THE TREATY OF VERSAILLES TO
- THE SECOND ULTIMATUM OF LONDON 11
- EXCURSUS I.—COAL 44
- EXCURSUS II.—THE LEGALITY OF OCCUPYING GERMANY
- EAST OF THE RHINE 57
- CHAPTER III
- THE BURDEN OF THE LONDON SETTLEMENT 64
- EXCURSUS III.—THE WIESBADEN AGREEMENT 92
- EXCURSUS IV.—THE MARK EXCHANGE 100
- CHAPTER IV
- THE REPARATION BILL 106
- EXCURSUS V.—RECEIPTS AND EXPENSES PRIOR TO
- MAY 1, 1921 131
- EXCURSUS VI.—THE DIVISION OF RECEIPTS BETWEEN
- THE ALLIES 138
- CHAPTER V
- THE LEGALITY OF THE CLAIM FOR PENSIONS 144
- CHAPTER VI
- REPARATION, INTER–ALLY DEBT, AND INTERNATIONAL TRADE 163
- CHAPTER VII
- THE REVISION OF THE TREATY AND THE SETTLEMENT OF
- EUROPE 179
- APPENDIX OF DOCUMENTS
- I. SUMMARY OF SPA AGREEMENT (JULY 1920) 203
- II. THE DECISIONS OF PARIS (JANUARY 1921) 207
- III. THE CLAIMS SUBMITTED TO THE REPARATION COMMISSION
- (FEBRUARY 1921) 210
- IV. THE FIRST ULTIMATUM OF LONDON (MARCH 1921) 213
- V. THE GERMAN COUNTER–PROPOSAL (APRIL 1921) 215
- VI. THE REPARATION COMMISSION’S ASSESSMENT (APRIL
- 1921) 219
- VII. THE SECOND ULTIMATUM OF LONDON (MAY 1921) 219
- VIII. SUMMARY OF THE WIESBADEN AGREEMENT (OCTOBER
- 1921) 228
- IX. TABLES OF INTER–GOVERNMENTAL INDEBTEDNESS 238
- INDEX 240
- A REVISION OF THE TREATY
- BEING A SEQUEL TO
- THE ECONOMIC CONSEQUENCES OF THE PEACE
- CHAPTER I
- THE STATE OF OPINION
- It is the method of modern statesmen to talk as much folly as the
- public demand and to practise no more of it than is compatible with
- what they have said, trusting that such folly in action as must wait
- on folly in word will soon disclose itself as such, and furnish an
- opportunity for slipping back into wisdom,—the Montessori system for
- the child, the Public. He who contradicts this child will soon give
- place to other tutors. Praise, therefore, the beauty of the flames he
- wishes to touch, the music of the breaking toy; even urge him forward;
- yet waiting with vigilant care, the wise and kindly savior of Society,
- for the right moment to snatch him back, just singed and now attentive.
- I can conceive for this terrifying statesmanship a plausible defense.
- Mr. Lloyd George took the responsibility for a Treaty of Peace, which
- was not wise, which was partly impossible, and which endangered the
- life of Europe. He may defend himself by saying that he knew that it
- was not wise and was partly impossible and endangered the life of
- Europe; but that public passions and public ignorance play a part
- in the world of which he who aspires to lead a democracy must take
- account; that the Peace of Versailles was the best momentary settlement
- which the demands of the mob and the characters of the chief actors
- conjoined to permit; and for the life of Europe, that he has spent his
- skill and strength for two years in avoiding or moderating the dangers.
- Such claims would be partly true and cannot be brushed away. The
- private history of the Peace Conference, as it has been disclosed by
- French and American participators, displays Mr. Lloyd George in a
- partly favorable light, generally striving against the excesses of the
- Treaty and doing what he could, short of risking a personal defeat.
- The public history of the two years which have followed it exhibit him
- as protecting Europe from as many of the evil consequences of his own
- Treaty, as it lay in his power to prevent, with a craft few could have
- bettered, preserving the peace, though not the prosperity, of Europe,
- seldom expressing the truth, yet often acting under its influence. He
- would claim, therefore, that by devious paths, a faithful servant of
- the possible, he was serving Man.
- He may judge rightly that this is the best of which a democracy is
- capable,—to be jockeyed, humbugged, cajoled along the right road. A
- preference for truth or for sincerity _as a method_ may be a prejudice
- based on some esthetic or personal standard, inconsistent, in
- politics, with practical good.
- We cannot yet tell. Even the public learns by experience. Will
- the charm work still, when the stock of statesmen’s credibility,
- accumulated before these times, is getting exhausted?
- In any event, private individuals are not under the same obligation
- as Cabinet Ministers to sacrifice veracity to the public weal. It is
- a permitted self–indulgence for a private person to speak and write
- freely. Perhaps it may even contribute one ingredient to the congeries
- of things which the wands of statesmen cause to work together, so
- marvelously, for our ultimate good.
- * * * * *
- For these reasons I do not admit error in having based _The Economic
- Consequences of the Peace_ on a literal interpretation of the Treaty
- of Versailles, or in having examined the results of actually carrying
- it out. I argued that much of it was _impossible;_ but I do not agree
- with many critics, who held that, for this very reason, it was also
- harmless. Inside opinion accepted from the beginning many of my main
- conclusions about the Treaty.[1] But it was not therefore unimportant
- that outside opinion should accept them also.
- For there are, in the present times, two opinions; not, as in former
- ages, the true and the false, but the outside and the inside; the
- opinion of the public voiced by the politicians and the newspapers,
- and the opinion of the politicians, the journalists and the civil
- servants, upstairs and backstairs and behind–stairs, expressed in
- limited circles. In time of war it became a patriotic duty that the two
- opinions should be as different as possible; and some seem to think it
- so still.
- This is not entirely new. But there has been a change. Some say that
- Mr. Gladstone was a hypocrite; yet if so, he dropped no mask in
- private life. The high tragedians, who once ranted in the Parliaments
- of the world, continued it at supper afterwards. But appearances can
- no longer be kept up behind the scenes. The paint of public life, if
- it is ruddy enough to cross the flaring footlights of to–day, cannot
- be worn in private,—which makes a great difference to the psychology
- of the actors themselves. The multitude which lives in the auditorium
- of the world needs something larger than life and plainer than the
- truth. Sound itself travels too slowly in this vast theater, and a true
- word no longer holds when its broken echoes have reached the furthest
- listener.
- Those who live in the limited circles and share the inside opinion pay
- both too much and too little attention to the outside opinion; too
- much, because, ready in words and promises to concede to it everything,
- they regard open opposition as absurdly futile; too little, because
- they believe that these words and promises are so certainly destined to
- change in due season, that it is pedantic, tiresome, and inappropriate
- to analyze their literal meaning and exact consequences. They know all
- this nearly as well as the critic, who wastes, in their view, his time
- and his emotions in exciting himself too much over what, on his own
- showing, cannot possibly happen. Nevertheless, what is said before the
- world is, still, of deeper consequence than the subterranean breathings
- and well–informed whisperings, knowledge of which allows inside opinion
- to feel superior to outside opinion, even at the moment of bowing to it.
- But there is a further complication. In England (and perhaps elsewhere
- also), there are _two_ outside opinions, that which is expressed in the
- newspapers and that which the mass of ordinary men privately suspect to
- be true. These two degrees of the outside opinion are much nearer to
- one another than they are to the inside, and under some aspects they
- are identical; yet there is under the surface a real difference between
- the dogmatism and definiteness of the press and the living, indefinite
- belief of the individual man. I fancy that even in 1919 the average
- Englishman never really believed in the indemnity; he took it always
- with a grain of salt, with a measure of intellectual doubt. But it
- seemed to him that for the time being there could be little practical
- harm in going on the indemnity tack, and also that, in relation to
- his feelings at that time, a belief in the possibility of boundless
- payments by Germany was in better sentiment, even if less true, than
- the contrary. Thus the recent modification in British outside opinion
- is only partly intellectual, and is due rather to changed conditions;
- for it is seen that perseverance with the indemnity does now involve
- practical harm, whilst the claims of sentiment are no longer so
- decisive. He is therefore prepared to attend to arguments, of which he
- had always been aware out of the corner of his eye.
- Foreign observers are apt to heed too little these unspoken
- sensibilities, which the voice of the press is bound to express
- ultimately. Inside opinion gradually affects them by percolating to
- wider and wider circles; and they are susceptible in time to argument,
- common sense, or self–interest. It is the business of the modern
- politician to be accurately aware of all three degrees; he must have
- enough intellect to understand the inside opinion, enough sympathy to
- detect the inner outside opinion, and enough brass to express the outer
- outside opinion.
- Whether this account is true or fanciful, there can be no doubt as
- to the immense change in public sentiment over the past two years.
- The desire for a quiet life, for reduced commitments, for comfortable
- terms with our neighbors is now paramount. The megalomania of war has
- passed away, and every one wishes to conform himself with the facts.
- For these reasons the Reparation Chapter of the Treaty of Versailles is
- crumbling. There is little prospect now of the disastrous consequences
- of its fulfilment.
- I undertake in the following chapters a double task, beginning with
- a chronicle of events and a statement of the present facts, and
- concluding with proposals of what we ought to do. I naturally attach
- primary importance to the latter. But it is not only of historical
- interest to glance at the recent past. If we look back a little closely
- on the two years which have just elapsed (and the general memory
- unaided is now so weak that we know the past little better than the
- future), we shall be chiefly struck, I think, by the large element
- of injurious make–believe. My concluding proposals assume that this
- element of make–believe has ceased to be politically necessary; that
- outside opinion is now ready for inside opinion to disclose, and act
- upon, its secret convictions; and that it is no longer an act of futile
- indiscretion to speak sensibly in public.
- FOOTNOTE:
- [1] “Its merely colorable fulfilment of solemn contracts with a
- defeated nation, its timorous failure to reckon with economic
- realities,” as Professor Allyn Young wrote in a review of my book.
- Yet Professor Young has thought right, nevertheless, to make
- himself a partial apologist of the Treaty, and to describe it as “a
- forward–looking document.”
- CHAPTER II
- FROM THE RATIFICATION OF THE TREATY OF VERSAILLES TO THE SECOND
- ULTIMATUM OF LONDON
- I. _The Execution of the Treaty and the Plebiscites_
- The Treaty of Versailles was ratified on January 10, 1920, and except
- in the plebiscite areas its territorial provisions came into force on
- that date. The Slesvig plebiscite (February and March, 1920) awarded
- the north to Denmark and the south to Germany, in each case by a
- decisive majority. The East Prussian plebiscite (July, 1920) showed an
- overwhelming vote for Germany. The Upper Silesian plebiscite (March,
- 1921) yielded a majority of nearly two to one in favor of Germany for
- the province as a whole,[2] but a majority for Poland in certain areas
- of the south and east. On the basis of this vote, and having regard to
- the industrial unity of certain disputed areas, the principal Allies,
- with the exception of France, were of opinion that, apart from the
- southeastern districts of Pless and Rybnik which, although they contain
- undeveloped coalfields of great importance, are at present agricultural
- in character, nearly the whole of the province should be assigned to
- Germany. Owing to the inability of France to accept this solution,
- the whole problem was referred to the League of Nations for final
- arbitration. This body bisected the industrial area in the interests of
- racial or nationalistic justice; and introduced at the same time, in
- the endeavor to avoid the consequences of this bisection, complicated
- economic provisions of doubtful efficiency in the interests of material
- prosperity. They limited these provisions to fifteen years, trusting
- perhaps that something will have occurred to revise their decision
- before the end of that time. Broadly speaking, the frontier has been
- drawn, entirely irrespective of economic considerations, so as to
- include as large as possible a proportion of German voters on one side
- of it and Polish voters on the other (although to achieve this result
- it has been thought necessary to assign two almost purely German towns,
- Kattowitz and Königshütte to Poland). From this limited point of view
- the work may have been done fairly. But the Treaty had directed that
- economic and geographical considerations should be taken into account
- also.
- I do not intend to examine in detail the wisdom of this decision. It
- is believed in Germany that subterranean influence brought to bear
- by France contributed to the result. I doubt if this was a material
- factor, except that the officials of the League were naturally anxious,
- in the interests of the League itself, to produce a solution which
- would not be a fiasco through the members of the Council of the
- League failing to agree about it amongst themselves; which inevitably
- imported a certain bias in favor of a solution acceptable to France.
- The decision raises, I think, much more fundamental doubts about this
- method of settling international affairs.
- Difficulties do not arise in simple cases. The League of Nations
- will be called in where there is a conflict between opposed and
- incommensurable claims. A good decision can only result by impartial,
- disinterested, very well–informed and authoritative persons taking
- _everything_ into account. Since International Justice is dealing with
- vast organic units and not with a multitude of small units of which
- the individual particularities are best ignored and left to average
- themselves out, it cannot be the same thing as the cut–and–dried
- lawyer’s justice of the municipal court. It will be a dangerous
- practice, therefore, to entrust the settlement of the ancient conflicts
- now inherent in the tangled structure of Europe, to elderly gentlemen
- from South America and the far Asiatic East, who will deem it their
- duty to extract a strict legal interpretation from the available
- signed documents,—who will, that is to say, take account of as _few_
- things as possible, in an excusable search for a simplicity which is
- not there. That would only give us more judgments of Solomon with the
- ass’s ears, a Solomon with the bandaged eyes of law, who, when he says
- “Divide ye the living child in twain,” means it.
- The Wilsonian dogma, which exalts and dignifies the divisions of race
- and nationality above the bonds of trade and culture, and guarantees
- frontiers but not happiness, is deeply embedded in the conception of
- the League of Nations as at present constituted. It yields us the
- paradox that the first experiment in international government should
- exert its influence in the direction of intensifying nationalism.
- These parenthetic reflections have arisen from the fact that from a
- certain limited point of view the Council of the League may be able to
- advance a good case in favor of its decision. My criticism strikes more
- deeply than would a mere allegation of partiality.
- With the conclusion of the plebiscites the frontiers of Germany were
- complete.
- In January 1920 Holland was called on to surrender the Kaiser; and,
- to the scarcely concealed relief of the Governments concerned, she
- duly refused (January 23, 1920). In the same month the surrender of
- some thousands of “war criminals” was claimed, but, in the face of a
- passionate protest from Germany, was not insisted on. It was arranged
- instead that, in the first instance at least, only a limited number of
- cases should be pursued, not before Allied Courts, as provided by the
- Treaty, but before the High Court of Leipzig. Some such cases have been
- tried; and now, by tacit consent, we hear no more about it.
- On March 13, 1920, an outbreak by the reactionaries in Berlin (the
- Kapp “Putsch”) resulted in their holding the capital for five days
- and in the flight of the Ebert Government to Dresden. The defeat of
- this outbreak, largely by means of the weapon of the general strike
- (the first success of which was, it is curious to note, in defense
- of established order), was followed by Communist disturbances in
- Westphalia and the Ruhr. In dealing with this second outbreak, the
- German Government despatched more troops into the district than was
- permissible under the Treaty, with the result that France seized the
- opportunity, without the concurrence of her Allies, of occupying
- Frankfurt (April 6, 1920) and Darmstadt, this being the immediate
- occasion of the first of the series of Allied Conferences recorded
- below—the Conference of San Remo.
- These events, and also doubts as to the capacity of the Central German
- Government to enforce its authority in Bavaria, led to successive
- postponements of the completion of disarmament, due under the Treaty
- for March 31, 1920, until its final enforcement by the London Ultimatum
- of May 5, 1921.
- There remains Reparation, the chief subject of the chronicle which
- follows. In the course of 1920 Germany carried out certain specific
- deliveries and restitutions prescribed by the Treaty. A vast quantity
- of identifiable property, removed from France and Belgium, was duly
- restored to its owners.[3] The Mercantile Marine was surrendered. Some
- dyestuffs were delivered, and a certain quantity of coal. But Germany
- paid no cash, and the real problem of Reparation was still postponed.[4]
- With the Conferences of the spring and summer of 1920 there began the
- long series of attempts to modify the impossibilities of the Treaty and
- to mold it into workable form.
- II. _The Conferences of San Remo_ (_April_ 19–26, 1920), _Hythe_ (_May_
- 15 _and June_ 19, 1920), _Boulogne_ (_June_ 21, 22, 1920), _Brussels_
- (_July_ 2–3, 1920), _and Spa_ (_July_ 5–16, 1920)
- It is difficult to keep distinct the series of a dozen discussions
- between the Premiers of the Allied Powers which occupied the year from
- April 1920 to April 1921. The result of each Conference was generally
- abortive, but the total effect was cumulative; and by gradual stages
- the project of revising the Treaty gained ground in every quarter. The
- Conferences furnish an extraordinary example of Mr. Lloyd George’s
- methods. At each of them he pushed the French as far as he could, but
- not as far as he wanted; and then came home to acclaim the settlement
- provisionally reached (and destined to be changed a month later) as an
- expression of complete accord between himself and his French colleague,
- as a nearly perfect embodiment of wisdom, and as a settlement which
- Germany would be well advised to accept as final, adding about every
- third time that, if she did not, he would support the invasion of
- her territory. As time went on, his reputation with the French was
- not improved; yet he steadily gained his object,—though this may be
- ascribed not to the superiority of the method as such, but to facts
- being implacably on his side.
- The first of the series, the Conference of San Remo (April 19–26,
- 1920), was held under the presidency of the Italian Premier, Signor
- Nitti, who did not conceal his desire to revise the Treaty. M.
- Millerand stood, of course, for its integrity, whilst Mr. Lloyd George
- (according to _The Times_ of that date) occupied a middle position.
- Since it was evident that the French would not then accept any new
- formula, Mr. Lloyd George concentrated his forces on arranging for a
- discussion face to face between the Supreme Council and the German
- Government, such a meeting, extraordinary to relate, having never yet
- been arranged, neither during the Peace Conference nor afterwards.
- Defeated in a proposal to invite German representatives to San Remo
- forthwith, he succeeded in carrying a decision to summon them to
- visit Spa in the following month “for the discussion of the practical
- application of the Reparation Clauses.” This was the first step; and
- for the rest the Conference contented itself with a Declaration on
- German Disarmament. Mr. Lloyd George had had to concede to M. Millerand
- that the integrity of the Treaty should be maintained; but speaking in
- the House of Commons on his return home, he admitted a preference for a
- not “too literal” interpretation of it.
- In May the Premiers met in privacy at Hythe to consider their course
- at Spa. The notion of the sliding scale, which was to play a great
- part in the Paris Decisions and the Second Ultimatum of London, now
- came definitely on the carpet. A Committee of Experts was appointed to
- prepare for examination a scheme by which Germany should pay a certain
- minimum sum each year, supplemented by further sums in accordance with
- her capacity. This opened the way for new ideas, but no agreement was
- yet in sight as to actual figures. Meantime the Spa Conference was put
- off for a month.
- In the following month the Premiers met again at Boulogne (June 21,
- 1920), this meeting being preceded by an informal week–end at Hythe
- (June 19, 1920). It was reported that on this occasion the Allies got
- so far as definitely to agree on the principle of minimum annuities
- extensible in accordance with Germany’s economic revival. Definite
- figures even were mentioned, namely, a period of thirty–five years and
- minimum annuities of three milliard gold marks. The Spa Conference was
- again put off into the next month.
- At last the Spa meeting was really due. Again the Premiers met
- (Brussels, July 2, 3, 1920) to consider the course they would adopt.
- They discussed many things, especially the proportions in which the
- still hypothetical Reparation receipts were to be divided amongst
- the claimants.[5] But no concrete scheme was adopted for Reparation
- itself. Meanwhile a memorandum handed in by the German experts made
- it plain that no plan politically possible in France was economically
- possible in Germany. “The Note of the German economic experts,” wrote
- _The Times_ on July 3, 1920, “is tantamount to a demand for a complete
- revision of the Peace Treaty. The Allies have therefore to consider
- whether they will call the Germans sharply to order under the menace of
- definite sanctions, or whether they will risk creating the impression
- of feebleness by dallying with German tergiversations.” This was a
- good idea; if the Allies could not agree amongst themselves as to the
- precise way of altering the Treaty, a “complete accord” between them
- could be re–established by “calling the Germans sharply to order” for
- venturing to suggest that the Treaty could be altered at all.
- At last, on July 5, 1920, the long–heralded Conference met. But,
- although it occupied twelve days, no time was found for reaching
- the item on the agenda which it had been primarily summoned to
- discuss—namely, Reparations. Before this dangerous topic could be
- reached urgent engagements recalled M. Millerand to Paris. One of the
- chief subjects actually dealt with, coal, is treated in Excursus I.
- at the conclusion of this chapter. But the chief significance of the
- meeting lay in the fact that then for the first time the responsible
- ministers and experts of Germany and the Allied States met face to face
- and used the methods of public conference and even private intimacy.
- The Spa Conference produced no plan; but it was the outward sign of
- some progress under the surface.
- III. _The Brussels Conference_ (_December_ 16–22, 1920)
- Whilst the Spa Conference made no attempt to discuss the general
- question of the Reparation settlement, it was again agreed that the
- latter should be tackled at an early date. But time passed by, and
- nothing happened. On September 23, 1920, M. Millerand succeeded to
- the Presidency of the French Republic, and his place as Premier was
- taken by M. Leygues. French official opinion steadily receded from
- the concessions, never fully admitted to the French public, which
- Mr. Lloyd George had extracted at Boulogne. They now preferred to
- let the machinery of the Reparation Commission run its appointed
- course. At last, however, on November 6, 1920, after much diplomatic
- correspondence, it was announced that once again the French and British
- Governments were in “complete accord.” A conference of experts,
- nominated by the Reparation Commission, was to sit with German experts
- and report; then a conference of ministers was to meet the German
- Government and report; with these two reports before it the Reparation
- Commission was to fix the amount of Germany’s liability; and finally,
- the heads of the Allied Governments were to meet and “take decisions.”
- “Thus,” _The Times_ recorded, “after long wanderings in the wilderness
- we are back once more at the Treaty of Versailles.” The re–perusal of
- old files of newspapers, which the industrious author has undertaken,
- corroborates, if nothing else does, the words of the Preacher and the
- dustiness of fate.
- The first stage of this long procedure was in fact undertaken, and
- certain permanent officials of the Allied Governments[6] met German
- representatives at Brussels, shortly before Christmas 1920, to
- ascertain facts and to explore the situation generally. This was a
- conference of “experts” as distinguished from the conferences of
- “statesmen” which preceded and followed it.
- The work of the Brussels experts was so largely ignored and overthrown
- by the meetings of the statesmen at Paris shortly afterwards, that it
- is not now worth while to review it in detail. It marked, however,
- a new phase in our relations with Germany. The officials of the two
- sides met in an informal fashion and talked together like rational
- beings. They were representative of the pick of what might be called
- “international officialdom,” cynical, humane, intelligent, with a
- strong bias towards facts and a realistic treatment. Both sides
- believed that progress was being made towards a solution; mutual
- respect was fostered; and a sincere regret was shared at the early
- abandonment of reasonable conversations.
- The Brussels experts did not feel themselves free to consider an
- average payment less than that contemplated at Boulogne. They
- recommended to the Allied Governments, accordingly, (1) that during the
- five years from 1921 to 1926 Germany should pay an _average_ annuity of
- $750,000,000, but that this average annuity should be so spread over
- the five years that less than this amount would be payable in the first
- two years and more in the last two years, the question of the amount of
- subsequent payments, after the expiry of five years, being postponed
- for the present;
- (2) That a substantial part of this sum should be paid in the form of
- deliveries of material and not of cash;
- (3) That the annual expenses of the Armies of Occupation should be
- limited to $60,000,000, which payment need not be additional to the
- above annuities but a first charge on them;
- (4) That the Allies should waive their claim on Germany to build ships
- for them and should perhaps relinquish, or postpone, the claim for the
- delivery of a certain number of the existing German vessels;
- (5) That Germany on her side should put her finances and her budget in
- order and should agree to the Allies taking control of her customs in
- the event of default under the above scheme.
- IV. _The Decisions of Paris_ (_January_ 24–30, 1921)
- The suggestions of the Brussels experts furnished no permanent
- settlement of the question, but they represented, nevertheless, a
- great advance from the ideas of the Treaty. In the meantime, however,
- opinion in France was rising against the concessions contemplated.
- M. Leygues, it appeared, would be unable to carry in the Chamber the
- scheme discussed at Boulogne. Prolonged political intrigue ended in the
- succession of M. Briand to the Premiership, with the extreme defenders
- of the literal integrity of the Treaty of Versailles, M. Poincaré, M.
- Tardieu, and M. Klotz, still in opposition. The projects of Boulogne
- and Brussels were thrown into the melting–pot, and another conference
- was summoned to meet at Paris at the end of January 1921.
- It was at first doubtful whether the proceedings might not terminate
- with a breach between the British and the French points of view. Mr.
- Lloyd George was justifiably incensed at having to surrender most of
- the ground which had seemed definitely gained at Boulogne; with these
- fluctuations negotiation was a waste of time and progress impossible.
- He was also disinclined to demand payments from Germany which _all_
- the experts now thought impossible. For a few days he was entirely
- unaccommodating to the French contentions; but as the business
- proceeded he became aware that M. Briand was a kindred spirit, and
- that, whatever nonsense he might talk in public, he was secretly quite
- sensible. A breach in the conversations might mean the fall of Briand
- and the entrance to office of the wild men, Poincaré and Tardieu,
- who, if their utterances were to be taken seriously and were not
- merely a ruse to obtain office, might very well disturb the peace of
- Europe before they could be flung from authority. Was it not better
- that Mr. Lloyd George and M. Briand, both secretly sensible, should
- remain colleagues at the expense of a little nonsense in unison for a
- short time? This view of the situation prevailed, and an ultimatum was
- conveyed to Germany on the following lines.[7]
- The Reparation payments, proposed to Germany by the Paris Conference,
- were made up of a determinate part and an indeterminate part.
- The former consisted of $500,000,000 per annum for two years,
- $750,000,000 for the next three, then $1,000,000,000 for three more,
- and $1,250,000,000 for three after that, and, finally, $1,500,000,000
- annually for 31 years. The latter (the indeterminate part) consisted of
- an annual sum, additional to the above, equal in value to 12 per cent
- of the German exports. The fixed payments under this scheme added up to
- a gross total of $56,500,000,000 which was a little less than the gross
- total contemplated at Boulogne but, with the export proportion added, a
- far greater sum.
- The indeterminate element renders impossible an exact calculation of
- this burden, and it is no longer worth while to go into details. But
- I calculated at the time, without contradiction, that these proposals
- amounted for the normal period to a demand exceeding $2,000,000,000 per
- annum, which is double the highest figure that any competent person in
- Great Britain or in the United States has ever attempted to justify.
- The Paris Decisions, however, coming as they did after the discussions
- of Boulogne and Brussels, were not meant seriously, and were simply
- another move in the game, to give M. Briand a breathing space. I wonder
- if there has ever been anything quite like it—best diagnosed perhaps
- as a consequence of the portentous development of “propaganda.”
- The monster had escaped from the control of its authors, and the
- extraordinary situation was produced in which the most powerful
- statesmen in the world were compelled by forces, which they could not
- evade, to meet together day after day to discuss detailed variations of
- what they knew to be impossible.
- Mr. Lloyd George successfully took care, however, that the bark should
- have no immediate bite behind it. The consideration of effective
- penalties was postponed, and the Germans were invited to attend in
- London in a month’s time to convey their answer by word of mouth.
- M. Briand duly secured his triumph in the Chamber. “Rarely,” _The
- Times_ reported, “can M. Briand in all his long career as a speaker
- and Parliamentarian have been in better form. The flaying of M.
- Tardieu was intensely dramatic, even if at times almost a little
- painful for the spectators as well as for the victim.” M. Tardieu
- had overstated his case, and “roundly asserting that the policy of
- France during the last year had been based on the conclusion that the
- financial clauses of the Treaty of Versailles could not be executed,
- had gained considerable applause by declaring that this was just the
- thesis of the pacifist, Mr. Keynes, and of the German delegate, Count
- Brockdorff–Rantzau,”—which was certainly rather unfair to the Paris
- Decisions. But by that date, even in France, to praise the perfections
- of the Treaty was to make oneself ridiculous. “I am an ingenuous man,”
- said M. Briand as he mounted the tribune, “and when I received from M.
- Tardieu news that he was going to interpellate me, I permitted myself
- to feel a little pleased. I told myself that M. Tardieu was one of the
- principal architects of the Treaty of Versailles, and that as such,
- though he knew its good qualities, he would also know its blemishes,
- and that he would, therefore, be indulgent to a man who had done
- his best in fulfilling his duty of applying it—_mais voilà_ (with
- a gesture)—I did not stop to remember that M. Tardieu had already
- expended all his stock of indulgence upon his own handiwork.” The
- monstrous offspring of propaganda was slowly dying.
- V. _The First Conference of London_ (_March_ 1–7, 1921)
- In Germany the Paris proposals were taken seriously and provoked
- a considerable outcry. But Dr. Simons accepted the invitation to
- London and his experts got to work at a counter–proposal. “I was
- in agreement,” he said at Stuttgart on February 13, “with the
- representatives of Britain and France at the Brussels Conference. The
- Paris Conference shattered that. A catastrophe has occurred. German
- public opinion will never forget these figures. Now it is impossible
- to return to the Seydoux plan put forward at Brussels (_i.e._, a
- provisional settlement for five years), for the German people would
- always see enormous demands rising before them like a specter.... We
- shall rather accept unjust dictation than sign undertakings we are not
- firmly persuaded the German people can keep.”
- On March 1, 1921, Dr. Simons presented his counter–proposal to the
- Allies assembled in London. Like the original counter–proposal of
- Brockdorff–Rantzau at Versailles, it was not clear–cut or entirely
- intelligible; and it was rumored that the German experts were divided
- in opinion amongst themselves. Instead of stating in plain language
- what Germany thought she could perform, Dr. Simons started from the
- figures of the Paris Decisions and then proceeded by transparent
- and futile juggling to reduce them to a quite different figure. The
- process was as follows. Take the gross total of the fixed annuities of
- the Paris scheme (_i.e._, apart from the export proportion), namely
- $56,500,000,000, and calculate its present value at _8 per cent
- interest_, namely $12,500,000,000; deduct from this $5,000,000,000
- as the alleged (but certainly not the actual) value of Germany’s
- deliveries up to date, which leaves $7,500,000,000. This was the
- utmost Germany could pay. If the Allies could raise an international
- loan of $2,000,000,000, Germany would pay the interest and sinking
- fund on this, and in addition $250,000,000 a year for five years,
- towards the discharge of the capital sum remaining over and above the
- $2,000,000,000, namely, $5,500,000,000, which capital sum, however,
- would not carry interest pending repayment. At the end of five years
- the rate of repayment would be reconsidered. The whole proposal was
- contingent on the retention of Upper Silesia and the removal of all
- impediments to German trade.
- The actual substance of this proposal was not unreasonable and probably
- as good as the Allies will ultimately secure. But the figures were far
- below even those of the Brussels experts, and the mode of putting it
- forward naturally provoked prejudice. It was summarily rejected.
- Two days later Mr. Lloyd George read to the German Delegation a
- lecture on the guilt of their country, described their proposals as
- “an offense and an exasperation,” and alleged that their taxes were
- “ridiculously low compared with Great Britain’s.” He then delivered
- a formal declaration on behalf of the Allies that Germany was in
- default in respect of “the delivery for trial of the criminals who have
- offended against the laws of war, disarmament, and the payment in cash
- or kind of $5,000,000,000”; and concluded with an ultimatum[8] to
- the effect that unless he heard by Monday (March 7) “that Germany was
- either prepared to accept the Paris Decisions or to submit proposals
- which would be in other ways an equally satisfactory discharge of her
- obligations under the Treaty of Versailles (subject to the concessions
- made in the Paris proposals),” the Allies would proceed to (1) the
- occupation of Duisberg, Ruhrort, and Düsseldorf on the right bank of
- the Rhine, (2) a levy on all payments due to Germany on German goods
- sent to Allied countries, (3) the establishment of a line of Customs
- between the occupied area of Germany and the rest of Germany, and (4)
- the retention of the Customs paid on goods entering or leaving the
- occupied area.
- During the next few days negotiations proceeded, to no purpose, behind
- the scenes. At midnight on March 6, M. Loucheur and Lord D’Abernon
- offered the Germans the alternative of a fixed payment of $750,000,000
- for 30 years and an export proportion of 30 per cent.[9] The formal
- Conference was resumed on March 7. “A crowd gathered outside Lancaster
- House in the morning and cheered Marshal Foch and Mr. Lloyd George.
- Shouts of ‘Make them pay, Lloyd George!’ were general. The German
- delegates were regarded with curiosity. General von Seeckt wore uniform
- with a sword. He wore also an eyeglass in the approved manner of the
- Prussian officer and bore himself as the incarnation of Prussian
- militarism. Marshal Foch, Field–Marshal Sir Henry Wilson, and the other
- Allied soldiers also wore uniform.”[10]
- Dr. Simons communicated his formal reply. He would accept the _régime_
- of the Paris Decisions as fixed for the first five years, provided
- Germany was helped to pay by means of a loan and retained Upper
- Silesia. At the end of five years the Treaty of Versailles would
- resume its authority, the provisions of which he preferred, as he was
- entitled to do, to the proposals of Paris. “The question of war guilt
- is to be decided neither by the Treaty, nor by acknowledgment, nor by
- Sanctions; only history will be able to decide the question as to who
- was responsible for the world war. We are all of us still too near to
- the event.” The Sanctions threatened were, he pointed out, all of them
- illegal. Germany could not be technically in default in respect of
- Reparation until the Reparation Commission had made the pronouncements
- due from them on May 1. The occupation of further German territory was
- not lawful under the Treaty. The retention of part of the value of
- German goods was contrary to undertakings given by the British and
- Belgian Governments. The erection of a special Customs tariff in the
- Rhineland was only permissible under Article 270 of the Treaty for
- the protection of the economic interests of the Rhineland population
- and not for the punishment of the whole German people in respect of
- unfulfilled Treaty obligations. The arguments as to the illegality of
- the Sanctions were indisputable, and Mr. Lloyd George made no attempt
- to answer them. He announced that the Sanctions would be put into
- operation immediately.
- The rupture of the negotiations was received in Paris “with a sigh of
- relief,”[11] and orders were telegraphed by Marshal Foch for his troops
- to march at 7 A.M. next morning.
- No new Reparation scheme, therefore, emerged from the Conference of
- London. Mr. Lloyd George’s acquiescence in the Decisions of Paris had
- led him too far. Some measure of personal annoyance at the demeanor of
- the German representatives and the failure of what, in its inception,
- may have been intended as bluff, had ended in his agreeing to an
- attempt to enforce the Decisions by the invasion of Germany. The
- economic penalties, whether they were legal or not, were so obviously
- ineffective for the purpose of collecting money, that they can hardly
- have been intended for that purpose, and were rather designed to
- frighten Germany into putting her name to what she could not, and did
- not intend to perform, by threatening a serious step in the direction
- of the policy, openly advocated in certain French quarters, of
- permanently detaching the Rhine provinces from the German Commonwealth.
- The grave feature of the Conference of London lay partly in Great
- Britain’s lending herself to a furtherance of this policy, and partly
- in contempt for the due form and processes of law.
- For it was impossible to defend the legality of the occupation
- of the three towns under the Treaty of Versailles.[12] Mr. Lloyd
- George endeavored to do so in the House of Commons, but at a later
- stage of the debate the contention was virtually abandoned by the
- Attorney–General.
- The object of the Allies was to compel Germany to accept the Decisions
- of Paris. But Germany’s refusal to accept these proposals was within
- her rights and not contrary to the Treaty, since they lay outside the
- Treaty and included features unauthorized by the Treaty which Germany
- was at liberty either to accept or to reject. It was necessary,
- therefore, for the Allies to find some other pretext. Their effort in
- this direction was perfunctory, and consisted, as already recorded, in
- a vague reference to war criminals, disarmament, and the payment of 20
- milliard gold marks.
- The allegation of default in paying the 20 milliard gold marks was
- manifestly untenable at that date (March 7, 1921); for according to
- the Treaty, Germany had to pay this sum by May 1, 1921, “in such
- instalments and in such manner as the Reparation Commission may fix,”
- and in March 1921 the Reparation Commission had not yet demanded these
- cash payments.[13] But assuming that there had been technical default
- in respect of the war criminals and disarmament (and the original
- provisions of the Treaty had been so constantly modified that it was
- very difficult to say to what extent this was the case), it was our
- duty to state our charges precisely, and, if penalties were threatened,
- to make these penalties dependent on a failure to meet our charges. We
- were not entitled to make vague charges, and then threaten penalties
- unless Germany agreed to something which had nothing to do with the
- charges. The Ultimatum of March 7 substituted for the Treaty the
- intermittent application of force in exaction of varying demands. For
- whenever Germany was involved in a technical breach of any one part
- of the Treaty, the Allies were, apparently, to consider themselves
- entitled to make any changes they saw fit in any other part of the
- Treaty.
- In any case the invasion of Germany beyond the Rhine was not a lawful
- act under the Treaty. This question became of even greater importance
- in the following month, when the French announced their intention of
- occupying the Ruhr. The legal issue is discussed in Excursus II. at the
- conclusion of this Chapter.
- VI. _The Second Conference of London_ (_April_ 29–_May_ 5, 1921)
- The next two months were stormy. The Sanctions embittered the situation
- in Germany without producing any symptoms of surrender in the German
- Government. Towards the end of March the latter sought the intervention
- of the United States and transmitted a new counter–proposal through the
- Government of that country. In addition to being straightforward and
- more precise, this offer was materially better than that of Dr. Simons
- in London at the beginning of the month. The chief provisions[14] were
- as follows:
- 1. The German liability to be fixed at $12,500,000,000 present value.
- 2. As much of this as possible to be raised immediately by an
- international loan, issued on attractive terms, of which the proceeds
- would be handed over to the Allies, and the interest and sinking fund
- on which Germany would bind herself to meet.
- 3. Germany to pay interest on the balance at 4 per cent for the present.
- 4. The sinking fund on the balance to vary with the rate of Germany’s
- recovery.
- 5. Germany, in part discharge of the above, to take upon herself the
- actual reconstruction of the devastated areas on any lines agreeable to
- the Allies, and in addition to make deliveries in kind on commercial
- lines.
- 6. Germany is prepared, “up to her powers of performance,” to assume
- the obligations of the Allies to America.
- 7. As an earnest of her good intentions, she offers $250,000,000 in
- cash immediately.
- If this is compared with Dr. Simons’s first offer, it will be seen that
- it is at least 50 per cent better, because there is no longer any talk
- of deducting from the total of $12,500,000,000 an alleged (and in fact
- imaginary) sum of $5,000,000,000 in respect of deliveries prior to May
- 1, 1921. If we assume an international loan of $1,250,000,000, costing
- 8 per cent for interest and sinking fund,[15] the German offer amounted
- to an immediate payment of $550,000,000 per annum, with a possibility
- of an increase later in proportion to the rate of Germany’s economic
- recovery.
- The United States Government, having first ascertained privately that
- this offer would not be acceptable to the Allies, refrained from its
- formal transmission.[16] On this account, and also because it was
- overshadowed shortly afterwards by the Second Conference of London,
- this very straightforward proposal has never received the attention
- it deserves. It was carefully and precisely drawn up, and probably
- represented the full maximum that Germany could have performed, if not
- more.
- But the offer, as I have said, made very little impression; it was
- largely ignored in the press, and scarcely commented on anywhere.
- For in the two months which elapsed between the First and Second
- Conferences of London there were two events of great importance, which
- modified the situation materially.[17]
- The first of these was the result of the Silesian plebiscite held
- in March 1921. The earlier German Reparation offers had all been
- contingent on her retention of Upper Silesia; and this condition was
- one which, in advance of the plebiscite, the Allies were unable to
- accept. But it now appeared that Germany was in fact entitled to most
- of the country, and, possibly, to the greater part of the industrial
- area. But this result also brought to a head the acute divergence
- between the policy of France and the policy of the other Allies towards
- this question.
- The second event was the decision of the Reparation Commission,
- communicated to Germany on April 27, 1921, as to her aggregate
- liabilities under the Treaty. Allied Finance Ministers had foreshadowed
- 300 milliard gold marks; at the time of the Decisions of Paris,
- responsible opinion expected 160–200 milliards;[18] and the author
- of _The Economic Consequences of the Peace_ had suffered widespread
- calumny for fixing on the figure of 137 milliards,[19] as being the
- nearest estimate he could make. The public, and the Government also,
- were, therefore, taken by surprise when the Reparation Commission
- announced that they unanimously assessed the figure at 132 milliards
- (_i.e._, $33,000,000,000).[20] It now turned out that the Decisions
- of Paris, which had been represented as a material amelioration of the
- Treaty which Germany was ungrateful not to accept, were no such thing;
- and that Germany was at that moment suffering from an invasion of her
- territory for a refusal to subscribe to terms which were severer in
- some respects than the Treaty itself. I shall examine the decision of
- the Reparation Commission in detail in Chapter IV. It put the question
- on a new basis and the Decisions of London could hardly have been
- possible otherwise.
- The decision of the Reparation Commission and the arrival of the date,
- May 1, 1921, fixed in the Treaty for the promulgation of a definite
- Reparation scheme, provided a sufficient ground for reopening the whole
- question. Germany had refused the Decisions of Paris; the Sanctions had
- failed to move her; the régime of the Treaty was therefore reinstated;
- and under the Treaty it was for the Reparation Commission to propose a
- scheme.
- In these circumstances the Allies met once more in London in the
- closing days of April 1921. The scheme there concerted was really
- the work of the Supreme Council, but the forms of the Treaty were
- preserved, and the Reparation Commission were summoned from Paris to
- adopt and promulgate as their own the decree of the Supreme Council.
- The Conference met in circumstances of great tension. M. Briand had
- found it necessary to placate his Chamber by announcing that he
- intended to occupy the Ruhr on May 1. The policy of violence and
- illegality, which began with the Conference of Paris, had always
- included hitherto just a sufficient ingredient of make–believe to
- prevent its being as dangerous as it pretended to the peace and
- prosperity of Europe. But a point had now been reached when something
- definite, whether good or bad, seemed bound to happen; and there was
- every reason for anxiety. Mr. Lloyd George and M. Briand had walked
- hand–in–hand to the edge of a precipice; Mr. Lloyd George had looked
- over the edge; and M. Briand had praised the beauties of the prospect
- below and the exhilarating sensations of a descent. Mr. Lloyd George,
- having indulged to the full his habitual morbid taste for looking over,
- would certainly end in drawing back, explaining at the same time how
- much he sympathized with M. Briand’s standpoint. But would M. Briand?
- In this atmosphere the Conference met, and, considering all the
- circumstances, including the past commitments of the principals,
- the result was, on the whole, a victory for good sense, not least
- because the Allies there decided to return to the pathway of legality
- within the ambit of the Treaty. The new proposals, concerted at this
- Conference, were, whether they were practicable or not in execution,
- a lawful development of the Treaty, and in this respect sharply
- distinguished from the Decisions of Paris in the January preceding.
- However bad the Treaty might be, the London scheme provided a way of
- escape from a policy worse even than that of the Treaty,—acts, that
- is, of arbitrary lawlessness based on the mere possession of superior
- force.
- In one respect the Second Ultimatum of London was lawless; for it
- included an illegal threat to occupy the Ruhr Valley if Germany
- refused its terms. But this was for the sake of M. Briand, whose
- minimum requirement was that he should at least be able to go home
- in a position to use, for conversational purposes, the charms of the
- precipice from which he was hurrying away. And the Ultimatum made
- no demand on Germany to which she was not already committed by her
- signature to the Treaty.
- For this reason the German Government was right, in my judgment,
- to accept the Ultimatum unqualified, even though it still included
- demands impossible of fulfilment. For good or ill Germany had signed
- the Treaty. The new scheme added nothing to the Treaty’s burdens,
- and, although a reasonable permanent settlement was left where it
- was before,—in the future,—in some respects it abated them. Its
- ratification, in May 1921, was in conformity with the Treaty, and
- merely carried into effect what Germany had had reason to anticipate
- for two years past. It did not call on her to do immediately—that is
- to say, in the course of the next six months—anything incapable of
- performance. It wiped out the impossible liability under which she lay
- of paying forthwith a balance of $3,000,000,000 due under the Treaty
- on May 1. And, above all, it obviated the occupation of the Ruhr and
- preserved the peace of Europe.
- There were those in Germany who held that it must be wrong that Germany
- should under threats profess insincerely what she could not perform.
- But the submissive acceptance by Germany of a lawful notice under a
- Treaty she had already signed committed her to no such profession,
- and involved no recantation of her recent communication through the
- President of the United States as to what would eventually prove in her
- sincere belief to be the limits of practicable performance.
- In the existence of such sentiments, however, Germany’s chief
- difficulty lay. It has not been understood in England or in America how
- deep a wound has been inflicted on Germany’s self–respect by compelling
- her, not merely to perform acts, but to subscribe to beliefs which she
- did not in fact accept. It is not usual in civilized countries to use
- force to compel wrongdoers to confess, even when we are convinced of
- their guilt; it is still more barbarous to use force, after the fashion
- of inquisitors, to compel adherence to an article of belief because we
- ourselves believe it. Yet towards Germany the Allies had appeared to
- adopt this base and injurious practice, and had enforced on this people
- at the point of the bayonet the final humiliation of reciting, through
- the mouths of their representatives, what they believed to be untrue.
- But in the Second Ultimatum of London the Allies were no longer in
- this fanatical mood, and no such requirement was intended. I hoped,
- therefore, at the time that Germany would accept the notification of
- the Allies and do her best to obey it, trusting that the whole world
- is not unreasonable and unjust, whatever the newspapers may say; that
- Time is a healer and an illuminator; and that we had still to wait a
- little before Europe and the United States could accomplish in wisdom
- and mercy the economic settlement of the war.
- EXCURSUS I
- COAL
- The question of coal has always considerable importance for Reparation,
- both because (in spite of the exaggerations of the Treaty) it is a form
- in which Germany can make important payments, and also because of the
- reaction of coal deliveries on Germany’s internal economy. Up to the
- middle of 1921 Germany’s payments for Reparation were almost entirely
- in the form of coal. And coal was the main topic of the Spa Conference,
- where for the first time the Governments of the Allies and of Germany
- met face to face.
- Under the terms of the Treaty Germany was to deliver 3,400,000 tons
- of coal per month. For reasons explained in detail in _The Economic
- Consequences of the Peace_ (pp. 74–89) this total was a figure of
- rhetoric and not capable of realization. Accordingly for the first
- quarter of 1920 the Reparation Commission reduced their demand to
- 1,660,000 tons per month, and in the second quarter to 1,500,000 tons
- per month; whilst in the second quarter Germany actually delivered
- at the rate of 770,000 tons per month. This last figure was unduly
- low, and by the latter date coal was in short supply throughout the
- world and very dear. The main object of the Spa Coal Agreement was,
- therefore, to secure for France an increased supply of German coal.
- The Conference was successful in obtaining coal, but on terms not
- unfavorable to Germany. After much bargaining the deliveries were
- fixed at 2,000,000 tons a month for six months from August 1920. But
- the German representatives succeeded in persuading the Allies that
- they could not deliver this amount unless their miners were better
- fed and that this meant foreign credit. The Allies agreed, therefore,
- to _pay_ Germany something substantial for this coal, the sums thus
- received to be utilized in purchasing from abroad additional food
- for the miners. In form, the greater part of the sum thus paid was a
- loan; but, since it was set off as a prior charge against the value of
- Reparation deliveries (_e.g._, the ships), it really amounted to paying
- back to Germany the value of a part of these deliveries. Germany’s
- total cash receipts[21] under these arrangements actually came to about
- 360,000,000 gold marks,[22] which worked out at about 40s. per ton
- averaged over the whole of the deliveries. As at this time the German
- internal price was from 25s. to 30s. per ton, the German Government
- received in foreign currency substantially more than they had to pay
- for the coal to the home producers. The high figure of 2,000,000 tons
- per month involved short supplies to German transport and industry.
- But the money was badly wanted, and was of the utmost assistance
- in paying for the German food program (and also in meeting German
- liabilities in respect of pre–war debts) during the autumn and winter
- of 1920.
- This is a convenient point at which to record the subsequent history
- of the coal deliveries. During the next six months Germany very nearly
- fulfilled the Spa Agreement, her deliveries towards the 2,000,000 tons
- per month being 2,055,227 tons in August, 2,008,470 tons in September,
- 2,288,049 tons in October, 1,912,696 tons in November, 1,791,828 tons
- in December, and 1,678,675 tons in January 1921. At the end of January
- 1921 the Spa Agreement lapsed, and since that time Germany has had to
- continue her coal deliveries without any payment or advance of cash
- in return for them. To make up for the accumulated deficit under the
- Spa Agreement, the Reparation Commission called for 2,200,000 tons per
- month in February and March, and continued to demand this figure in
- subsequent months. Like so much else, however, this demand was only
- on paper. Germany was not able to fulfil it, her actual deliveries
- during the next six months amounting to 1,885,051 tons in February
- 1921, 1,419,654 tons in March, 1,510,332 tons in April, 1,549,768 tons
- in May, 1,453,761 tons in June, and 1,399,132 tons in July. And the
- Reparation Commission, not really wanting the coal, tacitly acquiesced
- in these quantities. During the first half of 1921 there was, in fact,
- a remarkable reversal of the situation six months earlier. In spite of
- the British Coal Strike, France and Belgium, having replenished their
- stocks and suffering from a depression in the iron and steel trades,
- were in risk of being glutted with coal. If Germany had complied with
- the full demands of the Reparation Commission the recipients would not
- have known what to do with the deliveries. Even as it was, some of the
- coal received was sold to exporters, and the coal miners of France and
- Belgium were in danger of short employment.
- The statistics of the aggregate German output of pit coal are now as
- follows, exclusive of Alsace–Lorraine, the Saar, and the Palatinate, in
- million tons:
- ─────────────────┬──────┬──────┬──────┬──────┬──────┬────────────
- │ 1913.│ 1917.│ 1918.│ 1919.│ 1920.│ 1921 (first
- │ │ │ │ │ │nine months)
- ─────────────────┼──────┼──────┼──────┼──────┼──────┼────────────
- Germany exclusive│ │ │ │ │ │
- of Upper Silesia│130.19│111.66│109.54│ 92.76│ 99.66│ 76.06
- Germany inclusive│ │ │ │ │ │
- of Upper Silesia│173.62│154.41│148.19│117.69│131.35│ 100.60
- Per cent of 1913 │ │ │ │ │ │
- output │100.00│ 88.90│ 85.40│ 67.80│ 75.70│ 77.20
- ─────────────────┴──────┴──────┴──────┴──────┴──────┴────────────
- The production of rough lignite (I will not risk controversy by
- attempting to convert this into its pit–coal equivalent) rose from 87.1
- million tons in 1913 to 93.8 in 1919, 111.6 in 1920, and 90.8 in the
- first three–quarters of 1921.
- The Spa Agreement supplied a temporary palliative of the anomalous
- conditions governing the _price_ at which these coal deliveries are
- credited to Germany. But with the termination of this Agreement they
- again require attention. Under the Treaty Germany is credited in the
- case of coal delivered _overland_ with “the German pithead price to
- German nationals” plus the freight to the frontier; and in the case
- of coal delivered _by sea_ with the export price; provided in each
- case this price is not in excess of the British export price. Now for
- various internal reasons the German Government have thought fit to
- maintain the pithead price to German nationals far below the world
- price, with the result that she gets credited with much less than its
- real value for her deliveries of Reparation coal. During the year
- ending June 1921 the average legal maximum price of the different
- kinds of coal was about 270 marks a ton, inclusive of a tax of 20 per
- cent on the price,[23] which at the exchange then prevailing was about
- 20s., _i.e._, between a third and a half of the British price at that
- date. The fall in the mark exchange in the autumn of 1921 increased the
- discrepancy. For although the price of German coal was substantially
- increased in terms of paper marks, and although the price of British
- coal had fallen sharply, the movements of exchange so out–distanced the
- other factors, that in November 1921 the price of British coal worked
- out at about three and half times the price of the best bituminous coal
- from the Ruhr. Thus not only were the German iron–masters placed in an
- advantageous position for competing with British producers, but the
- Belgian and French industries also benefited artificially through the
- receipt by their Governments of very low–priced coal.
- The German Government is in rather a dilemma in this matter. An
- increase in the coal tax is one of the most obvious sources for an
- increased revenue, and such a tax would be, from the standpoint of
- the exchequer, twice blessed, since it would increase correspondingly
- the Reparation credits. But on the other hand, such a proposal unites
- two groups against them, the industrialists, who want cheap coal for
- industry and the Socialists who want cheap coal for the domestic stove.
- From the revenue standpoint the tax would probably stand an increase
- from 20 per cent to 60 per cent; but from the political standpoint an
- increase from 20 per cent to 30 per cent is the highest contemplated at
- present, with a differential price in favor of domestic consumers.[24]
- I take this opportunity of making a few corrections or amplifications
- of the passages in _The Economic Consequences of the Peace_ which deal
- with coal.
- 1. The fate of Upper Silesia is highly relevant to some of the
- conclusions about coal in Chapter IV of _The Economic Consequences
- of the Peace_ (pp. 77–84). I there stated that “German authorities
- claim, not without contradiction, that to judge from the votes cast
- at elections, one–third of the population would elect in the Polish
- interest, and two–thirds in the German,” which forecast turned out to
- be in almost exact accordance with the facts. I also urged that, unless
- the plebiscite went in a way which I did not expect, the industrial
- districts ought to be assigned to Germany. But I felt no confidence,
- having regard to the policy of France, that this would be done; and
- I allowed, therefore, in my figures for the possibility that Germany
- would lose this area.
- The actual decision of the Allies, acting on the advice of the Council
- of the League of Nations to whom the matter had been referred, which
- we have discussed briefly above (pp. 12–14), divides the industrial
- triangle between the two claimants to it. According to an estimate
- of the Prussian Ministry of Trade 86 per cent of the total coal
- deposits of Upper Silesia fall to Poland, leaving 14 per cent to
- Germany. Germany retains a somewhat larger proportion of pits in actual
- operation, 64 per cent of the current production of coal falling to
- Poland and 36 per cent to Germany.[25]
- The figure of 100,000,000 tons, given in _The Economic Consequences
- of the Peace_ for the _net_ German production (_i.e._, deducting
- consumption at the mines themselves) in the near future _excluding_
- Upper Silesia, should, therefore, be replaced by the figure of (say)
- 115,000,000 tons, _including_ such part of Upper Silesia as Germany is
- now to retain.
- 2. I beg leave to correct a misleading passage in a footnote to p. 79
- of _The Economic Consequences of the Peace_. I there spoke of “Poland’s
- pre–war annual demand” for coal, where I should have said “pre–war
- Poland’s pre–war annual demand.” The mistake was not material, as I
- allowed for Germany’s diminished requirements for coal, due to loss of
- territory, in the body of the text. But I confess that the footnote,
- as published, might be deemed misleading. At the same time it is, I
- think, a tribute to the general accuracy of _The Economic Consequences_
- that partizan critics should have fastened so greedily on the omission
- of the word “pre–war” before the word “Poland” in the footnote in
- question. Quite a considerable literature has grown up round it. The
- Polish Diet devoted January 20, 1921, to the discussion and patriotic
- analysis of this footnote, and concluded with a Resolution ordering
- the chief speech of the occasion (that of Deputy A. Wierzlicki) to be
- published throughout the world in several languages at the expense of
- the State. I apologize for any depreciation in the Polish mark for
- which I may have been so inadvertently responsible. Mr. Wierzlicki
- begins: “A book appeared by Keynes ... the author of a well–known work
- on India, that pearl of the English crown, that land which is a beloved
- subject of study to the English. Through such studies a man may win
- himself name and fame,”—which was certainly a little unscrupulous of
- me. And he concludes: “But England too must believe in facts! And if
- Keynes, whose book is impregnated with a humanitarian spirit and with
- understanding of the necessity to get up beyond selfish interests,
- if Keynes is convinced by actual data that he has done a wrong, that
- he has wrought confusion in the ideas of statesmen and politicians
- as regards Upper Silesia, then he too will see with his eyes and
- must become the friend of Poland, of Poland as an active factor in
- the development of the natural wealth of Silesia.” I owe it to so
- generous and eloquent a critic to quote the corrected figures, which
- are as follows: the Polish lands, united by the Peace Treaty into the
- new Polish State, consumed in 1913 19,445,000 tons of coal, of which
- 8,989,000 tons were produced within that area and 7,370,000 tons were
- imported from Upper Silesia (the total production of Upper Silesia in
- that year being 43,800,000 tons).[26] The Silesian Plebiscite has been
- preceded and followed by a mass of propagandist literature on both
- sides. For the economic questions involved see, particularly, on the
- Polish side: Wierzlicki, _The Truth about Upper Silesia_; Olszewski,
- _Upper Silesia, Her Influence on the Solvability and on the Economic
- Life of Germany_, and _The Economic Value of Upper Silesia for Poland
- and Germany respectively_; and on the German side: Sidney Osborne, _The
- Upper Silesian Question and Germany’s Coal Problem, The Problem of
- Upper Silesia_ (papers by various authors, not all on the German side,
- with excellent maps, edited by Sidney Osborne), various pamphlets by
- Professor Schulz–Gavernitz, and documents circulated by the Breslau
- Chamber of Commerce.
- 3. My observations on Germany’s capacity to deliver reparation coal
- have been criticized in some quarters[27] on the ground that I made
- insufficient allowance for the compensation which is available to
- her by the more intensive exploitation of her deposits of lignite
- or brown coal. This criticism is scarcely fair, because I was the
- first in popular controversy to call attention to the factor of
- lignite, and because I was careful from the outset to disclaim expert
- knowledge of the subject.[28] I still find it difficult, in the face
- of conflicting expert opinions, to know how much importance to attach
- to this material. Since the Armistice there has been a substantial
- increase in output, which was 36 per cent higher in the first half
- of 1921 than in 1913.[29] In view of the acute shortage of coal this
- output must have been of material assistance towards meeting the
- situation. The deposits are near the surface, and no great amount
- of capital or machinery is needed for its production. But lignite
- briquette is a substitute for coal for certain purposes only, and the
- evidence is conflicting as to whether any further material expansion is
- economically practicable.[30]
- The process of briquetting the rough lignite is probably a wasteful
- one, and it is doubtful whether it would be worth while to set up _new_
- plant with a view to production on a larger scale. Some authorities
- hold that the real future of lignite and its value as an element in the
- future wealth of Germany lie in improved methods of _distillation_ (the
- chief obstacle to which, as also to other uses, lies in its high water
- content), by which the various oils, ammonia and benzine, latent in it
- can be released for commercial uses.
- It is certainly the case that the future possibilities of lignite
- should not be overlooked. But there is a tendency at present, just
- as was the case with potash some little time ago, to exaggerate its
- importance greatly as a decisive factor in the wealth–producing
- capacity of Germany.
- EXCURSUS II
- THE LEGALITY OF OCCUPYING GERMANY EAST OF THE RHINE
- The years 1920 and 1921 have been filled with excursions and with
- threats of excursions by the French Army into Germany east of the
- Rhine. In March 1920 France, without the approval of her Allies,
- occupied Frankfort and Darmstadt. In July 1920 a threat to invade
- Germany by the Allies as a whole was successful in enforcing the Spa
- Agreement. In March 1921 a similar threat was unsuccessful in securing
- assent to the Paris Decisions, and Duisberg, Ruhrort, and Düsseldorf
- were occupied accordingly. In spite of the objections of her Allies
- France continued this occupation when, by the acceptance of the second
- Ultimatum of London, the original occasion for it had disappeared, on
- the ground that so long as the Upper Silesian question was unsettled,
- it was in the opinion of Marshal Foch just as well to retain this
- hold.[31] In April 1921 the French Government announced their intention
- of occupying the Ruhr, though they were prevented from carrying this
- out by the pressure of the other Allies. In May 1921 the Second
- Ultimatum of London was successfully enforced by a threat to occupy
- the Ruhr Valley. Thus, within the space of little more than a year the
- invasion of Germany, beyond the Rhine, was threatened five times and
- actually carried out twice.
- We are supposed to be at peace with Germany, and the invasion of a
- country in time of peace is an irregular act, even when the invaded
- country is not in a position to resist. We are also bound by our
- adhesion to the League of Nations to avoid such action. It is,
- however, the contention of France, and apparently, from time to time,
- that of the British Government also, that these acts are in some way
- permissible under the Treaty of Versailles, whenever Germany is in
- technical default in regard to any part of the Treaty, that is to say,
- since some parts of the Treaty are incapable of literal fulfilment, at
- any time. In particular the French Government maintained in April 1921
- that so long as Germany possessed any tangible assets capable of being
- handed over, she was in voluntary default in respect of Reparation,
- and that if she was in voluntary default any Ally was entitled to
- invade and pillage her territory without being guilty of an act of war.
- In the previous month the Allies as a whole had argued that default
- under Chapters of the Treaty, other than the Reparation Chapter, also
- justified invasion.
- Though the respect shown for legality is now very small, the legal
- position under the Treaty deserves nevertheless an exact examination.
- The Treaty of Versailles expressly provides for breaches by Germany of
- the _Reparation_ Chapter. It contains no special provision for breaches
- of other Chapters, and such breaches are, therefore, in exactly the
- same position as breaches of any other Treaty. Accordingly, I will
- discuss separately default in respect of Reparation, and other defaults.
- Sections 17 and 18 of the Reparation Chapter, Annex II. run as follows:
- “(17) In case of default by Germany in the performance of any
- obligation under this part of the present Treaty, the Commission will
- forthwith give notice of such default to each of the interested Powers,
- and will make such recommendations as to the action to be taken in
- consequence of such default as it may think necessary.
- “(18) The measures which the Allied and Associated Powers shall have
- the right to take in case of voluntary default by Germany, and which
- Germany agrees not to regard as acts of war, may include economic
- and financial prohibitions and reprisals, and in general such other
- measures as the respective Governments may determine to be necessary in
- the circumstances.”
- There is also a provision in Article 430 of the Treaty, by which any
- part of the occupied area which has been evacuated may be reoccupied if
- Germany fails to observe her obligations with regard to Reparation.
- The French Government base their contention on the words “and in
- general such other measures” in § 18, arguing that this gives them
- an entirely free hand. The sentence taken as a whole, however,
- supports, on the principle of _ejusdem generis_, the interpretation
- that the other measures contemplated are of the nature of economic
- and financial reprisals. This view is confirmed by the fact that the
- rest of the Treaty narrowly limits the rights of occupying German
- territory, which, as M. Tardieu’s book shows, was the subject of an
- acute difference of opinion between France and her Associates at the
- Peace Conference. There is _no_ provision for occupying territory on
- the _right_ bank of the Rhine; and the only provision for occupation in
- the event of default is that contained in Article 430. This Article,
- which provides for _reoccupation_ of the _left_ bank in the event of
- default, would have been entirely pointless and otiose if the French
- view were correct. Indeed the theory, that at any time during the next
- thirty years any Ally can invade any part of Germany on the ground that
- Germany has not fulfilled every letter of the Treaty, is on the face of
- it unreasonable.
- In any case, however, §§ 17, 18 of Annex II. of the Reparation Chapter
- only operate after a specific procedure has been set on foot by the
- Reparation Commission. It is the duty of the Reparation Commission to
- give notice of the default to each of the interested Powers, including
- presumably the United States, and to recommend action. If the default
- is voluntary—there is no provision as to who is to decide this—then
- the paragraphs in question become operative. There is no warrant
- here for isolated action by a single Ally. And indeed the Reparation
- Commission have never so far put this procedure in operation.
- If, on the other hand, Germany is alleged to be in default under some
- other Chapter of the Treaty, then the Allies have no recourse except
- to the League of Nations; and they are bound to bring into operation
- Article 17 of the Covenant, which provides for the case of a dispute
- between a member of the League and a non–member. That is to say,
- apart from procedure by the Reparation Commission as set forth above,
- breaches or alleged breaches of this Treaty are in precisely the same
- position as breaches of any other treaty between two Powers which are
- at peace.
- According to Article 17, in the event of a dispute between a member
- of the League and a State which is not a member of the League, the
- latter “shall be invited to accept the obligations of membership in
- the League for the purposes of such dispute, upon such conditions
- as the Council may deem just. If such invitation is accepted, the
- provisions of Articles 12 to 16 inclusive shall be applied, with such
- modifications as may be deemed necessary by the Council. Upon such
- invitation being given, the Council shall immediately institute an
- inquiry into the circumstances of the dispute, and recommend such
- action as may seem best and most effectual in the circumstances.”
- Articles 12 to 16 provide, amongst other things, for arbitration in
- any case of “disputes as to the interpretation of a Treaty; as to
- any question of international law; as to the existence of any fact
- which, if established, would constitute a breach of any international
- obligation; or as to the extent and nature of the reparation to be made
- for any such breach.”
- The Allies as signatories of the Treaty and of the Covenant are
- therefore absolutely precluded in the event of a breach or alleged
- breach by Germany of the Treaty, from proceeding except under the power
- given to the Reparation Commission as stated above, or under Article 17
- of the Covenant. Any other act on their part is illegal.
- In any case it is _obligatory_ on the Council of the League, under
- Article 17, to invite Germany, in the event of a dispute between
- Germany and the Allies, to accept the obligations of membership in the
- League for the purposes of such dispute, and to institute immediately
- an inquiry into the circumstances of the dispute.
- In my opinion the protest addressed by the German Government to the
- Council of the League of Nations in March 1921 was correctly argued.
- But, as with the inclusion of pensions in the Reparation Bill, we
- reserve the whole stock of our indignation over illegality between
- nations for the occasions when it is the fault of others. I am told
- that to object to this is to overlook “the human element” and is
- therefore both wrong and foolish.
- FOOTNOTES:
- [2] More exactly, out of 1,220,000 entitled to vote and 1,186,000
- actual voters, 707,000 votes or seven–elevenths were cast for Germany,
- and 479,000 votes or four–elevenths for Poland. Out of 1522 communes,
- 844 showed a majority for Germany and 678 for Poland. The Polish voters
- were mainly rural, as is shown by the fact that in 36 towns Germany
- polled 267,000 votes against 70,000 for Poland, and in the country
- 440,000 votes against 409,000 for Poland.
- [3] Up to May 31, 1920, securities and other identifiable assets to
- the value of 8300 million francs and 500,000 tons of machinery and raw
- material had been restored to France (_Report of Finance Commission of
- French Chamber_, June 14, 1920), also 445,000 head of live stock.
- [4] Up to May, 1921, the _cash_ receipts of the Reparation Commission
- amounted to no more than 124,000,000 gold marks.
- [5] See Excursus VI.
- [6] Lord D’Abernon and Sir John Bradbury for Great Britain, Seydoux and
- Cheysson for France, d’Amelio and Giannini for Italy, Delacroix and
- Lepreux for Belgium, and, in accordance with custom, two Japanese. The
- German representatives included Bergmann, Havenstein, Cuno, Melchior,
- von Stauss, Bonn, and Schroeder.
- [7] The text of these Decisions is given in Appendix No. 2.
- [8] The full text is given in Appendix No. 4.
- [9] Compare this with the fixed payment of $500,000,000 and an export
- proportion of 26 per cent proposed in the second Ultimatum of London,
- only two months later.
- [10] _The Times_, March 8, 1921.
- [11] _The Times_, March 8, 1921.
- [12] A week or two later the German Government made a formal appeal to
- the League of Nations against the legality of this act; but I am not
- aware that the League took any action on it.
- [13] A few weeks later the Reparation Commission endeavored to put the
- action of the Supreme Council in order, by demanding one milliard marks
- in gold ($250,000,000), that is to say, the greater part of the reserve
- of the Reichsbank against its note issue. This demand was afterwards
- dropped.
- [14] The full text is given in Appendix No. 5.
- [15] The practicability of such a loan on a large scale is of course
- more than doubtful.
- [16] The German Government is reported also to have offered,
- alternatively, to accept any sum which the President of the United
- States might fix.
- [17] After the enforcement of the Sanctions and the failure of the
- counter–proposals, the Cabinet of Herr Fehrenbach and Dr. Simons was
- succeeded by that of Dr. Wirth.
- [18] As late as January 26, 1921, M. Doumer gave a forecast of 240
- milliards.
- [19] Exclusive of sums due in repayment of war loans made to Belgium.
- [20] Exclusive of sums due in repayment of war loans made to Belgium.
- [21] Under the Spa Agreement (see Appendix No. 1) Germany was to be
- paid in cash 5 gold marks per ton for _all_ coal delivered, and, in
- the case of coal delivered _overland_, “lent” (_i.e._, advanced out
- of Reparation receipts) the difference between the German inland
- price and the British export price. At the date of the Spa Conference
- this difference was about 70s. per ton (100s. less 30s.), but this
- sum was not to be advanced in the case of the undetermined amount of
- coal delivered _by sea_. The advances were made by the Allies in the
- proportions, 61 per cent by France, 24 per cent by Great Britain, and
- 15 per cent by Belgium and Italy.
- [22] For details of these payments see p. 133.
- [23] This very valuable tax, first imposed in 1917, yielded in 1920–21
- mks. 4½ milliards.
- [24] Dr. Wirth’s first Government prepared a Bill to raise the tax to
- 30 per cent, with power, however, to reduce the rate temporarily to 25
- per cent. It was estimated that the 30 per cent tax would bring in a
- revenue of 9.2 milliard marks.
- [25] The same authority estimates that 85.6 of Upper Silesia’s zinc
- ore production and all the zinc smelting works fall to Poland. This is
- of some importance, since before the war Upper Silesia was responsible
- for 17 per cent of the total world production of zinc. Of the iron and
- steel production of the area 63 per cent falls to Poland. I am not in
- a position to check any of these figures. Some authorities ascribe a
- higher proportion of the coal to Poland.
- [26] These are the figures according to the Polish authorities. But it
- is difficult to obtain accurate pre–war figures for an area which was
- not coterminous with any then existing State; and these totals have
- been questioned in detail by Dr. W. Schotte.
- [27] See _e.g._, my controversy with M. Brenier in _The Times_.
- [28] In _The Economic Consequences of the Peace_, p. 92 _n._, I wrote
- as follows: “The reader must be reminded in particular that the above
- calculations take no account of the German production of lignite....
- I am not competent to speak on the extent to which the loss of coal
- can be made good by the extended use of lignite or by economies in
- its present employment; but some authorities believe that Germany may
- obtain substantial compensation for her loss of coal by paying more
- attention to her deposits of lignite.”
- [29] That is to say, production in the middle of 1921 was at the rate
- of about 120,000,000 tons per annum. At that time the legal maximum
- price was 60 paper marks per ton (_i.e._, 5s. or less); so that the
- national _profit_ on the output in terms of money cannot have been a
- very material amount.
- [30] In order to secure the increased output the number of miners was
- increased much more than in proportion, namely from 59,000 in 1913 to
- 171,000 in the first half of 1921. As a result, the cost of production
- of lignite rose much faster than that of coal. Also since its calorific
- value is much less than that of coal per unit of weight (even when it
- is briquetted), it can only compete with coal, unless it is assisted by
- preferential freight rates, within a limited area in the neighborhood
- of the mines.
- [31] At the Paris Conference of August 1921 Lord Curzon tried
- unavailingly to persuade France to abandon this illegal occupation.
- The so–called “Economic Sanctions” were raised on October 1, 1921. The
- occupation still continues, though both the above pretexts have now
- disappeared.
- CHAPTER III
- THE BURDEN OF THE LONDON SETTLEMENT
- The settlement of Reparations communicated to Germany by the Allied
- Powers on May 5, 1921, and accepted a few days later, constitutes the
- definitive scheme under the Treaty according to which Germany for the
- next two generations is to discharge her liabilities.[32] It will not
- endure. But it is the _fait accompli_ of the hour, and, therefore,
- deserves examination.[33]
- The settlement falls into three parts comprising (1) provisions for the
- delivery of Bonds; (2) provisions for setting up in Berlin an Allied
- Committee of Guarantees; (3) provisions for actual payment in cash and
- kind.
- 1. _The Delivery of Bonds._—These provisions are the latest variant of
- similar provisions in the Treaty itself. Allied Finance Ministers have
- encouraged themselves (or their constituents) with the hope that some
- part of the capital sum of Germany’s liabilities might be anticipated
- by the sale to private investors of Bonds secured on future Reparation
- payments. For this purpose it was necessary that Germany should deliver
- negotiable Bonds. These Bonds do not constitute any _additional_ burden
- on Germany. They are simply documents constituting a title to the sums
- which, under other clauses, Germany is to pay over annually to the
- Reparation Commission.
- The advantages to the Allies of marketing such Bonds are obvious. If
- they could get rid of the Bonds they would have thrown the risk of
- Germany’s default on to others; they would have interested a great
- number of people all over the world in Germany’s not defaulting;
- and they would have secured the actual cash which the exigencies of
- their Budgets demand. But the hope is illusory. When at last a real
- settlement is made, it may be practicable for the German Government to
- float an international loan of moderate amount, well within the world’s
- estimate of their minimum capacity of payment. But, though there are
- foolish investors in the world, it would be sanguine to believe that
- there are so many of such folly as to swallow at this moment on these
- lines a loan of vast dimensions. It costs France at the present time
- somewhere about 10 per cent to float a loan of modest dimensions on
- the New York market. As the proposed German Bonds will carry 5 per
- cent interest and 1 per cent sinking fund, it would be necessary to
- reduce their price to 57 before they would yield 10 per cent including
- redemption. It would be very optimistic, therefore, to expect to
- market them at above half their par value. Even so, the world is not
- likely to invest in them any large proportion of its current savings,
- so that the whole amount even of the A Bonds, specified below, could
- not be marketed at this price. Moreover, in so far as the service of
- the Bonds marketed is within the _minimum_ expectation of Germany’s
- capacity to pay (as it would have to be), the financial effect on the
- Ally which markets the Bonds is nearly the same as though they were
- to borrow themselves at the rate in question. Except, therefore, in
- the case of those Allies whose credit is inferior to Germany’s, the
- advantage compared with borrowing on their own credit would not be very
- material.[34]
- The details relating to the Bonds are not likely, therefore, to be
- operative, and need not be taken very seriously. They are really a
- relic of the pretenses of the Peace Conference days. Briefly, the
- arrangements are as follows:
- Germany must deliver 12 milliards of gold marks ($3,000,000,000) in A
- Bonds, 38 milliards ($9,500,000,000) in B Bonds, and the balance of her
- liabilities, provisionally estimated at 82 milliards ($20,500,000,000),
- in C Bonds. All the Bonds carry 5 per cent interest and 1 per cent
- cumulative sinking fund. The services of the series A, B, and C
- constitute respectively a first, second, and third charge on the
- available funds. The A Bonds are issued to the Reparation Commission
- as from May 1, 1921, and the B Bonds as from November 1, 1921, but
- the C Bonds shall not be issued (and shall not carry interest in
- the meantime) except as and when the Reparation Commission is of
- the opinion that the payments which Germany is making under the new
- settlement are adequate to provide their service.
- It may be noticed that the service of the A Bonds will cost
- $180,000,000 per annum, a sum well within Germany’s capacity, and
- the service of the B Bonds will cost $570,000,000 per annum, making
- $750,000,000 altogether, a sum in excess of my own expectations of
- what is practicable, but not in excess of the figure at which some
- independent experts, whose opinion deserves respect, have estimated
- Germany’s probable capacity to pay. It may also be noticed that
- the aggregate face value of the A and B Bonds ($12,500,000,000)
- corresponds to the figure at which the German Government have agreed
- (in their counter–proposal transmitted to the United States) that their
- aggregate liability might be assessed. It is probable that, sooner or
- later, the C Bonds at any rate will be not only postponed, but canceled.
- 2. _The Committee of Guarantees._—This new body, which is to have a
- permanent office in Berlin, is in form and status a sub–commission
- of the Reparation Commission. Its members consist of representatives
- of the Allies represented on the Reparation Commission, with a
- representative of the United States, if that country consents to
- nominate.[35] To it are assigned the various wide and indefinite powers
- accorded by the Treaty of Peace to the Reparation Commission, for the
- general control and supervision of Germany’s financial system. But its
- exact functions, in practice and in detail, are still obscure.
- According to the letter of its constitution the Committee might embark
- on difficult and dangerous functions. Accounts are to be opened in
- the name of the Committee, to which will be paid over in _gold or
- foreign currency_ the proceeds of the German Customs, 26 per cent of
- the value of all exports and the proceeds of any other taxes which
- may be assigned as a “guarantee” for the payment of Reparation. These
- receipts, however, chiefly accrue not in gold or foreign currency, but
- in paper marks. If the Committee attempts to regulate the conversion
- of these paper marks into foreign currencies, it will in effect become
- responsible for the foreign exchange policy of Germany, which it would
- be much more prudent to leave alone. If not, it is difficult to see
- what the “guarantees” really add to the other provisions by which
- Germany binds herself to make payments in foreign money.
- I suspect that the only real and useful purpose of the Committee of
- Guarantees is as an office of the Reparation Commission _in Berlin_,
- a highly necessary adjunct; and the clause about “guarantees” is
- merely one more of the pretenses, which, in all these agreements, the
- requirements of politics intermingle with the provisions of finance.
- It is usual, particularly in France, to talk much about “guarantees,”
- by which is meant, apparently, some device for making sure that
- the impossible will occur. A “guarantee” is not the same thing as
- a “sanction.” When M. Briand is accused of weakness at the Second
- Conference of London and of abandoning France’s “real guarantees,”
- these provisions enable him to repudiate the charge indignantly. He
- can point out that the Second Conference of London not only set up a
- Committee of Guarantees but secured, as a new and additional guarantee,
- the German Customs. There is no answer to that![36]
- 3. _The Provisions for Payment in Cash and Kind._—The Bonds and the
- Guarantees are apparatus and incantation. We come now to the solid part
- of the settlement, the provisions for payment.
- Germany is to pay in each year, until her aggregate liability is
- discharged:
- (1) Two milliard gold marks.
- (2) A sum equivalent to 26 per cent of the value of her exports, or
- alternatively an equivalent amount as fixed in accordance with any
- other index proposed by Germany and accepted by the Commission.
- (1) is to be paid quarterly on January 15, April 15, July 15, and
- October 15 of each year, and (2) is to be paid quarterly on February
- 15, May 15, August 15, and November 15 of each year.
- This sum, calculated on any reasonable estimate of the future value
- of German exports, is materially less than the original demands of
- the Treaty. Germany’s total liability under the Treaty amounts to 138
- milliard gold marks (inclusive of the liability for Belgian debt). At
- 5 per cent interest and 1 per cent sinking fund, the annual charge on
- this would be 8.28 milliard gold marks. Under the new scheme the annual
- value of Germany’s exports would have to rise to the improbable figure
- of 24 milliard gold marks before she would be liable for so much as
- this. As we shall see below, the probable burden of the new settlement
- in the near future is probably not much more than half that of the
- Treaty.
- There is another important respect in which the demands of the Treaty
- are much abated. The Treaty included a crushing provision by which the
- part of Germany’s nominal liability on which she was not able to pay
- interest in the early years was to accumulate at compound interest.[37]
- There is no such provision in the new scheme; the C Bonds are not to
- carry interest until the receipts from Germany are adequate to meet
- their service; and the only provision relating to back interest is for
- the payment of _simple_ interest in the event of there being a surplus
- out of the receipts.
- In order to understand how great an advance this settlement represented
- it is necessary to carry our minds back to the ideas which were
- prevalent not very long ago. The following table is interesting, in
- which, in order to reduce capital sums and annual payments to a common
- basis of comparison, estimates in terms of capital sums are replaced
- by annuities of 6 per cent of their amount:
- In terms of Annuities
- Estimates of expressed in Milliards
- of Gold Marks.
- 1. Lord Cunliffe and the figure given
- out in the British General Election
- of 1918[38] 28.8
- 2. M. Klotz’s forecast in the French
- Chamber, September 5, 1919 18
- 3. The Assessment of the Reparation
- Commission, April 1921 8.28
- 4. The London Settlement, May 1921 4.6[39]
- The estimate of The _Economic Consequences of the Peace_ (1919),
- namely 2 milliards, was nearly contemporaneous with M. Klotz’s figure
- of 18 milliards. M. Tardieu recalls that, when the Peace Conference
- was considering whether a definite figure could be inserted in the
- Treaty, the lowest figure which the British and French Prime Ministers
- would accept, as a compromise to meet the pressure put upon them by
- the American representatives, corresponded to an annuity of 10.8
- milliards,[40] which is nearly two and a half times the figure which
- they accepted two years later under the pressure, not of Americans, but
- of facts.
- There was yet another feature in the London Settlement which
- recommended it to moderate opinion. The dates of payment were so
- arranged as to reduce the burden on Germany during the first year. The
- Reparation year runs from May 1 in each year to April 30 in the next;
- but in the period May 1, 1921–April 30, 1922 only two, instead of four,
- of the quarterly payments in respect of the export proportion will fall
- due.
- No wonder, therefore, that this settlement, so reasonable in itself
- compared with what had preceded it, was generally approved and widely
- accepted as a real and permanent solution. But in spite of its
- importance for the time being, as a preservative of peace, as affording
- a breathing space, and as a transition from foolish expectations, it
- cannot be a permanent solution. It is, like all its predecessors, a
- temporizing measure, which is bound to need amendment.
- To calculate the total burden, it is necessary to estimate the value
- of German exports. In 1920 they amounted to about 5 milliard gold
- marks. In 1921 the volume will be greater, but this will be offset by
- the fact that gold prices have fallen to less than two–thirds of what
- they were, so that 4 to 5 milliard gold marks is quite high enough as
- a preliminary forecast for the year commencing May 1, 1921.[41] It is,
- of course, impossible to make a close estimate for later years. The
- figures will depend, not only on the recovery of Germany, but on the
- state of international trade generally, and more especially on the
- level of gold prices.[42] For the next two or three years, if we are to
- make an estimate at all, 6 to 10 milliards is, in my judgment, the best
- one can make.
- Twenty–six per cent of exports, valued at 6 milliards gold, will amount
- to about 1½ milliard gold marks, making, with the fixed annual
- payment of 2 milliards, 3½ milliards altogether. If exports rise to
- 10 milliards, the corresponding figure is 4½ milliards. The table
- of payments in the near future is then as shown on the next page, all
- the figures being in terms of milliards of gold marks. In the case of
- payments after May 1, 1922, I give alternative estimates on the basis
- of exports on the scale of 6 and 10 milliards respectively.
- Not the whole of these sums need be paid in cash, and the value of
- deliveries in kind is to be credited to Germany against them. This
- item has been estimated as high as 1.2 to 1.4 milliard gold marks per
- annum. The result will chiefly depend (1) on the amount and price of
- the coal deliveries, and (2) on the degree of success which attends the
- negotiations between France and Germany for the supply by the latter
- of materials required for the repair of the devastated area. The value
- of the coal deliveries depends on factors already discussed on p. 49,
- above, the _price_ of the coal being chiefly governed by the internal
- German price. At a price of 20 gold marks per ton and deliveries of
- 2,000,000 tons a month (neither of which figures are likely to be
- exceeded, or even reached, in the near future), coal will yield credits
- of .48 milliard gold marks. In the Loucheur–Rathenau Agreement[43] the
- value of deliveries in kind to France, including coal, over the next
- five years has been estimated at a possible total of 1.4 milliard gold
- marks per annum. If France receives .4 milliard gold marks in coal, not
- more than 35 per cent of the balance will be credited in the Reparation
- account. If this were realized, the aggregate deliveries in kind might
- approach 1 milliard. But, for various reasons, political and economic,
- this figure is unlikely to be reached, and if as much as .75 milliards
- per annum is realized from coal and reconstruction deliveries, this
- ought to be considered a highly satisfactory result.
- ──────────────┬────────────────┬────────────────┬───────────────
- │ 1921─22 │ 1922─23 and │ 1922─23 and
- │ (Exports │ subsequently │ subsequently
- │ 4 Milliards). │ (Exports │ (Exports
- │ │ 6 Milliards). │ 10 Milliards).
- ──────────────┼────────────────┼────────────────┼───────────────
- May 25 }│ │ .39 │ .65
- July 15 }│ │ .50 │ .50
- Aug. 15 }│ 1.00 │ .39 │ .65
- Oct. 15 }│ │ .50 │ .50
- Nov. 15 │ .26 │ .39 │ .65
- Jan. 15 │ .50 │ .50 │ .50
- Feb. 15 │ .26 │ .39 │ .65
- April 15 │ .50 │ .50 │ .50
- │ ──── │ ──── │ ────
- Total │ 2.52 │ 3.56 │ 4.60
- ──────────────┼────────────────┼────────────────┼───────────────
- Equivalent }│ │ │
- in dollars }│ │ │
- at $1 = 4 }│ $630,000,000 │ $890,000,000 │ $1,150,000,000
- gold marks }│ │ │
- ──────────────┴────────────────┴────────────────┴───────────────
- Now the payments were so arranged as to present no insuperable
- difficulties during 1921. The instalment of August 31, 1921 (which
- did not exceed the sum which the Germans had themselves offered for
- immediate payment in their counterproposal of April 1921) was duly
- paid, partly out of foreign balances accumulated before May 1 last,
- partly by selling out paper marks over the foreign exchanges, and
- partly by temporary advances from an international group of bankers.
- The instalment of November 15,1921, was covered by the value of
- deliveries of coal and other material subsequent to May 1, 1921. Even
- the instalments of January 15 and February 15, 1922, might be covered
- out of further deliveries, temporary advances, and the foreign assets
- of German industrialists, if the German Government could get hold of
- them. But the payment of April 15, 1922, must present more difficulty;
- whilst further instalments follow quickly on May 15, July 15, and
- August 15. Some time between February and August 1922 Germany will
- succumb to an inevitable default. This is the maximum extent of our
- breathing space.[44]
- That is to say, in so far as she depends for payment (as in the
- long run she must do) on current income. If capital, non–recurrent
- resources become available, the above conclusion will require
- modification accordingly. Germany still has an important capital asset
- untouched—the property of her nationals now sequestered in the hands
- of the Enemy–Property Custodian in the United States, of which the
- value is rather more than 1 milliard gold marks. If this were to become
- available for Reparation, directly or indirectly, default could be
- delayed correspondingly.[45] Similarly the grant to Germany of foreign
- credits on a substantial scale, even three–months’ credits from bankers
- on the security of the Reichsbank’s gold, would postpone the date a
- little, however useless in the long run.
- In reaching this conclusion, one can approach the problem from three
- points of view: (1) the problem of paying outside Germany, that is
- to say, the problem of exports and the balance of trade; (2) the
- problem of providing for payment by taxation, that is to say, the
- problem of the Budget; (3) the proportion of the sums demanded to the
- German national income. I will take them in turn, confining myself to
- what Germany can be expected to perform in the near future, to the
- exclusion of what she might do in hypothetical circumstances many
- years hence.
- (1) In order that Germany may be able to make payments abroad, it is
- necessary, not only that she should have exports, but that she should
- have a surplus of exports over imports. In 1920, the last complete
- year for which figures are available, so far from a surplus there was
- a deficit, the exports being valued at about 5 milliard gold marks and
- the imports at 5.4 milliards. The figures for 1921 so far available
- indicate not an improvement but a deterioration. The myth that Germany
- is carrying on a vast and increasing export trade is so widespread,
- that the actual figures for the six months from May to October 1921,
- converted into gold marks, may be given with advantage:
- ─–──────────────────┬─────────────────┬──────────────────────────
- │ Million Paper │ Million Gold Marks.[46]
- │ Marks. │
- ├────────┬────────┼────────┬────────┬────────
- │ │ │ │ │Excess
- │Imports.│Exports.│Imports.│Exports.│ of
- │ │ │ │ │Imports.
- ────────────────────┼────────┼────────┼────────┼────────┼────────
- 1921, May │ 5,487│ 4,512│ 374.4│ 307.9│ 66.5
- ” June │ 6,409│ 5,433│ 388.8│ 329.7│ 59.1
- ” July │ 7,580│ 6,208│ 413.7│ 338.7│ 75.0
- ” August │ 9,418│ 6,684│ 477.2│ 334.8│ 142.4
- ” September │ 10,668│ 7,519│ 436.6│ 307.7│ 128.9
- ” October[47] │ 13,900│ 9,700│ 352.6│ 246.0│ 106.6
- ├────────┼────────┼────────┼────────┼────────
- Total for six months│ 53,462│ 40,056│ 2443.3│ 1864.8│ 578.5
- ────────────────────┴────────┴────────┴────────┴────────┴────────
- In respect of these six months Germany must make a fixed payment of
- 1000 million gold marks plus 26 per cent of the exports as above,
- namely 484.8 million gold marks, that is 1484.8 million gold marks
- altogether, which is equal to about 80 per cent of her exports; whereas
- apart from any Reparation payments, she had a _deficit_ on her foreign
- trade at the rate of more than 1 milliard gold marks per annum. The
- bulk of Germany’s imports are necessary either to her industries or
- to the food supply of the country. It is therefore certain that with
- exports of (say) 6 milliards she could not cut her imports so low as to
- have the surplus of 3½ milliards, which would be necessary to meet
- her Reparation liabilities. If, however, her exports were to rise to
- 10 milliards, her Reparation liabilities would become 4.6 milliards.
- Germany, to meet her liabilities, must therefore raise the gold–value
- of her exports to double what they were in 1920 and 1921 _without
- increasing her imports at all_.
- I do not say that this is impossible, given time and an overwhelming
- motive, and with active assistance by the Allies to Germany’s export
- industries; but does any one think it practicable or likely in the
- actual circumstances of the case? And if Germany succeeded, would not
- this vast expansion of exports, unbalanced by imports, be considered
- by our manufacturers to be her crowning crime? That this should be
- the case even under the London Settlement of 1921 is a measure of
- the ludicrous folly of the figures given out in the British General
- Election of 1918, which were six times as high again.
- (2) Next there is the problem of the Budget. For Reparation payments
- are a liability of the German _Government_ and must be covered by
- taxation. At this point it is necessary to introduce an assumption as
- to the relation between the gold mark and the paper mark. For whilst
- the liability is fixed in terms of gold marks, the revenue (or the
- bulk of it) is collected in terms of paper marks. The relation is a
- very fluctuating one, best measured by the exchange value of the paper
- mark in terms of American gold dollars. This fluctuation is of more
- importance over short periods than in the long run. For in the long run
- _all_ values in Germany, including the yield of taxation, will tend
- to adjust themselves to an appreciation or depreciation in the value
- of the paper mark outside Germany. But the process may be a very slow
- one, and, over the period covered by a year’s budget, unanticipated
- fluctuations in the ratio of the gold to the paper mark may upset
- entirely the financial arrangements of the German Treasury.
- This disturbance has of course occurred on an unprecedented scale
- during the latter half of 1921. Taxation in terms of paper marks,
- which was heavy when the dollar was worth 50 paper marks, becomes
- very inadequate when the dollar is worth 200 paper marks; but it is
- beyond the power of any Finance Minister to adjust taxation to such a
- situation quickly. In the first place, when the fall in the external
- value of the mark is proceeding rapidly, the corresponding fall in the
- internal value lags far behind. Until this adjustment has taken place,
- which may occupy a considerable time before it is complete, the taxable
- capacity of the people, measured in gold, is less than it was before.
- But even then a further interval must elapse before the gold–value of
- the _yield_ of taxation collectible in paper marks can catch up. The
- experience of the British Inland Revenue Department well shows that the
- yield of direct taxation must largely depend on the taxable assessments
- of the _previous_ period.
- For these reasons the collapse of the mark exchange must, if it
- persists, destroy beyond repair the Budget of 1921–22, and probably
- that of the first half of 1922–23 also. But I should be overstating my
- argument if I were to base my conclusions on the figures current at the
- end of 1921. In the shifting sands in which the mark is foundering it
- is difficult to find for one’s argument any secure foothold.
- During the summer of 1921 the gold mark was worth, in round figures,
- 20 paper marks. The internal purchasing power of the paper mark for
- the purposes of working–class consumption was still nearly double
- its corresponding value abroad, so that one could scarcely say that
- equilibrium had been established. Nevertheless, the position was very
- well adjusted compared with what it has since become. As I write
- (December 1921) the gold mark has been fluctuating between 45 and
- 60 paper marks, while the purchasing power of the paper mark inside
- Germany is for general purposes perhaps three times what it is outside
- Germany.
- Since my figures of Government revenue and expenditure are based on
- statements made in the summer of 1921, perhaps my best course is to
- take a figure of 20 paper marks to the gold mark. The effect of this
- will be to understate my argument rather than the contrary. The reader
- must remember that, if the mark remains at its present exchange value
- long enough for internal values to adjust themselves to that rate, the
- items in the following account, the income and the outgoings and the
- deficit, will all tend to be multiplied threefold.
- At this ratio (of 20 paper marks=1 gold mark), a Reparation liability
- of 3½ milliard gold marks (assuming exports on the scale of 6
- milliards) is equivalent to 70 milliard paper marks, and a liability
- of 4½ milliards (assuming exports of 10 milliards) is equivalent
- to 90 milliard paper marks. The German Budget for the financial year
- April 1, 1921, to March 31, 1922, provided for an expenditure of
- 93.5 milliards, exclusive of Reparation payments, and for a revenue
- of 59 milliards.[48] Thus the present Reparation demand would by
- itself absorb more than the whole of the existing revenue. Doubtless
- expenditure can be cut down, and revenue somewhat increased. But the
- Budget will not cover even the lower scale of the Reparation payments
- unless expenditure is halved and revenue doubled.[49]
- If the German Budget for 1922–23 manages to balance, _apart_ from any
- provision for Reparation, this will represent a great effort and a
- considerable achievement. Apart, however, from the technical financial
- difficulties, there is a political and social aspect of the question
- which deserves attention here. The Allies deal with the established
- German Government, make bargains with them, and look to them for
- fulfilment. The Allies do not extract payment out of individual
- Germans direct; they put pressure on the transitory abstraction called
- Government, and leave it to this to determine and to enforce which
- individuals are to pay, and how much. Since at the present time the
- German Budget is far from balancing even if there were no Reparation
- payments at all, it is fair to say that not even a beginning has yet
- been made towards settling the problem of how the burden is to be
- distributed between different classes and different interests.
- Yet this problem is fundamental. Payment takes on a different aspect
- when, instead of being expressed in terms of milliards and as a
- liability of the transitory abstraction, it is translated into a
- demand for a definite sum from a specific individual. This stage is not
- yet reached, and until it is reached the full intrinsic difficulty will
- not be felt. For at this stage the struggle ceases to be primarily one
- between the Allies and the German Government and becomes a struggle
- between different sections and classes of Germans. The struggle will
- be bitter and violent, for it will present itself to each of the
- contesting interests as an affair of life and death. The most powerful
- influences and motives of self–interest and self–preservation will be
- engaged. Conflicting conceptions of the end and nature of Society will
- be ranged in conflict. A Government which makes a serious attempt to
- cover its liabilities will inevitably fall from power.
- (3) What relation do the demands bear to the third test of capacity,
- the present income of the German people? A burden of 70 milliard paper
- marks (if we may, provisionally, adopt that figure as the basis of our
- calculations) amounts, since the population is now about 60 millions,
- to 1170 marks per head for every man, woman, and child.
- The great changes in money values have made it difficult, in all
- countries, to obtain estimates of the national income in terms of money
- under the new conditions. The Brussels Conference of 1920, on the basis
- of inquiries made in 1919 and at the beginning of 1920, estimated the
- German income per head at 3900 paper marks. This figure may have
- been too low at the time, and, on account of the further depreciation
- of the mark, is certainly too low now. A writer in the _Deutsche
- Allgemeine Zeitung_ (Feb. 14, 1921), working on the statistics of
- statutory deductions from wages and on income–tax, arrived at a figure
- of 2333 marks per head. This figure also is likely to be too low,
- partly because the statistics must mainly refer to earlier dates when
- the mark was less depreciated, and partly because all such statistics
- necessarily suffer from evasions. At the other extreme lies the
- estimate of Dr. Albert Lansburgh, who, by implication (_Die Bank_,
- March 1921), estimated the income per head at 6570 marks.[50] Another
- recent estimate is that of Dr. Arthur Heichen in the _Pester Lloyd_
- (June 5, 1921), who put the figure at 4450 marks. In a newspaper
- article published in various quarters in August 1921 I ventured to
- adopt the figure of 5000 marks as the nearest estimate I could make.
- In fixing on this figure I was influenced by the above estimates, and
- also by statistics as to the general level of salaries and wages. Since
- then I have looked into the matter further and am still of the opinion
- that this figure was high enough for that date.
- I am fortified in this conclusion by the result of inquiries which I
- addressed to Dr. Moritz Elsas of Frankfort–on–Main, on whose authority
- I quote the following figures. The best–known estimate of the German
- pre–war income is Helfferich’s in his _Deutschlands Volkswohlstand_
- 1888–1913. In this volume he put the national income in 1913 at 40–41
- milliard gold marks, _plus_ 2½ milliards for net income from
- nationalized concerns (railways, post office, etc.), that it is say,
- an aggregate of 43 milliards or 642 marks per head. Starting from the
- figure of 41 milliards (since the national services no longer produce
- a profit) and deducting 15 per cent for loss of territory, we have a
- figure of 34.85 milliards. What multiplier ought we to apply to this in
- order to arrive at the present income in terms of paper marks? In 1920
- commercial employees obtained on the average in terms of marks 4½
- times their pre–war income, whilst at that time workmen had secured an
- increase in their nominal wages of 50 per cent more than this, that is
- to say, their wages were 6 to 8 times the pre–war figure. According
- to the Statistischen Reichsamt (_Wirtschaft und Statistik_, Heft 4,
- Jahrgang 1) commercial employees at the beginning of 1921 earned,
- males 6⅔ times and females 10 times as much as in 1913.[51] On the
- basis of the same proportion as in 1920 we arrive at an increase of
- 10 times in the nominal wages of workmen. The wages index number of
- the _Frankfurter Zeitung_ for August 1921 estimates the wages per hour
- at 11 times the pre–war level, but, as the number of working hours
- has fallen from 10 to 8, these figures yield an increase of 8.8 times
- in the wage actually received. Since the wages of male commercial
- employees have increased less than this, since business profits in
- terms of paper marks only reach this figure of increase in exceptional
- cases, and since the income of the rentier, landlord, and professional
- classes has increased in a far lower proportion, an estimate of an
- 8–fold increase in the nominal income of the country as a whole at
- that date (August 1921) is likely to be an over–estimate rather than
- an under–estimate. This leads to an aggregate national income, on the
- basis of the Helfferich pre–war figures, of 278.80 milliard paper
- marks, and to an income of 4647 marks per head in August 1921.
- No allowance is made here for the loss by war of men in the prime
- of life, for the loss of external income previously earned from
- foreign investment and the mercantile marine, or for the increase of
- officials. Against these omissions there may be set off the decrease of
- the army and the increased number of women employees.
- The extreme instability of economic conditions makes it almost
- impossible to conduct a direct statistical inquiry into this problem
- at the present time. In such circumstances the general method of Dr.
- Elsas seems to me to be the best available. His results show that the
- figure taken above is of the right general dimensions and is not likely
- to be widely erroneous. It enables us, too, to put an upper limit of
- reasonable possibility on our figures. No one, I think, would maintain
- that in August 1921 nominal incomes in Germany averaged 10 times their
- pre–war level; and 10 times Helfferich’s pre–war estimate comes to
- 6420 marks. _No_ statistics of national incomes are very precise, but
- an assertion that in the middle of 1921 the German income per head per
- annum lay between 4500 marks and 6500 marks, and that it was probably
- much nearer the lower than the higher of these figures, say 5000 marks,
- is about as near the truth as we shall get.
- In view of the instability of the mark, it is, of course, the case
- that such estimates do not hold good for any length of time and need
- constant revision. Nevertheless this fact does not upset the following
- calculation as much as might be supposed, because it operates to a
- certain extent on both sides of the account. If the mark depreciates
- further, the average income per head in paper marks will tend to rise;
- but in this event the equivalent in paper marks of the Reparation
- liability will, since it is expressed in terms of _gold_ marks, rise
- also. A real alleviation can only result from a fall in the value of
- _gold_ (_i.e._, a rise in world prices).
- To the taxation in respect of the Reparation charge there must be added
- the burden of Germany’s own government, central and local. By the most
- extreme economies, short of repudiation of war loans and war pensions,
- this burden could hardly be brought below 1000 paper marks per head (at
- 20 paper marks=1 gold mark), _i.e._, 60 milliards altogether, a figure
- greatly below the present expenditure. In the aggregate, therefore,
- 2170 marks out of the average income of 5000 marks, or 43 per cent,
- would go in taxation. If exports rise to 10 milliards (gold) and the
- average income to 6000 paper marks, the corresponding figures are 2500
- marks and 42 per cent.
- There are circumstances in which a wealthy nation, impelled by
- overwhelming motives of self–interest, might support this burden.
- But the annual income of 5000 paper marks per head is equivalent in
- exchange value (at an exchange of 20 paper marks to 1 gold mark) to
- $62.50, and after deduction of taxation to about $35, that is to say
- to less than 10 cents a day, which in August 1921 was the equivalent
- in purchasing power in Germany of something between 20 cents and 25
- cents in the United States.[52] If Germany was given a respite, her
- income and with it her capacity would increase; but under her present
- burdens, which render saving impossible, a degradation of standards is
- more likely. Would the whips and scorpions of any Government recorded
- in history have been efficient to extract nearly half their income from
- a people so situated?
- For these reasons I conclude that whilst the Settlement of London
- granted a breathing space to the end of 1921, it can be no more
- permanent than its predecessors.
- EXCURSUS III
- THE WIESBADEN AGREEMENT
- In the summer of 1921 much interest was excited by reports of
- confidential interviews between M. Loucheur and Herr Rathenau, the
- Ministers of Reconstruction in France and Germany respectively. An
- agreement was provisionally reached in August 1921 and was finally
- signed at Wiesbaden on October 6, 1921[53]; but it does not come into
- force until it has received the approval of the Reparation Commission.
- This Commission, whilst approving the general principles underlying it,
- have referred it to the principal Allied Governments on the ground that
- it involves departures from the Treaty of Versailles beyond their own
- competence to authorize. The British delegate, Sir John Bradbury, has
- advised his Government that the Agreement should be approved subject
- to certain modifications which he sets forth; and his Report has been
- published.[54]
- The Wiesbaden Agreement is a complicated document. But the essence of
- it is easily explained. It falls into two distinct parts. First, it
- sets up a procedure by which private French firms can acquire from
- private German firms materials required for reconstruction in France,
- without France having to make payment in cash. Secondly, it provides
- that, whilst Germany is not to receive payment at once for any part
- of these goods, only a proportion of the sum due is credited to her
- immediately in the books of the Reparation Commission, the balance
- being advanced by her to France for the time being and only brought
- into the Reparation account at a later date.
- The first set of provisions has met with unqualified approval from
- every one. An arrangement which may possibly stimulate payment of
- Reparation in the form of actual materials for the reconstruction
- of the devastated districts satisfies convenience, economics, and
- sentiment in a peculiarly direct way. But such supplies were already
- arranged for under the Treaty, and the chief value of the new procedure
- lies in its replacing the machinery of the Reparation Commission by
- direct negotiation between the French and German authorities.[55]
- The second set of provisions is, however, of a different character,
- since it interferes with the existing agreements between the Allies
- themselves as to the order and proportions in which each is to share
- in the available receipts from Germany, and seeks to secure for
- France a larger share of the earlier payments than she would receive
- otherwise. A priority to France is, in my opinion, desirable; but such
- priority should be accorded as part of a general re–settlement of
- Reparation, in which Great Britain should waive her claim entirely.
- Further, the Agreement involves an act of doubtful good faith on the
- part of Germany. She has been protesting with great vehemence (and, I
- believe, with perfect truth) that the Decisions of London exact from
- her more than she can perform. But in such circumstances it is an act
- of impropriety for her to enter voluntarily into an agreement which
- must have the effect, if it is operative, of further increasing her
- liabilities even beyond those against which she protests as impossible.
- Herr Rathenau may justify his action by the arguments that this is a
- first step towards replacing the Decisions of London by more sensible
- arrangements, and also that, if he can placate Germany’s largest and
- most urgent creditor in the shape of France, he has not much to fear
- from the others. M. Loucheur, on the other hand, may know as well as I
- do, though speaking otherwise, that the Decisions of London cannot be
- carried out, and that the time for a more realistic policy is at hand;
- he may even regard his interviews with Herr Rathenau as a foretaste of
- more intimate relationships between business interests on the two sides
- of the Rhine. But these considerations, if we were to pursue them,
- would lead us to a different plane of argument.
- Sir John Bradbury in his Report[56] on the Agreement to the British
- Government has proposed certain modifications which would have the
- effect of preserving the advantages of the first set of provisions,
- but of nullifying the latter so far as they could operate to the
- detriment of France’s Allies.
- I consider, however, that exaggerated importance has been attached
- to this topic, since the actual deliveries of goods made under the
- Wiesbaden or similar agreements are not likely to be worth such large
- sums of money as are spoken of. Deliveries of coal, dyestuffs, and
- ships, dealt with in the Annexes to Part VIII. of the Treaty are
- specifically excluded from the operation of the Wiesbaden Agreement
- which is expressly limited to deliveries of plant and material, and
- these France undertakes to apply _solely_ to the reconstitution of the
- devastated regions. The quantities of goods, which French firms and
- individuals will be ready to order from Germany at the full market
- price, and which Germany can supply, for this limited purpose (so great
- a part of the cost of which is necessarily due to _labor_ employed on
- the spot and not to materials capable of being imported from Germany),
- are not likely to amount, during the next five years, to a sum of money
- which the other Allies need grudge France as a priority claim.
- My other reserve relates to the supposed importance of the Wiesbaden
- Agreement as a precedent for similar arrangements with the other
- Allies, and raises the general issue of the utility of arrangements for
- securing that Germany should pay in kind rather than in cash, for other
- purposes than those of the devastated areas.
- It is commonly believed that, if our demands on Germany are met by
- her delivering to us not cash but particular commodities selected by
- ourselves, we can thus avoid the competition of German products against
- our own in the markets of the world, which must result if we compel her
- to find foreign currency by selling goods abroad at whatever cut in
- price may be necessary to market them.[57]
- Most suggestions in favor of our being paid in kind are too vague to
- be criticized. But they usually suffer from the confusion of supposing
- that there is some advantage in our being paid directly in kind even in
- the case of articles which Germany might be expected to export in any
- case. For example, the Annexes to the Treaty which deal with deliveries
- in kind chiefly relate to coal, dyestuffs, and ships. These certainly
- do not satisfy the criterion of not competing with our own products;
- and I see very little advantage, but on the other hand some loss and
- inconvenience, in the Allies’ receiving these goods direct, instead of
- Germany’s selling them in the best market and paying over the proceeds.
- In the case of coal in particular, it would be much better if Germany
- sold her output for cash in the best export markets, whether to France
- and Belgium or to the neighboring neutrals, and then paid the cash
- over to France and Belgium, than that coal should be delivered to the
- Allies for which the latter may have no immediate use, or by transport
- routes which are uneconomical, when neutrals need the coal and what the
- Allies really require is the equivalent cash. In some cases the Allies
- have re–sold the coal which Germany has delivered to them,—a procedure
- which, in the case of an article for which freight charges cover so
- large a proportion of the whole value, involves a preposterous waste.
- If we try to stipulate the precise commodities in which Germany is to
- pay us, we shall not secure from her so large a contribution, as if
- we fix a reasonable sum which is within her capacity, and then leave
- her to find the money as best she can. If, moreover, the sum fixed is
- reasonable, the annual payments will not be so large, in proportion to
- the total volume of international trade, that Great Britain need be
- nervous lest the payments upset the normal equilibrium of her economic
- life in any greater degree than is bound to result in any case from the
- gradual economic recovery of so formidable a trade rival as pre–war
- Germany.
- Whilst I make these observations in the interests of scientific
- accuracy, I admit that projects, for insisting on payment in kind may
- be very useful politically as a means of escaping out of our present
- _impasse_. In practice the value of such deliveries would turn out to
- be immensely less than the cash we are now demanding; but it may be
- easier to substitute deliveries of materials in place of cash, which
- will in practice result in a great abatement of our demands, than to
- abate the latter in so many words. Moreover, protests, against leaving
- Germany free to pay us in cash by selling goods how and where she can,
- enlist on the side of revision all the latent Protectionist sentiment
- which still abounds. If Germany were to make a strenuous effort to
- pay us by exploiting the only method open to her, namely, by selling
- as many goods as possible at low prices all over the world, it would
- not be long before many minds would represent this effort as a plot to
- ruin us; and persons of this way of thinking will be most easily won
- over, if we describe a reduction in our demands, as a prohibition to
- Germany against developing a nefarious competitive trade. Such a way
- of expressing a desirable change of policy combines, with a basis of
- truth, sufficient false doctrine to enable _The Times_, for example,
- to recommend it in a leading article without feeling conscious of any
- intellectual inconsistency; and it furnishes what so many people are
- now looking for, namely, a pretext for behaving sensibly, without
- having to suffer the indignity and inconvenience of thinking and
- speaking so too. Heaven forbid that I should discourage them! It
- is only too rarely that a good cause can summon to its assistance
- arguments sufficiently mixed to insure success.
- EXCURSUS IV
- THE MARK EXCHANGE
- The gold value of a country’s inconvertible paper money may fall,
- either because the Government is spending more than it is raising by
- loans and taxes and is meeting the balance by issuing paper money,
- or because the country is under the obligation of paying increased
- sums to foreigners for the purchase of investments or in discharge of
- debts. Temporarily it may be affected by speculation, that is to say by
- _anticipation_, whether well or ill founded, that one or other of the
- above influences will operate shortly; but the influence of speculation
- is generally much exaggerated, because of the immense effect which it
- may exercise momentarily. Both influences can only operate through
- the balance of debts, due for immediate payment, between the country
- in question and the rest of the world: the liability to make payments
- to foreigners operating on this directly; and the inflation of the
- currency operating on it indirectly, either because the additional
- paper money stimulates imports and retards exports, by increasing
- local purchasing power at the existing level of values or because the
- expectation that it will so act causes anticipatory speculation. The
- expansion of the currency can have no effect whatever on the exchanges
- until it reacts on imports and exports, or encourages speculation; and
- as the latter cancels out, sooner or later, the effect of currency
- expansion on the exchanges can only last by reacting on imports and
- exports.
- These principles can be applied without difficulty to the exchange
- value of the mark since 1920. At first the various influences were
- not all operating in the same direction. Currency inflation tended
- to depreciate the mark; so did foreign investment by Germans (the
- “flight from the mark”); but investment by foreigners in German Bonds
- and German currency (an exact line between which and short–period
- speculation it is not easy to draw) operated sharply in the other
- direction. After the mark had fallen to such a level that more than
- 25 marks could be obtained for a dollar, numerous persons all over
- the world formed the opinion that there would be a reaction some day
- to the pre–war value, and that therefore a purchase of marks or mark
- Bonds would be a good investment. This investment proceeded on so vast
- a scale that it placed foreign currency at the disposal of Germany up
- to an aggregate value which has been estimated at from $800,000,000
- to $1,000,000,000. These resources enabled Germany, partially at
- least, to replenish her food supplies and to restock her industries
- with raw materials, requirements involving an excess of imports over
- exports which could not otherwise have been paid for. In addition it
- even enabled individual Germans to remove a part of their wealth from
- Germany for investment in other countries.
- Meanwhile currency inflation was proceeding. In the course of the year
- 1920 the note circulation of the Reichsbank approximately doubled,
- whilst on balance the exchange value of the mark had deteriorated only
- slightly as compared with the beginning of that year.
- Moreover, up to the end of 1920 and even during the first quarter of
- 1921 Germany had made no cash payments for Reparation and had even
- _received_ cash (under the Spa Agreement) for a considerable part of
- her coal deliveries.
- After the middle of 1921, however, the various influences, which up
- to that time had partly balanced one another, began to work all in
- one direction, that is to say, adversely to the value of the mark.
- Currency inflation continued, and during 1921 the note circulation of
- the Reichsbank was nearly trebled, bringing it up to nearly six times
- what it had been two years earlier. Imports steadily exceeded exports
- in value. Some foreign investors in marks began to take fright and,
- so far from increasing their holdings, sought to diminish them. And
- now at last the German Government was called on to make important cash
- payments on Reparation account. Sales of marks from Germany, instead of
- being absorbed by foreign investors, had now to be made in competition
- with sales from these same investors. Naturally the mark collapsed. It
- had to fall to a value at which new buyers would come forward or at
- which sellers would hold off.[58]
- There is no mystery here, nothing but what is easily explained. The
- credence attached to stories of a “German plot” to depreciate the mark
- wilfully is further evidence of the overwhelming popular ignorance of
- the influences governing the exchanges, an ignorance already displayed,
- to the great pecuniary advantage of Germany, by the international craze
- to purchase mark notes.
- In its later stages the collapse has been mainly due to the necessity
- of paying money abroad in discharge of Reparation and in repaying
- foreign investors in marks, with the result that the fall in the
- external value of the mark has outstripped any figure which could be
- justified merely as a consequence of the present degree of currency
- inflation. Germany would require a much larger note issue than at
- present, if German internal prices were to become adjusted to gold
- prices at an exchange of more than 400 marks to the dollar.[1] If,
- therefore, the other influences were to be removed, if, that is to
- say, the Reparation demands were revised and foreign investors were to
- take heart again, a sharp recovery might occur. On the other hand, a
- serious attempt by Germany to meet the Reparation demands would cause
- the expenditure of her Government to exceed its income by so great an
- amount, that currency inflation and the internal price level would
- catch up in due course the external depreciation in the mark.
- In either event Germany is faced with an unfortunate prospect. If the
- present exchange depreciation persists and the internal price level
- becomes adjusted to it, the resulting redistribution of wealth between
- different classes of the community will amount to a social catastrophe.
- If, on the other hand, there is a recovery in the exchange, the
- cessation of the existing artificial stimulus to industry and of the
- Stock Exchange boom based on the depreciating mark may lead to a
- financial catastrophe.[59] Those responsible for the financial policy
- of Germany have a problem of incomparable difficulty in front of them.
- Until the Reparation liability has been settled reasonably, it is
- scarcely worth the while of any one to trouble his head about a problem
- which is insoluble. When stabilization has become a practicable policy,
- the wisest course will probably be to stabilize at whatever level
- prices and trade seem most nearly adjusted to at that date.
- FOOTNOTES:
- [32] The preamble states that the settlement is “in accordance with
- Article 233 of the Treaty of Versailles.” This Article prescribes
- that the scheme of payments shall provide for the discharge of the
- liabilities within _thirty_ years, any unpaid balance at the end of
- this period being “postponed” or “handled otherwise.” In the actual
- settlement, however, the initial limitation to thirty years has been
- neglected.
- [33] This actual text is printed below in full, Appendix No. 7.
- [34] It is not competent for a single Ally (_e.g._, Portugal) to claim
- its share of the Bonds and market them at the best price obtainable.
- Under the Treaty of Versailles Part VIII. Annex II. 13 (_b_) questions
- relating to the marketing of these Bonds can only be settled by
- _unanimous_ decision of the Reparation Commission.
- [35] The Committee is to coöpt three representatives of neutrals when a
- sufficient proportion of the Bonds to justify their representation has
- been marketed on neutral Stock Exchanges.
- [36] And it really is an adequate rejoinder to deputies like M.
- Forgeot. If a partisan or a child wants a silly, harmful thing, it
- may be better to meet him with a silly, harmless thing, than with
- explanations he cannot understand. This is the traditional wisdom of
- statesmen and nursemaids.
- [37] The effect of this provision is discussed in _The Economic
- Consequences of the Peace_, pp. 165–167.
- [38] Cf. Baruch, _The Making of the Reparation and Economic Sections of
- the Treaty_, p. 46; and Lamont, _What Really Happened at Paris_, p. 275.
- [39] Assuming exports of 10 milliards, which is double the actual
- figure of 1920.
- [40] _The Truth about the Treaty_, p. 305.
- [41] Exports for the six months May–October 1921 were valued at about
- 40 milliard paper marks (exclusive, I think, of deliveries of coal
- and payments in kind to the Allies), as against imports valued at 53
- milliard paper marks. If the monthly export figures are converted into
- gold marks at the average exchange of the month, the exports for the
- six months work out at about 1865 million gold marks, or at the rate of
- rather less than 4 milliard gold marks per annum.
- [42] In _The Economic Consequences of the Peace_, p. 203, I expressly
- premised that my estimates were based on a value of money not widely
- different from that existing at the date at which I wrote. Since then
- prices have risen and fallen back again. The same proviso is necessary
- in the case of the present estimates. It would have been more practical
- if, in fixing Germany’s liability in terms of money for a long period
- of years, some provision had been made for adjusting the real burden in
- accordance with fluctuations in the value of money during the period of
- payment.
- [43] See Excursus III.
- [44] I first published this prediction in August 1921. As this book
- goes to press, the German Government have notified the Reparation
- Commission (December 15, 1921) that, having failed in their attempt to
- secure a foreign loan, they cannot find, apart from deliveries in kind,
- more than 150 or 200 million gold marks towards the instalments of
- January and February, 1922.
- [45] The United States has the right to retain and liquidate all
- property, rights, and interests belonging to German nationals and
- lying within the territories, colonies, and possessions of the United
- States on January 10, 1920. The proceeds of such liquidation are at
- the disposal of the United States “in accordance with its laws and
- regulations,” that is to say, at the disposal of Congress within the
- limitations of the Constitution, and may be applied by them in any of
- the three following ways: (1) the assets in question may be returned to
- their original German owners; (2) they may be applied to the discharge
- of claims by United States nationals with regard to their property,
- rights, and interests in German territory, or debts owing to them by
- German nationals, or to the payment of claims growing out of acts of
- the German Government after the United States entered the war, and also
- to the discharge of similar American claims in respect of those of
- Germany’s Allies against whom the United States was at war; (3) they
- may be turned over to the Reparation Commission as a credit to Germany
- under this head.
- [46] The rates for conversion of paper marks into gold marks have been
- taken as follows: Number of paper marks per 100 gold marks in May,
- 1465.5; June, 1647.9; July, 1832; August, 1996.4; September, 2443.2;
- October, 3942.6
- [47] Provisional figures.
- [48] The ordinary revenue and expenditure were estimated to balance
- at 48.48 milliard paper marks. The extraordinary expenditure was
- estimated at 59.68 milliards, making a total expenditure of 108.16
- milliards. Included in this, however, were 14.6 milliards for various
- Reparation items. These are in respect of various pre–May 1, 1921,
- items and do not allow for payments under the London Settlement; but to
- avoid confusion I have deducted these from the estimate of expenditure
- as stated above. The extraordinary revenue was estimated at 10.5
- milliards, making a total revenue of 58.98 milliards.
- [49] I have allowed nothing so far for the costs of the Armies of
- Occupation, which, under the letter of the Treaty, Germany is under
- obligation to pay in addition to the sums due for Reparation proper.
- As these charges rank in priority ahead of Reparation, and as the
- London Agreement does not deal with them, I think Germany is liable to
- be called on to pay these as they accrue in addition to the annuities
- fixed in the London Settlement. But I am doubtful whether the Allies
- intend in fact to demand this. Hitherto the expense of the Armies has
- been so great as to absorb virtually the whole of the receipts (see
- Excursus V. below), having amounted by the middle of 1921 to about
- $1,000,000,000. In any case, it is now time that the agreement, signed
- at Paris in 1919 by Clemenceau, Lloyd George, and Wilson, should be
- brought into force, to the effect that the sum payable annually by
- Germany to cover the cost of occupation shall be limited to 240 million
- gold marks as soon as the Allies “are convinced that the conditions
- of disarmament by Germany are being satisfactorily fulfilled.” If we
- assume that this reduced figure is brought into force, as it ought to
- be, the total burden on Germany for Separation and Occupation comes, on
- the assumption of the lower figure for exports, to 3.8 milliard gold
- marks, that is, to 76 milliard paper marks.
- [50] “This estimate is based on an average wage of about 800 paper
- marks monthly for male, and about 400 paper marks monthly for female,
- employees.” Converting these figures at the rate of 12 paper marks
- equal to 1 gold mark, he arrived at an aggregate national income
- between 30 and 34 milliard gold marks. It is not easy to see how these
- wage estimates, even assuming their correctness, can lead to so high an
- aggregate figure.
- [51] There are twice as many male commercial employees as there are
- female.
- [52] For a full examination of the purchasing power of the paper mark
- inside Germany, see an article by M. Elsas in the _Economic Journal_,
- September 1921.
- [53] A summary of this Agreement and other papers relating to it are
- given in the Appendix No. 8.
- [54] See Appendix No. 8.
- [55] Incidentally the Wiesbaden Agreement sets up a fairer procedure
- for fixing the prices of supplies in kind than that contemplated in
- the Treaty. According to the Treaty the prices are fixed at the sole
- discretion of the Reparation Commission. In the Wiesbaden Agreement
- this duty is assigned to an Arbitral Commission consisting of a German
- representative, a French representative, and an impartial third who are
- to fix the prices, broadly speaking, on the basis of price existing in
- France in each quarterly period subject to this price being not more
- than 5 per cent below the German price.
- [56] See Appendix No. 8.
- [57] I return to the theoretical aspects of this question in Chapter VI.
- [58] Any one, who can fully persuade himself of the unalterable truth
- of the proposition that _every day_ the sales of exchange must exactly
- equal the purchases, will have gone a long way towards understanding
- the secret of the exchanges.
- [59] Furthermore, every improvement in the value of the mark increases
- the real burden of what Germany owes to foreign holders of marks and
- also the real burden of the Public Debt on the Exchequer. A rate of
- exchange exceeding 400 marks to the dollar has at least this advantage
- that it has reduced these two burdens to very moderate dimensions.
- CHAPTER IV
- THE REPARATION BILL
- The Treaty of Versailles specified the classes of damage in respect
- of which Germany was to pay Reparation. It made no attempt to assess
- the amount of this damage. This duty was assigned to the Reparation
- Commission, who were instructed to notify their assessment to the
- German Government on or before May 1, 1921.
- An attempt was made during the Peace Conference to agree to a figure
- there and then for insertion in the Treaty. The American delegates in
- particular favored this course. But an agreement could not be reached.
- There was no reasonable figure which was not seriously inadequate
- to popular expectations in France and the British Empire.[60] The
- highest figure to which the Americans would agree, namely, 140 milliard
- gold marks, was, as we shall see later, not much above the eventual
- assessment of the Reparation Commission; the lowest figure to which
- France and Great Britain would agree, namely, 180 milliard gold marks,
- was, as it has turned out, much above the amount to which they were
- entitled even under their own categories of claim.[61]
- Between the date of the Treaty and the announcement of its decision
- by the Reparation Commission, there was much controversy as to what
- this amount should be. I propose to review some of the details of
- this problem, because, if men are in any way actuated by veracity in
- international affairs, a just opinion about it is still relevant to the
- Reparation problem.
- The main contentions of _The Economic Consequences of the Peace_
- were these: (1) that the claims against Germany which the Allies
- were contemplating were impossible of payment; (2) that the economic
- solidarity of Europe was so close that the attempt to enforce these
- claims might ruin every one; (3) that the money cost of the damage
- done by the enemy in France and Belgium had been exaggerated; (4) that
- the inclusion of pensions and allowances in our claims was a breach of
- faith; and (5) that our legitimate claim against Germany was within her
- capacity to pay.
- I have made some supplementary observations about (1) and (2) in
- Chapters III. and VI. I deal with (3) here and in Chapter V. with (4).
- These latter are still important. For, whilst time is so dealing with
- (1) and (2) that very few people now dispute them, the amount of our
- legitimate claim against Germany has not been brought into so sharp a
- focus by the pressure of events. Yet if my contention about this can
- be substantiated, the world will find it easier to arrange a practical
- settlement. The claims of justice in this connection are generally
- thought to be opposed to those of possibility, so that even if the
- pressure of events drives us reluctantly to admit that the latter must
- prevail, the former will rest unsatisfied. If, on the other hand,
- restricting ourselves to the devastations in France and Belgium, we
- can demonstrate that it is within the capacity of Germany to make full
- reparation, a harmony of sentiment and action can be established.
- With this end in view it is necessary that I should take up again,
- in the light of the fuller information now available, the statements
- which I made in _The Economic Consequences of the Peace_ (p. 120) to
- the effect that “the amount of the material damage done in the invaded
- districts has been the subject of enormous, if natural, exaggeration.”
- These statements have involved me in a charge, with which Frenchmen
- as eminent as M. Clemenceau[62] and M. Poincaré have associated
- themselves, that I was actuated not by the truth but by a supposed
- hostility to France in speaking thus of the allegations of M. Klotz and
- M. Loucheur and some other Frenchmen. But I still urge on France that
- her cause may be served by accuracy and the avoidance of overstatement;
- that the damage she has suffered is more likely to be made good if
- the amount is possible than if it is impossible; and that, the more
- moderate her claims are, the more likely she is to win the support of
- the world in securing priority for them. M. Brenier, in particular, has
- conducted a widespread propaganda with the object of creating prejudice
- against my statistics. Yet to add a large number of noughts at the
- end of an estimate is not really an indication of nobility of mind.
- Nor, in the long run, are those persons good advocates of France’s
- cause who bring her name into contempt and her sincerity into doubt by
- using figures wildly. We shall never get to work with the restoration
- of Europe unless we can bring not only experts, but the public, to
- consider coolly what material damage France has suffered and what
- material resources of reparation Germany commands. _The Times_, in a
- leading article which accompanied some articles by M. Brenier (December
- 4, 1920), wrote with an air of noble contempt—“Mr. Keynes treats their
- losses as matter for statistics.” But chaos and poverty will continue
- as long as we insist on treating statistics as an emotional barometer
- and as a convenient vehicle of sentiment. In the following examination
- of figures let us agree that we are employing them to measure facts and
- not as a literary expression of love or hate.
- Leaving on one side for the present the items of pensions and
- allowances and loans to Belgium, let us examine the data relating
- to the material damage in Northern France. The claims made by the
- French Government did not vary very much from the spring of 1919, when
- the Peace Conference was sitting, down to the spring of 1921, when
- the Reparation Commission was deciding its assessment, though the
- fluctuations in the value of the franc over that period cause some
- confusion. Early in 1919 M. Dubois, speaking on behalf of the Budget
- Commission of the Chamber, gave the figure of 65 milliard francs “as a
- minimum,” and on February 17, 1919, M. Loucheur, speaking before the
- Senate as Minister of Industrial Reconstruction, estimated the cost at
- 75 milliards at the prices then prevailing. On September 5, 1919, M.
- Klotz, addressing the Chamber as Minister of Finance, put the total
- French claims for damage to property (presumably inclusive of losses
- at sea, etc.) at 134 milliards. In July 1920 M. Dubois, by that time
- President of the Reparation Commission, in a Report for the Brussels
- and Spa Conferences, put the figure at 62 milliards on the basis of
- pre–war prices.[63] In January 1921 M. Doumer, speaking as Finance
- Minister, put the figure at 110 milliards. The actual claim which the
- French Government submitted to the Reparation Commission in April 1921
- was for 127 milliard paper francs at current prices.[64] By that time
- the exchange value of the franc, and also its purchasing power, had
- considerably depreciated, and, allowing for this, there is not so great
- a discrepancy as appears at first sight between the above estimates.
- For the assessment of the Reparation Commission it was necessary to
- convert this claim from paper francs into gold marks. The rate to be
- adopted for this purpose was the subject of acute controversy. On the
- basis of the actual rate of exchange prevailing at that date (April
- 1921) the gold mark was worth about 3.25 paper francs. The French
- representatives claimed that this depreciation was temporary and
- that a permanent settlement ought not to be based on it. They asked,
- therefore, for a rate of about frs. 1.50 or frs. 1.75 to the gold
- mark.[65] The question was eventually submitted to the arbitration of
- Mr. Boyden, the American member of the Reparation Commission, who,
- like most arbitrators, took a middle course and decided that 2.20
- paper francs should be deemed equivalent to 1 gold mark.[66] He would
- probably have found it difficult to give a reason for this decision.
- As regards that part of the claim which was in respect of pensions, a
- forecast of the gold value of the franc, however impracticable, was
- relevant. But as regards that part which was in respect of material
- damage, no such adjustment was necessary[67]; for the French claim had
- been drawn up on the basis of the current costs of reconstruction, the
- gold equivalent of which need not be expected to rise with an increase
- in the gold value of the franc, an improvement in the exchange being
- balanced sooner or later by a fall in franc prices. It might have been
- proper to make allowance for any premium existing, at the date of the
- assessment, on the internal purchasing power of the franc over that of
- its external exchange–equivalent in gold. But in April 1921 the franc
- was not far from its proper “purchasing power parity,” and I calculate
- that on this basis it would have been approximately accurate to have
- equated the gold mark with 3 paper francs. The rate of 2.20 had the
- effect, therefore, of inflating the French claim against Germany very
- materially.
- At this rate the claim of 127 milliard paper francs for material damage
- was equivalent to 57.7 milliard gold marks, of which the chief items
- were as follows:
- ──────────────────────┬───────────────┬─────────────
- │Francs (paper),│Marks (Gold),
- │ millions. │ millions.
- ──────────────────────┼───────────────┼─────────────
- Industrial damages │ 38,882 │ 17,673
- Damage to houses │ 36,892 │ 16,768
- Furniture and fittings│ 25,119 │ 11,417
- Unbuilt-on land │ 21,671 │ 9,850
- State property │ 1,958 │ 890
- Public works │ 2,583 │ 1,174
- ├───────────────┼─────────────
- Total │ 127,105 │ 57,772
- ──────────────────────┴───────────────┴─────────────
- This total is one which I believe to be a vast, indeed a fantastic,
- exaggeration beyond anything which it would be possible to justify
- under cross–examination. At the date when I wrote _The Economic
- Consequences of the Peace_, exact statistics as to the damage done were
- not available, and it was only possible to fix a maximum limit to a
- reasonable claim, having regard to the pre–war wealth of the invaded
- districts. Now, however, much more detail is available with which to
- check the claim.
- The following particulars are quoted from a statement made by M. Briand
- in the French Senate on April 6, 1921, supplemented by an official
- memorandum published a few days later, and represent the position at
- about that date:[68]
- (1) The population inhabiting the devastated districts in April 1921
- was 4,100,000, as compared with 4,700,000 in 1914.
- (2) Of the cultivable land 95 per cent of the surface had been
- releveled and 90 per cent had been plowed and was producing crops.
- (3) 293,733 houses were totally destroyed, in replacement of which
- 132,000 provisional dwellings of different kinds had been erected.
- (4) 296,502 houses were partially destroyed, of which 281,300 had been
- repaired.
- (5) Fifty per cent of the factories were again working.
- (6) Out of 2404 kilometers of railway destroyed, practically the whole
- had been reconstructed.
- It seems, therefore, that, apart from refurnishing and from the
- rebuilding of houses and factories, the greater part of which had
- still to be accomplished, the bulk of the devastation was already made
- good out of the daily labor of France within two years of the Peace
- Conference, before Germany had paid anything.
- This is a great achievement,—one more demonstration of the riches
- accruing to France from the patient industry of peasants, which makes
- her one of the rich countries of the world, in spite of the corrupt
- Parisian finance which for a generation past has wasted the savings
- of her investors. When we look at Northern France we see what honest
- Frenchmen can accomplish.[69] But when we turn to the money claims
- which are based on this, we are back in the atmosphere of Parisian
- finance,—so grasping, faithless, and extravagantly unveracious as to
- defeat in the end its own objects.
- For let us compare some of these items of devastation with the claims
- lodged.
- (1) 293,733 houses were totally destroyed and 296,502 were partially
- destroyed. Since nearly all the latter have been repaired, we shall
- not be underestimating the damage in assuming, for the purposes of a
- rough comparison, that, on the average, the damaged houses were _half_
- destroyed, which gives us altogether the equivalent of 442,000 houses
- totally destroyed. Turning back, we find that the French Government’s
- claim for damage to houses was 16,768 million gold marks, that is to
- say $4,192,000,000. Dividing this sum by the number of houses, we find
- an average claim of $9,480, per house![70] This is a claim for what
- were chiefly peasants’ and miners’ cottages and the tenements of small
- country towns. M. Tardieu has quoted M. Loucheur as saying that the
- houses in the Lens–Courrières district were worth 5000 francs ($1000)
- a–piece before the war, but would cost 15,000 francs to rebuild after
- the war, which sounds not at all unreasonable. In April 1921 the cost
- of building construction in Paris (which had been a good deal higher
- some months before) was estimated to be, in terms of paper francs,
- three and a half times the pre–war figure.[71] But even if we take the
- cost in francs at five times the pre–war figure, namely 25,000 paper
- francs per house, the claim lodged by the French Government is still
- three and a half times the truth. I fancy that the discrepancy, here
- and also under other heads, may be partly explained by the inclusion
- in the official French claim of indirect damages, namely, for loss of
- rent—_perte de loyer_. It does not appear what attitude the Reparation
- Commission took up towards _indirect_ pecuniary and business losses
- arising in the devastated districts out of the war. But I do not think
- that such claims are admissible under the Treaty. Such losses, real
- though they were, were not essentially different from analogous losses
- occurring in other areas, and indeed throughout the territory of the
- Allies. The maximum claim, however, on this head would not go far
- towards justifying the above figure, and we can allow a considerable
- margin of error for such additional items without impairing the
- conclusion that the claim is exaggerated. In _The Economic Consequences
- of the Peace_ (p. 127) I estimated that $1,250,000,000 might be a fair
- estimate for damage to house property; and I still think that this was
- about right.
- (2) This claim for damage to houses is exclusive of furniture and
- fittings, which are the subject of a separate claim, namely, for 11,417
- million gold marks, or about $2,850,000,000. To check this figure let
- us assume that the whole of the furniture and fittings were destroyed,
- not only where the houses were destroyed, but also in every case where
- a house was damaged. This is an overstatement, but we may set it off
- against the fact that in a good many cases the furniture may have been
- looted and not recovered by restitution (a large amount has, in fact,
- been recovered in this way), although the structure of the house was
- not damaged at all. The total number of houses damaged or destroyed
- was 590,000. Dividing this into $2,850,000,000, we have an average of
- nearly $5,000 per house—an average valuation of the furniture and
- fittings in each peasant’s or collier’s house of nearly $5,000! I
- hesitate to guess how great an overstatement shows itself here.
- (3) The largest claim of all, however, is for “industrial damages,”
- namely, 17,673 million gold marks, or about $4,400,000,000. In 1919 M.
- Loucheur estimated the cost of reconstruction of the coal mines at 2000
- million francs, that is $400,000,000 at the par of exchange.[72] As
- the pre–war value of all the coal mines in Great Britain was estimated
- at only $650,000,000, and as the pre–war output of the British mines
- was fifteen times that of the invaded districts of France, this figure
- seems high.[73] But even if we accept it, there is still four thousand
- million dollars to account for. The great textile industries of Lille
- and Roubaix were robbed of their raw material, but their plant was not
- seriously injured, as is shown by the fact that in 1920 the woolen
- industry of these districts was already employing 93.8 per cent and the
- cotton industry 78.8 per cent of their pre–war personnel. At Tourcoing
- 55 factories out of 57 were in operation, and at Roubaix 46 out of
- 48.[74]
- Altogether 11,500 industrial establishments are said to have been
- interfered with, but this includes every village workshop, and about
- three–quarters of them employed less than 20 persons. Half of them were
- at work again by the spring of 1921. What is the average claim made on
- their behalf? Deducting the coal mines as above and dividing the total
- claim by 11,500, we reach an average figure of nearly $35,000. The
- exaggeration seems _prima facie_ on as high a scale as in the case of
- houses and furniture.
- (4) The remaining item of importance is for unbuilt–on land. The
- claim under this head is for 9850 million gold marks, or about
- $2,460,000,000. M. Tardieu (_op. cit._, p. 347) quotes Mr. Lloyd
- George as follows, in the course of a discussion during the Peace
- Conference in which he was pointing out the excessive character of
- the French claims: “If you had to spend the money which you ask for
- the reconstruction of the devastated regions of the North of France,
- I assert that you could not manage to spend it. Besides, the land is
- still there. Although it has been badly upheaved in parts, it has not
- disappeared. Even if you put the Chemin des Dames up to auction, you
- would find buyers.” Mr. Lloyd George’s view has been justified by
- events. In April 1921 the French Prime Minister was able to tell his
- Senate that 95 per cent of the cultivable land had been releveled and
- that 90 per cent had been plowed and was producing crops. Some go so
- far as to maintain that the fertility of the soil has been actually
- improved by the disturbance of its surface and by its lying fallow
- for several years. But apart from its having proved easier than was
- anticipated to make good this category of damage, the total cultivated
- area (excluding woodland) of the whole of the eleven Departments
- affected was about 6,650,000 acres, of which 270,000 acres were in the
- “zone of destruction,” 2,000,000 acres in the “zone of trenches and
- bombardment,” and 4,200,000 acres in the “zone of simple occupation.”
- The claim, therefore, averaged _over the whole area_, works out at
- about $370 per acre and, averaged over the first two categories above,
- at more than $1000 per acre. This claim, though it is described as
- being in respect of unbuilt–on land, probably includes farm buildings
- (other than houses), implements, live stock, and the growing crops of
- August 1914. As experience has proved that the permanent qualities of
- the land have only been seriously impaired over a small area, these
- latter items should probably constitute the major part of the claim.
- We have also to allow for destruction of woodlands. But even with high
- estimates for each of these items, I do not see how we could reach a
- total above a third of the amount actually claimed.
- These arguments are not exact, but they are sufficiently so to
- demonstrate that the claim sent in to the Reparation Commission is
- untenable. I believe that it is at least four times the truth. But
- it is possible that I have overlooked some items of claim, and it is
- better in discussions of this kind to leave a wide margin for possible
- error. I assert, therefore, that on the average the claim is not less
- than two or three times the truth.
- I have spent much time over the French claim, because it is the
- largest, and because more particulars are available about it than
- about the claims of the other Allies. On the face of it, the Belgian
- claim is open to the same criticism as the French. But in this claim a
- larger part is played by levies on the civilian population and personal
- injuries to civilians. The material damage, however, was on a very
- much smaller scale than in France. Belgian industry is already working
- at its pre–war efficiency, and the amount of reconstruction still to
- be made good is not on a great scale. The Belgian Minister for Home
- Affairs stated in Parliament in February 1920 that at the date of the
- Armistice 80,000 houses and 1100 public buildings had been destroyed.
- This suggests that the Belgian claim on this head ought to be about a
- quarter of the French claim; but in view of the greater wealth of the
- invaded districts of France, the Belgian loss is probably decidedly
- less than a quarter of the French loss. The claim, actually submitted
- by Belgium, for property, shipping, civilians and prisoners (that is to
- say, the aggregate claim apart from pensions and allowances) amounted
- to 34,254 million Belgian francs. Inasmuch as the Belgian Ministry of
- Finance, in an official survey published in 1913, estimate the entire
- wealth of the country at 29,525 million Belgian francs, it is evident
- that, even allowing for the diminished value of the Belgian franc,
- which is our measuring rod, this claim is very grossly excessive. I
- should guess that the degree of exaggeration is quite as great as in
- the case of France.
- The British Empire claim is, apart from pensions and allowances, almost
- entirely in respect of shipping losses. The tonnage lost and damaged
- is definitely known. The value of the cargoes carried is a matter of
- difficult guesswork. On the basis of an average of $150 for the hull
- and $200 for the cargo per gross ton lost, I estimated the claim in
- _The Economic Consequences of the Peace_ (p. 132) at $2,700,000,000.
- The actual claim lodged was for $3,835,000,000. Much depends on the
- date at which the cost of replacement is calculated. Most of the
- tonnage was in fact replaced out of vessels the building of which
- commenced before the end of the war or shortly afterwards, and thus
- cost a much higher price than prevailed in, _e.g._, 1921. But even so
- the claim lodged is very high. It seems to be based on an estimate of
- $500 per gross ton lost for hull and cargo together, any excess in this
- being set off against the fact that no separate allowance is made for
- vessels damaged or molested, but not sunk. This figure is the highest
- for which any sort of plausible argument could be adduced, rather than
- a judicial estimate. I adhere to the estimate which I gave in _The
- Economic Consequences of the Peace_.
- I forbear to examine the claims of the other Allies. The details, so
- far as they have been published, are given in Appendix No. 3.
- The observations made above relate to the claims for material damage
- and do not bear on those for pensions and allowances, which are,
- nevertheless, a very large item. These latter are to be calculated,
- according to the Treaty, in the case of pensions “as being the
- capitalized cost at the date of coming into force of the Treaty, on the
- basis of the scales in force in France at such date,” and in the case
- of allowances made during hostilities to the dependents of mobilized
- persons “on the basis of the average scale for such payments in force
- in France” during each year. That is to say, the French Army scale is
- to be applied all round; and the result, given the numbers affected,
- should be a calculable figure, in which there should be little room
- for serious error. The actual claims were as follows in milliard gold
- marks:[75]
- Milliard marks
- (gold).
- France 33
- British Empire 37
- Italy 17
- Belgium 1
- Japan 1
- Roumania 4
- ──
- 93
- This does not include Serbia, for which a separate figure is not
- available, or the United States. The total would work out, therefore,
- at about 100 milliard gold marks.[76]
- What does the aggregate of the claims work out at under all heads,
- and what relation does this total bear to the final assessment of
- the Reparation Commission? As the claims are stated in a variety of
- national currencies, it is not quite a simple matter to reach a total.
- In the following table French francs are converted into gold marks at
- 2.20 (the rate adopted by the Commission as explained above), sterling
- approximately at par (on the analogy of the rate for francs), Belgian
- francs at the same rate as French francs, Italian lire at twice this
- rate, Serbian dinars at four times this rate, and Japanese yen at par.
- Milliard marks
- (gold).
- France 99
- British Empire 54
- Italy 27
- Belgium 16½
- Japan 1½
- Jugo–Slavia 9½
- Roumania 14
- Greece 2
- ────
- 223½
- There are omitted from this table Poland and Czecho–Slovakia, of
- which the claims are probably inadmissible, the United States, which
- submitted no claim, and certain minor claimants shown in Appendix No. 3.
- In round figures, therefore, we may put the claims as lodged before the
- Reparations Commission at about 225 milliard gold marks, of which 95
- milliards was in respect of pensions and allowances, and 130 milliards
- for claims under other heads.
- The Reparation Commission in announcing its decision did not
- particularize as between different claimants or as between different
- heads of claim, and merely stated a lump sum figure. Their figure was
- 132 milliards; that is to say, about 58 per cent of the sums claimed.
- This decision was in no way concerned with Germany’s capacity to pay,
- and was simply an assessment, intended to be judicial, as to the sum
- justly due under the heads of claim established by the Treaty of
- Versailles.
- The decision was unanimous, but only in face of sharp differences of
- opinion. It is not suitable or in accordance with decency to set up a
- body of interested representatives to give a judicial decision in their
- own case. This arrangement was an offspring of the assumption which
- runs through the Treaty that the Allies are incapable of doing wrong,
- or even of partiality.
- Nothing has been published in England about the discussions which led
- up to this conclusion. But M. Poincaré, at one time President of the
- Reparation Commission and presumably well–informed about its affairs,
- has lifted a corner of the veil in an article published in the _Revue
- des Deux Mondes_ for May 15, 1921. He there divulges the fact that
- the final result was a compromise between the French and the British
- representatives, the latter of whom endeavored to fix the figure at
- 104 milliards, and defended this adjudication with skilful and even
- passionate advocacy.[77]
- When the decision of the Reparation Commission was first announced,
- and was found to abate so largely the claims lodged with it, I hailed
- it, led away a little perhaps by its very close agreement with my own
- predictions, as a great triumph for justice in international affairs.
- So, in a measure, I still think it. The Reparation Commission went a
- considerable way in disavowing the veracity of the claims of the Allied
- Governments. Indeed, their reduction of the claims for items other than
- pensions and allowances must have been very great since the claims for
- pensions, being capable of more or less exact calculation,[78] can
- hardly have been subject to an initial error of anything approaching
- 42 per cent. If, for example, they reduced the claim for pensions and
- allowances from 95 to 80 milliards, they must have reduced the other
- claims from 130 milliards to 52 milliards, that is to say, by 60 per
- cent. Yet even so, on the data now available, I do not believe that
- their adjudication could be maintained before an impartial tribunal.
- The figure of 104 milliards, attributed by M. Poincaré to Sir John
- Bradbury, is probably the nearest we shall get to a strictly impartial
- assessment.
- To complete our summary of the facts two particulars must be added.
- (1) The total, as assessed by the Reparation Commission, comprehends
- the total claim against Germany _and her Allies_. It includes, that
- is to say, the damage done by the armies of Austria–Hungary, Turkey,
- and Bulgaria, as well as by those of Germany. Payments, if any, made
- by Germany’s Allies must, presumably, be deducted from the sum due.
- But Annex I. of the Reparation Chapter of the Treaty of Versailles
- is so drafted as to render Germany liable for the whole amount. (2)
- This total is exclusive of the sum due under the Treaty for the
- reimbursement of sums lent to Belgium by her Allies during the war. At
- the date of the London Agreement (May 1921) Germany’s liability under
- this head was provisionally estimated at 3 milliard gold marks. But it
- had not then been decided at what rate these loans, which were made in
- terms of dollars, sterling, and francs, should be converted into gold
- marks. The question was referred for arbitration to Mr. Boyden, the
- United States Delegate on the Reparation Commission, and at the end of
- September 1921 he announced his decision to the effect that the rate of
- conversion should be based on the rate of exchange prevailing at the
- date of the Armistice. Including interest at 5 per cent, as provided by
- the Treaty, I estimate that this liability amounts at the end of 1921
- to about 6 milliard gold marks, of which slightly more than a third is
- due to Great Britain and slightly less than a third each to France and
- the United States respectively.
- I take, therefore, as my final conclusion that the best available
- estimate of the sum due from Germany, under the strict letter of
- the Treaty of Versailles, is 110 milliard gold marks, which may be
- divided between the main categories of claim in the proportions—74
- milliards for pensions and allowances, 30 milliards for direct damage
- to the property and persons of civilians, and 6 milliards for war debt
- incurred by Belgium.
- This total is more than Germany can pay. But the claim exclusive of
- pensions and allowances should be within her capacity. The inclusion of
- a demand for pensions and allowances was the subject of a long struggle
- and a bitter controversy in Paris. I have argued that those were right
- who maintained that this demand was inconsistent with the terms on
- which Germany surrendered at the Armistice. I return to this subject in
- the next chapter.
- EXCURSUS V
- RECEIPTS AND EXPENSES PRIOR TO MAY 1, 1921
- The provision in the Treaty of Versailles that Germany, subject to
- certain deductions, was to pay $5000 millions (gold) before May
- 1, 1921, was so remarkably wide of facts and possibilities, that
- for some time past no one has said much about this offspring of the
- unimaginative imaginations of Paris. As it was totally abandoned by the
- London Agreement of May 5, 1921, there is no need to return to what is
- an obsolete controversy. But it is interesting to record what payments
- Germany did actually effect during the transitional period.
- The following details are from a statement published by the British
- Treasury in August 1921:
- APPROXIMATE STATEMENT BY THE REPARATION COMMISSION OF DELIVERIES MADE
- BY GERMANY FROM NOVEMBER 11, 1918, TO APRIL 30, 1921
- Gold Marks.
- Receipts in cash 99,334,000
- Deliveries in kind:
- Ships 270,331,000
- Coal 437,160,000
- Dyestuffs 36,823,000
- Other deliveries 937,040,000
- ──────────────
- 1,780,688,000
- Immovable property and assets not yet encashed 2,754,104,000
- ──────────────
- 4,534,792,000
- say $1,130,000,000
- The immovable property consists chiefly of the Saar coalfields
- surrendered to France, State property in Schleswig surrendered to
- Denmark, and State property (with certain exceptions) in the territory
- transferred to Poland.
- The whole of the cash, two–thirds of the ships, and a quarter of
- the dyestuffs accrued to Great Britain. A share of the ships and
- dyestuffs, the Saar coalfields, the bulk of the coal and of the “other
- deliveries,” including valuable materials left behind by the German
- Army, accrued to France. Some ships, a proportion of the coal and other
- deliveries, and the compensation, payable by Denmark in respect of
- Schleswig, fell to Belgium. Italy obtained a portion of the coal and
- ships and some other trifles. The value of German State property in
- Poland could not be transferred to any one but Poland.
- But the sums thus received were not available for Reparation. There had
- to be deducted from them (1) the sums returned to Germany under the Spa
- Agreement, namely 360,000,000 gold marks,[79] and (2) the costs of the
- Armies of Occupation.
- In September 1921 the Reparation Commission published an approximate
- estimate, as follows, of the cost of occupation of German territory by
- the Allied Armies from the Armistice until May 1, 1921:
- ───────────────┬─────────────────────┬───────────────
- │ │ Cost per man
- │ Total cost. │ per day.
- ───────────────┼─────────────────────┼───────────────
- United States │ $278,067,610 │ $4.50
- Great Britain │ £52,881,298 │ 14s.
- France │ Frs. 2,304,850,470 │ Frs. 15.25
- Belgium │ Frs. 378,731,390 │ Frs. 16.50
- Italy │ Frs. 15,207,717 │ Frs. 22
- ───────────────┴─────────────────────┴───────────────
- The conversion of these sums into gold marks raises the usual
- controversy as to the rates at which conversion is to be effected.
- The total was estimated, however, at three milliard gold marks,[80]
- of which one milliard was owed to the United States, one milliard to
- France, 900 millions to Great Britain, 175 millions to Belgium, and 5
- millions to Italy. On May 1, 1921, France had about 70,000 soldiers on
- the Rhine, Great Britain about 18,000, and the United States a trifling
- number.
- The net result of the transitional period was, therefore, as follows:
- (1) Putting on one side State property transferred to Poland, the whole
- of the transferable wealth obtained from Germany in the two and a
- half years following the Armistice under all the rigors of the Treaty,
- designed as they were to extract every available liquid asset, just
- about covered the costs of collection, that is to say, the expenses of
- the Armies of Occupation, and left _nothing_ over for Reparation.
- (2) But as the United States has not yet been paid the milliard owing
- to her for her Army, the other Allies have received between them on
- balance a surplus of about one milliard. This surplus was not divided
- amongst them equally. Great Britain had received 450–500 million gold
- marks _less_ than her expenses, Belgium 300–350 million _more_ than her
- expenses, and France 1000–1200 millions _more_ than her expenses.[81]
- Under the strict letter of the Treaty those Allies who had received
- less than their share might have claimed to be paid the difference in
- cash by those who had received more. This situation and the allocation
- of the milliard paid by Germany between May and August 1921 were the
- subject of the Financial Agreement provisionally signed at Paris on
- August 13, 1921. This Agreement chiefly consisted of concessions
- to France, partly by Belgium, who agreed in effect to a partial
- postponement of her priority charge on two milliards out of the
- first sums received from Germany for Reparation, and partly by Great
- Britain, who accepted for the purposes of internal accounting amongst
- the Allies themselves a lower value for the coal delivered by Germany
- than the value fixed by the Treaty.[82] In view of these concessions
- about future payment, the _first_ milliard in cash, received _after_
- May 1, 1921, was divided between Great Britain and Belgium, the former
- receiving 450 million gold marks in discharge of the balance still due
- to her in respect of the costs of occupation, and the balance falling
- to the latter as a further instalment of her agreed priority charge.
- This Agreement was represented in the French press as laying new
- burdens upon France, or at least as withdrawing existing rights from
- her. But this was not the case. The Agreement was directed throughout
- to moderating the harshness with which the letter of the Treaty and the
- arrangements of Spa would have operated against France.[83]
- The actual value of these deliveries is a striking example of how
- far the value of deliverable articles falls below the estimates which
- used to be current. The Reparation Commission have stated that the
- credit which Germany will receive in respect of her Mercantile Marine
- will amount to about 755 million gold marks. This figure is low,
- partly because many of the ships were disposed of after the slump in
- tonnage.[84] Nevertheless, this was one of the tangible assets of great
- value, which it was customary at one time to invoke in answer to those
- who disputed Germany’s capacity to make vast payments. What does it
- amount to in relation to the bill against her? The bill is 138 milliard
- gold marks, on which interest at 6 per cent for one year is 8280
- million gold marks. That is to say, Germany’s Mercantile Marine in its
- entirety, of which the surrender humbled so much pride and engulfed so
- vast an effort, would about meet a month’s charges.
- EXCURSUS VI
- THE DIVISION OF RECEIPTS AMONGST THE ALLIES
- The Allied Governments took advantage of the Spa meeting (July 1920)
- to settle amongst themselves a Reparation question which had given
- much trouble in Paris and had been left unsolved[85]—namely, the
- proportions in which the Reparation receipts are to be divided between
- the various Allied claimants.[86] The Treaty provides that the receipts
- from Germany will be divided by the Allies “in proportions which _have_
- been determined upon by them in advance, on a basis of general equity
- and of the rights of each.” The failure, described by M. Tardieu, to
- reach an agreement in Paris, rendered the tense of this provision
- inaccurate, but at Spa it was settled as follows:
- France 52 per cent.
- British Empire[87] 22 ”
- Italy 10 ”
- Belgium 8 ”
- Japan and Portugal ¾ of 1 per cent each;
- the remaining 6½ per cent being reserved for the Serbo–Croat–Slovene
- State and for Greece, Rumania, and other Powers not signatories of the
- Spa Agreement.[88]
- This settlement represented some concession on the part of Great
- Britain, whose proportionate claim was greatly increased by the
- inclusion of pensions beyond what it would have been on the basis of
- Reparation proper; and the proportion claimed by Mr. Lloyd George in
- Paris was probably nearer the truth (namely that the French and British
- shares should be in the proportion 5 to 3). I estimate that France
- 45 per cent, British Empire 33 per cent, Italy 10 per cent, Belgium
- 6 per cent, and the rest 6 per cent would have been more exactly in
- accordance with the claims of each under the Treaty. In view of all the
- facts, however, the Spa division may be held to have done substantial
- justice on the whole.
- At the same time the priority to Belgium to the extent of $500,000,000
- was confirmed; and it was agreed that the loans made to Belgium
- during the war by the other Allies, for which Germany is liable under
- Article 232[89] of the Treaty, should be dealt with out of the moneys
- next received. These loans, including interest, will amount by the end
- of 1921 to something in the neighborhood of $1,500,000,000, of which
- $550,000,000 will be due to Great Britain, $500,000,000 to France, and
- $450,000,000 to the United States.
- Under the Spa Agreement, therefore, sums received from Germany in cash,
- and credits in respect of deliveries in kind were to be applied to the
- discharge of her obligations in the following order:
- 1. The cost of the Armies of Occupation, estimated at $750,000,000 up
- to May 1, 1921.
- 2. Advances to Germany for food purchases under the Spa Agreement, say
- $90,000,000.
- 3. Belgian priority of $500,000,000.
- 4. Repayment of Allied advances to Belgium, say $1,500,000,000.
- This amounts to about $2,850,000,000 altogether, of which I estimate
- that about $750,000,000 is due to France, $850,000,000 to Great
- Britain, $550,000,000 to Belgium, and $700,000,000 to the United
- States.
- Very few people, I think, have appreciated how large a sum is due to
- the United States under the strict letter of the Agreement. Since
- France has already received almost two–thirds of her share as above,
- whilst Belgium has had about one–third, Great Britain less than
- one–third, and the United States nothing, it follows that, even on
- the most favorable hypothesis as to Germany’s impending payments,
- comparatively small sums are strictly due to France in the near future.
- The Financial Agreement of August 13, 1921, was aimed at modifying the
- harshness of these priority provisions towards France.[90] The details
- of this Agreement have not yet been published, but it is said to make
- a somewhat different provision from that contemplated at Spa for the
- repayment of Allied war advances to Belgium.
- The reception of this Agreement by the French public was a good
- illustration of the effect of keeping people in the dark. The effect of
- the Spa Agreement had never been understood in France, with the result
- that the August Financial Agreement, which much improved France’s
- position, was believed to interfere seriously with her existing rights.
- M. Doumer never had the pluck to tell his public the truth, although,
- if he had, it would have been clear that, in signing the Agreement
- provisionally, he was acting in the interests of his country.
- The mention of the United States invites attention to the anomalous
- position of that country under the Peace Treaty. Her failure to ratify
- the Treaty forfeits none of her rights under it, either in respect of
- her share of the costs of the Army of Occupation (which, however, is
- offset to a small extent by the German ships she has retained), or
- in respect of the repayment of her war advances to Belgium.[91] It
- follows that the United States is entitled, on the strict letter, to a
- considerable part of the cash receipts from Germany in the near future.
- There is, however, a possible offset to these claims which has been
- mentioned already (p. 78) but must not be overlooked here. Under the
- Treaty, private German property in an Allied country is, in the case
- of countries adopting the Clearing House Scheme, applied in the first
- instance to debts owing from German nationals to the nationals of the
- Allied country in question, and the balance, if any, is retained for
- Reparation. What is to happen in the case of similar German assets
- in the United States is still undetermined. The surplus assets, the
- value of which may be about $300,000,000,[92] will be retained, until
- Congress determines otherwise, by the Enemy Property Custodian. There
- have been negotiations from time to time for a loan in favor of Germany
- on the security of these assets, but the legal position has rendered
- progress impossible. At any rate this important German asset is still
- under American control.
- FOOTNOTES:
- [60] A fairly adequate account of this controversy during the Peace
- Conference can be pieced together from the following passages: Baruch,
- _Making of Reparation and Economic Sections of the Treaty_, pp. 45–55;
- Lamont, _What really happened at Paris_, pp. 262–265; Tardieu, _The
- Truth about the Treaty_, pp. 294–309.
- [61] For these figures see Tardieu, _op. cit._, p. 305.
- [62] It is of these passages that M. Clemenceau wrote as follows in his
- preface to M. Tardieu’s book: “Fort en thème d’économiste, M. Keynes
- (qui ne fut pas seul, dans la Conférence, à professer cette opinion)
- combat, sans aucun ménagement, ‘l’abus des exigences des Alliés’
- (lisez: ‘de la France’) et de ses négociateurs.... Ces reproches et
- tant d’autres d’une violence brutale, dont je n’aurais rien dit, si
- l’auteur, à tous risques, n’eût cru servir sa cause en les livrant à
- la publicité, font assez clairement voir jusqu’où certains esprits
- s’étaient montés.” (In the English edition, M. Tardieu has caused the
- words _fort en thème d’économiste_ to be translated by the words “with
- some knowledge of economics but neither imagination nor character”—which
- seems rather a free rendering.)
- [63] At about the same date, the German Indemnity Commission
- (_Reichsentschädigungskommission_) estimated the cost at 7228 million
- gold marks, also on the basis of pre–war prices; that is to say, at
- about one–seventh of M. Dubois’ estimate.
- [64] The details of this claim, so far as they have been published,
- are given in Appendix No. 3. The above figure comprises the items
- for Industrial Damages, Damage to Houses, Furniture and Fittings,
- Unbuilt–on Land, State Property, and Public Works.
- [65] See M. Loucheur’s speech in the French Chamber, May 20, 1921.
- [66] For this rate to be justified the exchange value of the franc in
- New York must rise to about 11 cents.
- [67] M. Loucheur’s statement to the French Chamber implied that the
- rate of conversion was applicable to material damage as well as to
- pensions, and I have assumed this in what follows; but precise official
- information is lacking.
- [68] The figures of damage done, given by M. Briand, are generally
- speaking rather lower than those given ten months earlier (in June
- 1920) in a report by M. Tardieu in his capacity as President of the
- Comité des Régions Dévastées. But the difference is not very material.
- For purposes of comparison, I give M. Tardieu’s figures below together
- with those of the amount of reconstruction completed at that earlier
- date:
- Destroyed. Repaired.
- Houses totally destroyed 319,269 2,000
- Houses partially destroyed 313,675 182,000
- Railway lines 5,534 kilos. 4,042 kilos.
- Canals 1,596 ” 784 ”
- Roads 39,000 ” 7,548 ”
- Bridges, embankments, etc. 4,785 ” 3,424 ”
- Destroyed. Cleared from Leveled. Plowed.
- shells.
- Arable land
- (hectares) 3,200,000 2,900,000 1,700,000 1,150,000
- Destroyed. Reconstructed Under
- and working. reconstruction.
- Factories and works 11,500 3,540 3,812
- A much earlier estimate is that made by M. Dubois for the Budget
- Commission of the French Chamber and published as Parliamentary Paper
- No. 5432 of the Session of 1918.
- [69] A more recent estimate (namely, for July 1, 1921) has been given,
- presumably from official sources, by M. Fournier–Sarlovèze, Deputy for
- the Oise. The following are some of his figures:
- INHABITED HOUSES
- At the Armistice: Totally destroyed 289,147
- Badly injured 164,317
- Partially injured 258,419
- By July 1921: Entirely rebuilt 118,863
- Temporarily repaired 182,694
- PUBLIC BUILDINGS
- ─────────────┬─────────┬───────────┬────────┬────────┬───────────
- │ │ Municipal │ │ Post │
- │Churches.│ Buildings.│Schools.│Offices.│Hospitals.
- ─────────────┼─────────┼───────────┼────────┼────────┼───────────
- Destroyed │ 1,407 │ 1,415 │ 2,243 │ 171 │ 30
- Damaged │ 2,079 │ 2,154 │ 3,153 │ 271 │ 197
- Restored │ 1,214 │ 322 │ 720 │ 53 │ 28
- Temporarily │ │ │ │ │
- patched up │ 1,097 │ 931 │ 2,093 │ 196 │ 128
- ─────────────┴─────────┴───────────┴────────┴────────┴───────────
- CULTIVATED LAND
- Acres.
- At the Armistice: Totally destroyed 4,653,516
- By July 1921: Leveled 4,067,408
- Plowed 3,528,950
- LIVE STOCK
- ─────────────────────────────┬────────────┬─────────────┬────────────
- │ 1914. │ Nov. 1918. │ July 1921.
- ─────────────────────────────┼────────────┼─────────────┼────────────
- Cattle │ 890,084 │ 57,500 │ 478,000
- Horses, donkeys, and mules │ 412,730 │ 32,600 │ 235,400
- Sheep and goats │ 958,308 │ 69,100 │ 276,700
- Pigs │ 357,003 │ 25,000 │ 169,000
- ─────────────────────────────┴────────────┴─────────────┴────────────
- [70] Even if we assumed that every house which had been injured at all
- was totally destroyed, the figure would work out at about $7,000.
- [71] M. Brenier, who has spent much time criticizing me, quotes
- with approval (_The Times_, January 24, 1921) a French architect as
- estimating the cost of reconstruction at an average of $2,500 per
- house, and quotes also, without dissent, a German estimate that the
- pre–war average was $1,200. He also states, in the same article, that
- the number of houses destroyed was 304,191 and the number damaged
- 290,425, or 594,616 in all. Having pointed out the importance of not
- overlooking sentiment in these questions, he then multiplies $2,500,
- not by the number of houses but by the number of the _population_,
- and arrives at an answer of $3,750,000,000. What is one to reply to
- sentimental multiplication? What is the courteous retort to controversy
- on these lines? (His other figures are clearly such a mass of
- misprints, muddled arithmetic, confusion between hectares and acres
- and the like, that, whilst an attack could easily make a devastated
- area of them, it would be unfair to base any serious criticism on this
- well–intentioned farrago. As a writer on these topics, M. Brenier is
- about of the caliber of M. Raphaël–Georges Lévy.)
- [72] M. Tardieu states that, on account of the subsequent rise in
- prices, M. Loucheur’s estimate has proved, in terms of paper francs,
- to be inadequate. But this is allowed for by my having converted paper
- francs into dollars at the par of exchange.
- [73] The Lens coal mines, which were the object of most complete
- destruction, comprised 29 pits, and had, in 1913, 16,000 workmen with
- an output of 4 million tons.
- [74] I take these figures from M. Tardieu, who argues, most
- illuminatingly, in alternate chapters, according to his thesis for the
- time being, that reconstruction has hardly begun, and that it is nearly
- finished.
- [75] Francs are here converted at 2.20 to the gold mark and the £
- sterling at the ratio of 1:20.
- [76] This is exactly the figure of the estimate which I gave in _The
- Economic Consequences of the Peace_ (p. 160). But I there added: “I
- feel much more confidence in the approximate accuracy of the total
- figure than its division between the different claimants.” This proviso
- was necessary, as I had over–estimated the claims of France and
- under–estimated those of the British Empire and of Italy.
- [77] “Elle avait été le résultat d’un compromis assez pénible entre la
- délégué français, l’honorable M. Dubois, et le représentant anglais,
- Sir John Bradbury, depuis lors démissionnaire, qui voulait s’en tenir
- au chiffre de cent quatre milliards et qui avait défendu la thèse du
- gouvernement britannique avec une habileté passionnée.”
- [78] The chief question of legitimate controversy in this connection
- was that of the rate of exchange for converting paper francs into gold
- marks.
- [79] Made up of about £5,500,000 advanced by Great Britain, 772,000,000
- francs by France, 96,000,000 francs by Belgium, 147,000,000 lire by
- Italy, and 56,000,000 francs by Luxembourg.
- [80] The German authorities have published a somewhat higher figure.
- According to a memorandum submitted to the Reichstag in September
- 1921 by their Finance Minister, the costs of the Armies of Occupation
- and the Rhine Provinces Commission up to the end of March 1921 were
- mks. 3,936,954,542 (gold), in respect of expenditure met in the first
- instance by the occupying Powers, and subsequently recoverable from
- Germany, _plus_ mks. 7,313,911,829 (paper), in respect of expenditure
- directly met by the German authorities.
- [81] I do not vouch for the accuracy of these figures, which are rough
- estimates of my own on the basis of incomplete published information.
- [82] On the other hand Great Britain’s view was adopted as to the
- valuation of shipping.
- [83] In view of the political difficulties in which this Agreement
- involved M. Briand’s Cabinet, the matter was apparently adjusted by
- Great Britain and Belgium receiving their quotas as above, “subject to
- adjustment of the final settlement” of the questions dealt with in the
- Agreement. The net result on September 30, 1921, was that, including
- the above sum, Great Britain had been repaid £5,445,000 in respect
- of the Spa coal advances, and had also received, or was in course of
- collecting, about £43,000,000 towards the expenses of the Army of
- Occupation (approximately £50,000,000). Thus, as the result of three
- years’ Reparations, Great Britain’s costs of collection had been about
- £7,000,000 more than her receipts.
- [84] To value these ships at what they fetched during the slump, yet to
- value Germany’s liability for submarine destruction at what the ships
- cost to replace during the boom, appears to be unjust. My estimate (in
- _The Economic Consequences of the Peace_, p. 174) of the value of the
- ships to be delivered was $600,000,000.
- [85] M. Tardieu (_The Truth about the Treaty_, pp. 346–348) has given
- an account of the abortive discussion of this question at the Peace
- Conference. The French obtained at Spa a ratio very slightly _more_
- favorable to themselves than that which they had claimed and Mr. Lloyd
- George had rejected at Paris.
- [86] For a summary of the text of this Agreement see Appendix No. 1.
- [87] At the conference of Dominion Prime Ministers in July 1921 this
- share was further divided as follows between the constituent portions
- of the Empire:
- United Kingdom 86.85 │ New Zealand 1.75
- Minor colonies .80 │ South Africa .60
- Canada 4.35 │ Newfoundland .10
- Australia 4.35 │ India 1.20
- [88] The Spa Agreement also made provision that half the receipts from
- Bulgaria and from the constituent parts of the former Austro–Hungarian
- Empire should be divided in the above proportions, and that, of the
- other half, 40 per cent should go to Italy and 60 per cent to Greece,
- Rumania, and Jugoslavia.
- [89] “Germany undertakes ... to make reimbursement of all sums which
- Belgium has borrowed from the Allies and Associated Governments up to
- November 11, 1918, together with interest at the rate of 5 per cent per
- annum on such sums.” The priority for this repayment arranged at Spa is
- a little different from the procedure contemplated in the Treaty, which
- provided for repayment not later than May 1, 1926.
- [90] See above, p. 135.
- [91] Article 1 of the Treaty of Peace between Germany and the United
- States, signed on August 25, 1921, and since ratified, expressly
- stipulates that Germany undertakes to accord to the United States
- all the rights, privileges, indemnities, reparations, and advantages
- specified in the joint resolution of Congress of July 2, 1921,
- “Including all the rights and advantages stipulated for the benefit
- of the United States under the Treaty of Versailles which the United
- States shall enjoy notwithstanding the fact that such Treaty has not
- been ratified by the United States.”
- [92] According to a statement published in Washington in August
- 1921 the Custodian had in his hands German property to the value of
- $314,179,463.
- CHAPTER V
- THE LEGALITY OF THE CLAIM FOR PENSIONS
- “The application of morals to international politics is more a thing
- to be desired than a thing which has been in operation. Also, when
- I am made a participant in crime along with many millions of other
- people, I more or less shrug my shoulders.”—Letter from a friendly
- critic to the author of _The Economic Consequences of the Peace_.
- We have seen in the preceding chapter that the claim for Pensions and
- Allowances is nearly double that for Devastation, so that its inclusion
- in the Allies’ demands nearly trebles the bill. It makes the difference
- between a demand which can be met and a demand which cannot be met.
- Therefore it is important.
- In _The Economic Consequences of the Peace_ I gave reasons for the
- opinion that this claim was contrary to our engagements and an act
- of international immorality. A good deal has been written about it
- since then, but I cannot admit that my conclusion has been seriously
- disputed. Most American writers accept it; most French writers ignore
- it; and most English writers try to show, not that the _balance_ of
- evidence is against me, but that there are a few just plausible, or
- just not–negligible, observations to be made on the other side. Their
- contention is that of the Jesuit professors of Probabilism in the
- seventeenth century, namely that the Allies are justified unless it is
- absolutely certain that they are wrong, and that any probability in
- their favor, however small, is enough to save them from mortal sin.
- But most people in the countries of Germany’s former enemies are not
- ready to excite themselves very much, even if my view is accepted.
- The passage at the head of this chapter describes a common attitude.
- International politics is a scoundrel’s game and always has been, and
- the private citizen can scarcely feel himself personally responsible.
- If our enemy breaks the rules, his action may furnish us with an
- appropriate opportunity for expressing our feelings; but this must not
- be taken to commit us to a cool opinion that such things have never
- happened before and must never happen again. Sensitive and honorable
- patriots do not like it, but they “more or less shrug” their shoulders.
- There is some common sense in this. I cannot deny it. International
- morality, interpreted as a crude legalism, might be very injurious to
- the world. It is at least as true of these vast–scale transactions,
- as of private affairs, that we judge wrongly if we do not take into
- account _everything_. And it is superficial to appeal, the other way
- round, to the principles which do duty when Propaganda is blistering
- herd emotion with its brew of passion, sentiment, self–interest, and
- moral fiddlesticks.
- But whilst I see that nothing rare has happened and that men’s motives
- are much as usual, I do still think that this particular act was an
- exceptionally mean one, made worse by hypocritical professions of moral
- purpose. My object in returning to it is partly historical and partly
- practical. New material of high interest is available to instruct us
- about the course of events. And if for practical reasons we can agree
- to drop this claim, we shall make a settlement easier.
- * * * * *
- Those who think that it was contrary to the Allies’ engagements to
- charge pensions against the enemy base this opinion on the terms
- notified to the German Government by President Wilson, with the
- authority of the Allies, on November 5, 1918, subject to which Germany
- accepted the Armistice conditions.[93] The contrary opinion that the
- Allies were fully entitled to charge pensions if they considered
- it expedient to do so, has been supported by two distinct lines of
- argument: first that the Armistice conditions of November 11, 1918,
- were not _subject_ to President Wilson’s notification of November 5,
- 1918, but _superseded_ it, more particularly regarding Reparation;
- and alternatively that the wording of President Wilson’s notification
- properly understood does not exclude Pensions.
- The first line of argument was adopted by M. Klotz and the French
- Government during the Peace Conference, and has been approved more
- recently by M. Tardieu.[94] It was repudiated by the whole of the
- American Delegation at Paris, and never definitely supported by the
- British Government. Responsible writers about the Treaty, other than
- French, have not admitted it.[95] It was also explicitly abandoned by
- the Peace Conference itself in its reply to the German observations on
- the first draft of the Treaty. The second line of argument was that
- of the British Government during the Peace Conference, and it was an
- argument on these lines which finally converted President Wilson. I
- will deal with the two arguments in turn.
- 1. Various persons have published particulars, formerly confidential,
- which allow us to reconstruct the course of the discussions about the
- Armistice. These begin with the examination of the Armistice Terms by
- the Allied Council of War on November 1, 1918.[96]
- The first point which emerges is that the reply of the Allied
- Governments to President Wilson (which afterwards furnished the text of
- his notification of Nov. 5, 1918, addressed to Germany), defining their
- interpretation of the references to Reparation in the Fourteen Points,
- was drawn up and approved at the _same_ session of the Supreme Council
- (that of November 1, 2) which drew up the relevant clauses of the
- Armistice Terms; and that the Allies did not finally approve the reply
- to President Wilson until _after_ that they had approved that very
- draft of the Armistice Terms which, according to the French contention,
- superseded and negatived the terms outlined in the reply to President
- Wilson.[97]
- The record of the proceedings of the Supreme Council (as now disclosed)
- lends no support to the existence in their minds of the duplicity
- which the French contention attributes to them. On the other hand,
- it makes it clear that the Council did not intend the references to
- Reparation in the Armistice Terms to modify in any way their reply to
- the President.
- The record, in so far as it is relevant to this point, may be
- summarized as follows:[98] M. Clemenceau called attention to the
- absence of any reference in the first draft of the Armistice Terms to
- the restitution of stolen property or to reparation. Mr. Lloyd George
- replied that there ought to be some reference to restitution, but that
- reparation was a Peace condition rather than an Armistice condition.
- M. Hymans agreed with Mr. Lloyd George. MM. Sonnino and Orlando went
- further and thought that neither had any place in the Armistice
- Terms but were ready to accept the Lloyd George–Hymans compromise of
- including Restitution but not Reparation. The discussion was postponed
- for M. Hymans to draft a formula. On its resumption next day, it was
- M. Clemenceau who produced a formula consisting of the three words
- _Réparation des dommages_. M. Hymans, M. Sonnino, and Mr. Bonar Law
- all expressed doubt whether this was in place in the Armistice Terms.
- M. Clemenceau replied that he only wanted to mention the principle,
- and that French public opinion would be surprised if there was no
- reference to it. Mr. Bonar Law objected: “It is already mentioned in
- our letter to President Wilson which he is about to communicate to
- Germany. It is useless to repeat it.”[99] This observation met with no
- contradiction, but it was agreed on sentimental grounds and for the
- satisfaction of public opinion to add M. Clemenceau’s three words.
- The Council then passed on to other topics. At the last moment, as
- they were about to disperse, M. Klotz slipped in the words: “It would
- be prudent to put at the head of the financial questions a clause
- reserving the future claims of the Allies, and I propose to you the
- wording ‘without prejudice to any subsequent claims and demands on the
- part of the Allies.’”[100] It does not seem to have occurred to any of
- those present that this text could be deemed of material importance or
- otherwise than as protecting the Allies from the risk of being held
- to have surrendered any existing claims through failure to mention
- them in this document; and it was accepted without discussion. M.
- Klotz afterwards boasted that by this little device he had abolished
- the Fourteen Points, so far as they affected Reparation and Finance
- (although the very same meeting of the Allies had despatched a Note to
- President Wilson accepting them), and had secured to the Allies the
- right to demand from Germany the whole cost of the War. But I think
- the world will decide that the Supreme Council was right in attaching
- to these words no particular importance. Personal pride in so smart a
- trick has led M. Klotz, and his colleague M. Tardieu, to persist too
- long with a contention which decent persons have now abandoned.
- There was an episode which has lately come to light connected with
- this passage which may be recounted as illustrating the pitfalls
- of the world. As M. Klotz only introduced his form of words as the
- Council was breaking up, it is likely that no undue attention was
- concentrated on it. But ill–fortune may dog any one, and the same state
- of affairs seems to have led to one of the scribes getting the words
- down wrong. Instead of _revendication_ which means _demand_, the word
- _renonciation_ which means _concession_ got written in the text handed
- to the Germans for signature.[101] This word was not so suitable. But
- M. Klotz suffered less inconvenience from this mistake than might have
- been expected; since at the Peace Conference no one noticed that the
- French text of the Armistice Agreement as officially circulated, which
- M. Klotz used in arguing before the Reparation Committee, agreed in its
- wording with what he had intended it to be and not with the text which
- Germany had actually signed. Nevertheless it is the word _renonciation_
- which is still to be found in the official texts of the British and
- German Governments.[102]
- 2. The other line of argument raises more subtle intellectual issues
- and is not a mere matter of prestidigitation. If it be granted that
- our rights are governed by the terms of the Note addressed to Germany
- by President Wilson in the name of the Allies on November 5, 1918, the
- question depends on the interpretation of these terms. As Mr. Baruch
- and M. Tardieu have now published between them the greater part of
- the official reports (including very secret documents) bearing on the
- discussion of this problem during the Peace Conference, we are in a
- better position than before to assess the value of the Allies’ case.
- The pronouncements by the President which were to form the basis of
- Peace provided that there should be “no contributions” and “no punitive
- damages,” but the invaded territories of Belgium, France, Rumania,
- Serbia, and Montenegro were to be restored. This did not cover losses
- from submarines or from air raids. Accordingly the Allied Governments,
- when they accepted the President’s formulas, embodied a reservation,
- on the point as to what “restoration” covered, in the following
- sentence: “By _it_ (_i.e._, restoration of invaded territory) they
- understand that 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 natural meaning and object of these words, which, the reader
- must remember, are introduced as an interpretation of the phrase
- “restoration of invaded territory,” is to assimilate submarine and
- cruiser aggression by sea and aeroplane and airship aggression by air
- to military aggression by land, which, in all the circumstances, was
- a reasonable extension of the phrase, provided it was duly notified
- beforehand. The Allies rightly apprehended that, if they accepted the
- phrase as it stood, “restoration of invaded territory” might be limited
- to damage resulting from military aggression by land.
- This interpretation of the reservation of the Allied Governments,
- namely that it assimilated offensive action by sea or air to offensive
- action by land, but that “restoration of invaded territory” could not
- possibly include pensions and separation allowances, was adopted by the
- American Delegation at Paris. They construed the German liability to be
- in respect of the “direct physical damage to property of non–military
- character and direct physical injury to civilians”[103] caused by such
- aggression; the only further liability which they admitted being under
- a different part of the President’s pronouncements, namely, those
- relating to breaches of International law, such as the breach of the
- Treaty of Neutrality in favor of Belgium, and the illegal treatment of
- prisoners of war.
- I doubt if any one would ever have challenged this interpretation
- if the British Prime Minister had not won a General Election by
- promises to extract from Germany more than this interpretation could
- justify,[104] and if the French Government also had not raised
- unjustifiable expectations. These promises were made recklessly. But it
- was not easy for their authors to admit, so soon after they had been
- given, that they were contrary to our engagements.
- The discussion opened with the delegations, other than the American,
- claiming that we had not committed ourselves to anything which
- precluded our demanding from Germany all the loss and damage, direct
- and indirect, which had resulted from the war. “One of the Allies,”
- says Mr. Baruch, “went even further, and made claim for loss and
- damage resulting from the fact that the Armistice was concluded so
- unexpectedly that the termination of hostilities involved it in
- financial losses.”
- Various arguments were employed in the early stages, the British
- delegates to the Reparation Committee of the Peace Conference, namely,
- Mr. Hughes, Lord Sumner and Lord Cunliffe, supporting the demand for
- complete war costs and not merely reparation for damage. They urged
- (1) that one of the principles enunciated by President Wilson was that
- each item of the Treaty should be just, and that it was in accordance
- with the general principles of justice to throw on Germany the whole
- costs of the war; and (2) that Great Britain’s war costs had resulted
- from Germany’s breach of the Treaty of Neutrality of Belgium, and that
- therefore Great Britain (but not necessarily, on this argument, all the
- other Allies) was entitled to complete repayment in accordance with the
- general principles of International law. These general arguments were,
- I think, overwhelmed by the speeches made on behalf of the American
- delegates by Mr. John Foster Dulles. The following are extracts from
- what he said: “If it is in accordance with our sentiment that the
- principles of reparation be severe, and in accord with our material
- interest that these principles be all inclusive, why, in defiance of
- these motives, have we proposed reparation in certain limited ways
- only? It is because, gentlemen, we do not regard ourselves as free. We
- are not here to consider as a novel proposal what reparation the enemy
- should in justice pay; we have not before us a blank page upon which
- we are free to write what we will. We have before us a page, it is
- true; but one which is already filled with writing, and at the bottom
- are the signatures of Mr. Wilson, of Mr. Orlando, of M. Clemenceau,
- and of Mr. Lloyd George. You are all aware, I am sure, of the writing
- to which I refer: it is the agreed basis of peace with Germany.”
- Mr. Dulles then recapitulated the relevant passages and continued:
- “Can there be any question that this agreement does constitute a
- limitation? It is perfectly obvious that it was recognized at the time
- of the negotiations in October and November 1918 that the reparation
- then specified for would limit the Associated Governments as to the
- reparation which they could demand of the enemy as a condition of
- peace. The whole purpose of Germany was to ascertain the maximum which
- would be demanded of her in the terms of peace, and the action of the
- Allies in especially stipulating at that time, for an enlargement of
- the original proposal respecting reparation is explicable only on the
- theory that it was understood that once an agreement was concluded
- they would no longer be free to specify the reparation which Germany
- must make. We have thus agreed that we would give Germany peace if
- she would do certain specified things. Is it now open to us to say,
- ‘Yes, but before you get peace you must do other and further things’?
- We have said to Germany, ‘You may have peace if among other things
- you perform certain acts of reparation which will cost you, say, ten
- million dollars.’ Are we not now clearly precluded from saying, ‘You
- can have peace provided you perform other acts of reparation which will
- bring your total liability to many times that which was originally
- stipulated’? No; irrespective of the justice of the enemy making the
- latter reparation, it is now too late. Our bargain has been struck for
- better or for worse; it remains only to give it a fair construction and
- practical application.”
- It is a shameful memory that the British delegates never withdrew their
- full demands, to which they were still adhering when, in March 1921,
- the question was taken out of their hands by the Supreme Council. The
- American Delegation cabled to the President, who was then at sea,
- for support in maintaining their position, to which he replied that
- the American Delegation should dissent, and if necessary dissent
- publicly, from a procedure which “is clearly inconsistent with what
- we deliberately led the enemy to expect and cannot now honorably alter
- simply because we have the power.”[105]
- After this the discussions entered on a new phase. The British and
- French Prime Ministers abandoned the contentions of their delegates,
- admitted the binding force of the words contained in their Note of
- November 5, 1918, and settled down to extract some meaning from
- these words which would compose their differences and satisfy
- their constituents. What constituted “damage done to the civilian
- population”? Could not this be made to cover military pensions and the
- separation allowances which had been made to the civilian dependents
- of soldiers? If so, the bill against Germany could be raised to a
- high enough figure to satisfy nearly every one. It was pointed out,
- however, as Mr. Baruch records, “that financial loss resulting from the
- absence of a wage–earner did not cause any more ‘damage to the civilian
- population’ than did an equal financial loss involved in the payment
- of taxes to provide military equipment and like war costs.” In fact,
- a separation allowance or a pension was simply one of many general
- charges on the Exchequer arising out of the costs of the war. If such
- charges were to be admitted as civilian damage, it was a very short
- step back to the claim for the entire costs of the war, on the ground
- that these costs must fall on the taxpayer who, generally speaking, was
- a civilian. The sophistry of the argument became exposed by pushing it
- to its logical conclusion. Nor was it clear how pensions and allowances
- could be covered by words which were themselves an interpretation of
- the phrase, “restoration of invaded territory.” And the President’s
- conscience, though very desirous by now to be converted (for he had on
- hand other controversies with his colleagues which interested him more
- than this one) remained unconvinced.
- The American delegates have recorded that the final argument which
- overbore the last scruples of the President was contained in a
- Memorandum prepared by General Smuts[106] on March 31, 1919. Briefly,
- this argument was, that a soldier becomes a civilian again after his
- discharge, and that, therefore, a wound, the effects of which persist
- after he has left the Army, is damage done to a civilian.[107] This is
- the argument by which “damage done to the civilian population” came to
- include damage done to soldiers. This is the argument on which, in the
- end, our case was based! For at this straw the President’s conscience
- clutched, and the matter was settled.
- It had been settled in the privacy of the Four. I will give the final
- scene in the words of Mr. Lamont, one of the American delegates:[108]
- “I well remember the day upon which President Wilson determined to
- support the inclusion of pensions in the Reparation Bill. Some of us
- were gathered in his library in the Place des États Unis, having been
- summoned by him to discuss this particular question of pensions. We
- explained to him that we couldn’t find a single lawyer in the American
- Delegation that would give an opinion in favor of including pensions.
- All the logic was against it. ‘Logic! logic!’ exclaimed the President,
- ‘I don’t care a damn for logic. I am going to include pensions!’”[109]
- Well! perhaps I was too near these things at the time and have
- become touched in the emotions, but I cannot “more or less shrug my
- shoulders.” Whether or not that is the appropriate gesture, I have here
- set forth, for the inspection of Englishmen and our Allies, the moral
- basis on which two–thirds of our claims against Germany rest.
- FOOTNOTES:
- [93] I have given the exact text of the relevant passages in _The
- Economic Consequences of the Peace_, chapter v.
- [94] _The Truth about the Treaty_, p. 208.
- [95] _E.g._, _The History of the Peace Conference of Paris_, published
- under the auspices of the Institute of International Affairs delivers
- judgment as follows (vol. ii., p. 43): “It is this statement then
- (_i.e._, President Wilson’s notification of Nov. 5, 1918) which must be
- taken as the ruling document in any discussion as to what the Allies
- were entitled to claim by way of reparation in the Treaty of Peace,
- and it is difficult to interpret it otherwise than as a deliberate
- limitation of their undoubted right to recover the whole of their war
- costs.”
- [96] The following particulars are taken from _Les Négociations
- Secrètes et les Quatre Armistices avec pièces justificatives_ by
- “Mermeix,” published at Paris by Ollendorff, 1921. This remarkable
- volume has not received the attention it deserves. The greater part of
- it consists of a verbatim transcript of the secret _Procès Verbaux_
- of those meetings of the Supreme Council of the Allies which were
- concerned with the Armistice Terms. On the face of it this disclosure
- is authentic and is corroborated in part by M. Tardieu. There are many
- passages of extraordinary interest on points not connected with my
- present topic, as for example the discussion of the question whether
- the Allies should insist on the surrender of the German fleet if the
- Germans made trouble about it. Marshal Foch emerges from this record
- very honorably, as determined that nothing unnecessary should be
- demanded of the enemy, and that no blood should be spilt for a vain or
- trifling object. Sir Douglas Haig was of the same opinion. In reply to
- Col. House, Foch spoke thus: “If they accept the terms of the Armistice
- we are imposing on them, it is a capitulation. Such a capitulation
- gives us everything we could get from the greatest victory. In such
- circumstances I cannot admit that I have the right to risk the life of
- a single man more.” And again on October 31: “If our conditions are
- accepted we can wish for nothing better. We make war only to attain
- our ends, and we do not want to prolong it uselessly.” In reply to
- a proposal by Mr. Balfour that the Germans in evacuating the East
- should leave one–third of their arms behind them, Foch observed: “The
- intrusion of all these clauses makes our document chimerical, since
- the greater part of the conditions are incapable of being executed.
- We should do well to be sparing with these unrealizable injunctions.”
- Towards Austria also he was humane and feared the prolongation of the
- blockade which the politicians were proposing. “I intervene,” he said
- on October 31, 1918, “in a matter which is not a military one strictly
- speaking. We are to maintain the blockade until Peace, that is to say
- until we have made a new Austria. That may take a long time; which
- means a country condemned to famine and perhaps impelled to anarchy.”
- [97] This is corroborated by M. Tardieu, _op. cit._, p. 71.
- [98] See Mermeix, _op. cit._, pp. 226–250.
- [99] This very important remark by Mr. Bonar Law is also quoted by M.
- Tardieu (_op. cit._, p. 70) and is therefore of undoubted authenticity.
- [100] “Il serait prudent de mettre en tête des questions financières
- une clause réservant les revendications futures des Alliés et je vous
- propose le texte suivant: ‘Sous réserve de toutes revendications et
- réclamations ultérieures de la part des Alliés.’”
- [101] That is to say, this text ran, “Sous réserve de toute
- renonciation et réclamation ultérieure,” instead of “Sous réserve de
- toutes revendications et réclamations ultérieures.”
- [102] I record this episode as an historical curiosity. In my opinion
- it makes no material difference to the argument whether the text runs
- “revendications et réclamations” or “renonciation et réclamation”;
- for I regard either form of words as merely a protective phrase. But
- the plausibility of M. Klotz’s position is decidedly weakened (if
- so weak a case is capable of further weakening) if it is the latter
- phrase which is authentic. The Editor of the Institute of International
- Affairs’ _History of the Peace Conference of Paris_, who was the first
- to discover and publish the discrepancy in question (vol. v., pp.
- 370–372), takes the view that the question of which text is used makes
- a material difference to the value of M. Klotz’s argument.
- [103] Baruch, _op. cit._, p. 19.
- [104] As Mr. Baruch puts it (_op. cit._, p. 4): “At an election held
- _after the Armistice and agreement as to the basic terms of peace_, the
- English people, by an overwhelming majority, returned to power their
- Prime Minister _on the basis of an increase in the severity of these
- terms of the peace_, especially those of reparation.” (The italics are
- mine.)
- [105] Baruch, _op. cit._, p. 25.
- [106] This Memorandum, which has been published _in extenso_ by Mr.
- Baruch (_op. cit._, p. 29 _seq._), belonged to the category of most
- secret documents. It has been given to the world by itself without the
- accompanying circumstances which, without justifying its arguments
- (on which indeed no further light could be thrown beyond what we
- already have in the narrative of Mr. Baruch), might yet throw light on
- individual motives. I agree with the comment made by _The Economist_
- (Oct. 22, 1921) in reviewing Vol. IV. of the _History of the Peace
- Conference of Paris_ (published under the auspices of the Institute
- of International Affairs), which has reprinted this Memorandum, that
- “a very serious injustice will be done to the reputation of General
- Smuts if this document continues to be reproduced and circulated
- without any explanation of the circumstances in which it was prepared.”
- Nevertheless it is well that the world should have this document, and
- it must take its place in a story which is more important to the world
- than the motives and reputations of individual actors in it.
- [107] The following is the salient passage of the Memorandum: “After
- the soldier’s discharge as unfit he rejoins the civilian population,
- and as for the future he cannot (in whole or in part) earn his own
- livelihood, he is suffering damage as a member of the civilian
- population, for which the German Government are again liable to make
- compensation. In other words, the pension for disablement which he
- draws from the French Government is really a liability of the German
- Government, which they must under the above reservation make good to
- the French Government. It could not be argued that as he was disabled
- while a soldier he does not suffer damage as a civilian after his
- discharge if he is unfit to do his ordinary work. He does literally
- suffer as civilian after his discharge, and his pension is intended
- to make good this damage, and is therefore a liability of the German
- Government.”
- [108] _What Really Happened at Paris_, p. 272.
- [109] Mr. Lamont adds that “it was not a contempt of logic, but
- simply an impatience of technicality; a determination to brush aside
- verbiage and get at the root of things. There was not one of us in the
- room whose heart did not beat with a like feeling.” These words not
- merely reflect a little naïvely the modern opportunist’s impatience
- of legality and respect for the _fait accompli_, but also recall the
- atmosphere of exhaustion and the longing of everyone to be finished,
- somehow, with this dreadful controversy, which for months had outraged
- at the same time the intellects and the consciences of most of the
- participators. Yet, even so, to their lasting credit, the American
- Delegation had stood firm for the law, and it was the President, and he
- alone, who capitulated to the lying exigencies of politics.
- CHAPTER VI
- REPARATION, INTER–ALLY DEBT, AND INTERNATIONAL TRADE
- It is fashionable at the present time to urge a reduction of the
- Allies’ claims on Germany and of America’s claims on the Allies, on the
- ground that, as such payments can only be made in goods, insistence on
- these claims will be positively injurious to the claimants.
- That it is in the self–interest of the Allies and of America to abate
- their respective demands, I hold to be true. But it is better not to
- use bad arguments, and the suggestion that it is necessarily injurious
- to receive goods for nothing is not plausible or correct. I seek in
- this chapter to disentangle the true from the false in the now popular
- belief that there is something harmful in compelling Germany (or
- Europe) to “fling goods at us.”
- The argument is a little intricate and the reader must be patient.
- 1. It does not make very much difference whether the debtor country
- pays by sending goods direct to the creditor or by selling them
- elsewhere and remitting cash. In either case the goods come on to the
- world market and are sold competitively or coöperatively in relation to
- the industries of the creditor, as the case may be, this distinction
- depending on the nature of the goods rather than on the market in which
- they are sold.
- 2. It is not much use to _earmark_ non–competitive goods against the
- payment of the debt, so long as competitive goods are being sold by the
- debtor country in some other connection, _e.g._, to pay for its own
- imports. This is simply to bury one’s head in the sand. For example,
- out of the aggregate of goods which Germany would naturally export
- in the event of her exports being forcibly stimulated, it might be
- possible to pick out a selection of non–competitive goods; but it would
- not affect the situation in the slightest degree to pretend that it was
- these particular goods, and not the others, which were paying the debt.
- It is therefore useless to prescribe that Germany shall pay in certain
- specified commodities if these are commodities which she would export
- in any case, and useless, equally, to forbid her to pay in certain
- specified commodities, if that merely means that she will export these
- commodities to some other market to pay for her imports generally. No
- expedient on our part for making Germany pay us, or on America’s part
- for making us pay her, in the shape of particular commodities affects
- the position, except in so far as it modifies the form of the paying
- country’s exports _as a whole_.
- 3. On the other hand, it does us no harm to receive for nothing the
- proceeds of goods, even when they are sold competitively, if these
- goods would be sold on the world’s market in any case.
- 4. If the result of pressing the debtor country to pay is to cause it
- to offer competitive goods at a lower price than it would otherwise,
- the particular industries in the creditor country which produce these
- goods are bound to suffer, even though there are balancing advantages
- for the creditor country as a whole.
- 5. In so far as the payments made by the debtor country accrue, not to
- the country with which the debtor’s goods are competing, but to a third
- party, clearly there are no balancing advantages to offset the direct
- disadvantages under 4.
- 6. The answer to the question, whether the balancing advantages to
- the creditor country as a whole outweigh the injury to particular
- industries within that country, depends on the length of the period
- over which the creditor country can reasonably expect to go on
- receiving the payments. At first the injury to the industries which
- suffer from the competition and to those employed in them is likely to
- outweigh the benefit of the payments received. But, as in the course of
- time the capital and labor are absorbed in other directions, a balance
- of advantage may accrue.
- The application of these general principles to the particular case of
- ourselves and Germany is easy. Germany’s exports are so preponderantly
- competitive with ours, that, if her exports are forcibly stimulated,
- it is certain that she will have to sell goods against us. This is not
- altered by the fact that it is possible to pick out a few exports or
- potential exports, such as potash or sugar, which are not competitive.
- If Germany is to have a _large_ surplus of exports over imports, she
- must increase her competitive sales. In the _Economic Consequences of
- the Peace_ (pp. 175–185) I demonstrated this at some length on the
- basis of pre–war statistics. I showed not only that the goods she must
- sell, but the markets she must sell them in, were largely competitive
- with our own. The statistics of post–war trade show that the former
- argument still holds good. The following table shows the proportions in
- which her export trade was divided between the principal articles of
- export, (1) in 1913, (2) in the first nine months of 1920 (the latest
- period for which I have figures in this precise form), and (3) in the
- four months June to September 1921, these last figures representing, I
- think, a not exactly comparable classification, and being provisional
- only:
- ──────────────────────────────────┬──────────────────────────────────
- │ Percentage of Total Exports.
- German Exports. ├───────┬────────────┬─────────────
- │ 1913. │ 1920 │ 1921
- │ │(Jan.─Sept.)│ (June─Sept.)
- ──────────────────────────────────┼───────┼────────────┼─────────────
- Iron and steel goods │ 13.2 │ 20 │ 22
- Machinery (including motor cars) │ 7.5 │ 12 │ 17
- Chemicals and dies │ 4 │ 13 │ 9.5
- Fuel │ 7 │ 6.5 │ ?
- Paper goods │ 2.5 │ 4 │ 3.5
- Electrical goods │ 2 │ 3.5 │ ?
- Silk goods │ 2 │ 3 │}
- Cotton goods │ 5.5 │ 3 │} 15
- Woolen goods │ 6 │ .. │}
- Glass │ .5 │ 2.5 │ 2
- Leather goods │ 3 │ 2 │ 4
- Copper goods │ 1.5 │ 1.5 │ ?
- ──────────────────────────────────┴───────┴────────────┴─────────────
- It is clear, therefore, that, though raw materials other than coal,
- such as potash, sugar, and timber may yield a trifle, Germany can only
- compass an export trade of great value by exporting iron and steel
- goods, chemicals, dyes, textiles, and coal, for these are the only
- export articles of which she can produce great quantities. It is also
- clear that there have been no very marked changes in the proportionate
- importance of the different export trades since the war, except that
- the exchange position has somewhat stimulated, relatively to the
- others, those export lines, such as iron goods, machinery, chemicals,
- dyes, and glass, which do not involve much importation of raw materials.
- To compel Germany to pay a large indemnity is therefore the same thing
- as to compel her to expand some or all of the above–mentioned exports
- to a greater extent than she would do otherwise. The only way in which
- she can effect this expansion is by offering the goods at a lower price
- than that at which other countries care to offer them; putting herself
- in a position to offer them cheap, partly by the German working classes
- lowering their standard of life without reducing their efficiency
- in the same degree, and partly by German _export_ industries being
- subsidized, directly or indirectly, at the expense of the rest of the
- community.
- These facts, formerly overlooked, are now, perhaps, exaggerated
- by popular opinion. For Principle (3), enunciated above, requires
- attention. Our industries will be subjected to strong competition
- from Germany, just as they were before the war, whether we exact
- Reparation or not; and we must not ascribe to the Reparation policy
- inconveniences which would exist in any case. The remedy lies not in
- the now popular nostrums for prescribing the _form_ in which Germany
- shall pay, but in reducing the aggregate _amount_ to a reasonable
- figure. For by prescribing the manner in which she shall pay _us_ we do
- not control the form of her export trade as a whole; and by absorbing
- for reparation purposes the whole of a particular type of export, we
- compel her to expand her other exports to pay for her imports and
- other international obligations. On the other hand, we can secure
- from her moderate payments, on the sort of scale, for example, on
- which she might have been building up new foreign investments, without
- stimulating her exports as a whole to a greater activity than they
- would enjoy otherwise. This is the correct course for Great Britain
- from the standpoint of her own self–interest only.
- The practical application of Principles (5) and (6) is also clear. So
- far as (5) is concerned, Great Britain is to receive not the whole
- of the indemnity, but about a fifth of it; whilst (6) provides the
- argument which to me has always appeared decisive. The _permanence_ of
- reparation payments on a large scale for a long period of years is,
- to say the least, not to be reckoned on. Who believes that the Allies
- will, over a period of one or two generations, exert adequate force
- over the German Government, or that the German Government can exert
- adequate authority over its subjects, to extract continuing fruits on a
- vast scale from forced labor? No one believes it in his heart; no one
- at all. There is not the faintest possibility of our persisting with
- this affair to the end. But if this is so, then, most certainly, it
- will not be worth our while to disorder our export trades and disturb
- the equilibrium of our industry for two or three years; much less to
- endanger the peace of Europe.
- The same principles apply with one modification to the United States
- and to the exaction by her of the debts which the Allied Governments
- owe. The industries of the United States would suffer, not so much from
- the competition of cheap goods from the Allies in their endeavors to
- pay their debts, as from the inability of the Allies to purchase from
- America their usual proportion of her exports. The Allies would have
- to find the money to pay America, not so much by selling more as by
- buying less. The farmers of the United States would suffer more than
- the manufacturers; if only because increased imports can be kept out by
- a tariff, whilst there is no such easy way of stimulating diminished
- exports. It is, however, a curious fact that whilst Wall Street and
- the manufacturing East are prepared to consider a modification of the
- debts, the Middle West and South is reported (I write ignorantly) to be
- dead against it. For two years Germany was not required to pay cash to
- the Allies, and during that period the manufacturers of Great Britain
- were quite blind to what the consequences would be to themselves when
- the payments actually began. The Allies have not yet been required to
- begin to pay cash to the United States, and the farmers of the latter
- are still as blind as were the British manufacturers to the injuries
- they will suffer if the Allies ever try seriously to pay in full. I
- recommend Senators and Congressmen from the agricultural districts
- of the United States, lest they soon suffer the same moral and
- intellectual ignominy as our own high–Reparation men, to invest at once
- in a little caution in their opposition to the efforts of Mr. Harding’s
- Administration to secure for itself a free hand to act wisely in this
- matter (and even perhaps generously) in accordance with the progress of
- opinion and of events.
- The decisive argument, however, for the United States, as for Great
- Britain, is not the damage to particular interests (which would
- diminish with time), but the unlikelihood of permanence in the exaction
- of the debts, even if they were paid for a short period. I say this,
- not only because I doubt the ability of the European Allies to pay, but
- because of the great difficulty of the problem which the United States
- has before her in any case in balancing her commercial account with the
- Old World.
- American economists have examined somewhat carefully the statistical
- measure of the change from the pre–war position. According to their
- estimates, America is now owed more interest on foreign investments
- than is due from her, quite apart from the interest on the debts of
- the Allied Governments; and her mercantile marine now earns from
- foreigners more than she owes them for similar services. Her excess
- of exports of commodities over imports approaches $3000 millions a
- year;[110] whilst, on the other side of the balance, payments, mainly
- to Europe, in respect of tourists and of immigrant remittances are
- estimated at not above $1000 millions a year. Thus, in order to balance
- the account as it now stands, the United States must lend to the rest
- of the world, in one shape or another, not less than $2000 millions a
- year, to which interest and sinking fund on the European Governmental
- War Debts would, if they were paid, add about $600 millions.
- Recently, therefore, the United States must have been lending to the
- rest of the world, mainly Europe, something like $2000 millions a
- year. Fortunately for Europe, a fair proportion of this was by way of
- speculative purchases of depreciated paper currencies. From 1919 to
- 1921 the losses of American speculators fed Europe; but this source of
- income can scarcely be reckoned on permanently. For a time the policy
- of loans can meet the situation; but, as the interest on past loans
- mounts up, it must in the long run aggravate it.
- Mercantile nations have always employed large funds in overseas trade.
- But the practice of foreign investment, as we know it now, is a very
- modern contrivance, a very unstable one, and only suited to peculiar
- circumstances. An old country can in this way develop a new one at a
- time when the latter could not possibly do so with its own resources
- alone; the arrangement may be mutually advantageous, and out of
- abundant profits the lender may hope to be repaid. But the position
- cannot be reversed. If European bonds are issued in America on the
- analogy of the American bonds issued in Europe during the nineteenth
- century, the analogy will be a false one; because, taken in the
- aggregate, there is no natural increase, no _real_ sinking fund, out
- of which they can be repaid. The interest will be furnished out of new
- loans, so long as these are obtainable, and the financial structure
- will mount always higher, until it is not worth while to maintain any
- longer the illusion that it has foundations. The unwillingness of
- American investors to buy European bonds is based on common sense.
- At the end of 1919 I advocated (in _The Economic Consequences of the
- Peace_) a reconstruction loan from America to Europe, conditioned,
- however, on Europe’s putting her own house in order. In the past
- two years America, in spite of European complaints to the contrary,
- has, in fact, made _very large_ loans, much larger than the sum I
- contemplated, though not mainly in the form of regular, dollar–bond
- issues. No particular conditions were attached to these loans, and
- much of the money has been lost. Though wasted in part, they have
- helped Europe through the critical days of the post–Armistice period.
- But a continuance of them cannot provide a solution for the existing
- disequilibrium in the balance of indebtedness.
- In part the adjustment may be effected by the United States taking the
- place hitherto held by England, France, and (on a small scale) Germany
- in providing capital for those new parts of the world less developed
- than herself—the British Dominions and South America. The Russian
- Empire, too, in Europe and Asia, may be regarded as virgin soil, which
- will at a later date provide a suitable outlet for foreign capital.
- The American investor will lend more wisely to these countries, on the
- lines on which British and French investors used to lend to them, than
- direct to the old countries of Europe. But it is not likely that the
- whole gap can be bridged thus. Ultimately, and probably soon, there
- must be a readjustment of the balance of exports and imports. America
- must buy more and sell less. This is the only alternative to her
- making to Europe an annual present. Either American prices must rise
- faster than European (which will be the case if the Federal Reserve
- Board allows the gold influx to produce its natural consequences),
- or, failing this, the same result must be brought about by a further
- depreciation of the European exchanges, until Europe, by inability
- to buy, has reduced her purchases to articles of necessity. At first
- the American exporter, unable to scrap all at once the processes of
- production for export, may meet the situation by lowering his prices;
- but when these have continued, say for two years, below his cost of
- production, he will be driven inevitably to curtail or abandon his
- business.
- It is useless for the United States to suppose that an equilibrium
- position can be reached on the basis of her exporting at least as
- much as at present, and at the same time restricting her imports by
- a tariff. Just as the Allies demand vast payments from Germany, and
- then exercise their ingenuity to prevent her paying them, so the
- American Administration devises, with one hand, schemes for financing
- exports, and, with the other, tariffs which will make it as difficult
- as possible for such credits to be repaid. Great nations can often act
- with a degree of folly which we should not excuse in an individual.
- By the shipment to the United States of all the bullion in the
- world, and the erection there of a sky–scraping golden calf, a short
- postponement may be gained. But a point may even come when the United
- States will refuse gold, yet still demand to be paid,—a new Midas
- vainly asking more succulent fare than the barren metal of her own
- contract.
- In any case the readjustment will be severe, and injurious to important
- interests. If, in addition, the United States exacts payment of the
- Allied debts, the position will be intolerable. If she persevered
- to the bitter end, scrapped her export industries and diverted to
- other uses the capital now employed in them, and if her former
- European associates decided to meet their obligations at whatever
- cost to themselves, I do not deny that the final result might be to
- America’s material interest. But the project is utterly chimerical.
- It will not happen. Nothing is more certain than that America will
- not pursue such a policy to its conclusion; she will abandon it as
- soon as she experiences its first consequences. Nor, if she did, would
- the Allies pay the money. The position is exactly parallel to that
- of German Reparation. America will not carry through to a conclusion
- the collection of Allied debt, any more than the Allies will carry
- through the collection of their present Reparation demands. Neither, in
- the long run, is serious politics. Nearly all well–informed persons
- admit this in private conversation. But we live in a curious age when
- utterances in the press are deliberately designed to be in conformity
- with the worst–informed, instead of with the best–informed, opinion,
- because the former is the wider spread; so that for comparatively long
- periods there can be discrepancies, laughable or monstrous, between the
- written and the spoken word.
- If this is so, it is not good business for America to embitter her
- relations with Europe, and to disorder her export industries for two
- years, in pursuance of a policy which she is certain to abandon before
- it has profited her.
- For the benefit of any reader who enjoys an abstract statement,
- I summarize the argument thus. The equilibrium of international
- trade is based on a complicated balance between the agriculture and
- the industries of the different countries of the world, and on a
- specialization by each in the employment of its labor and its capital.
- If one country is required to transfer to another without payment
- great quantities of goods, for which this equilibrium does not allow,
- the balance is destroyed. Since capital and labor are fixed and
- organized in certain employments and cannot flow freely into others,
- the disturbance of the balance is destructive to the utility of the
- capital and labor thus fixed. The _organization_, on which the wealth
- of the modern world so largely depends, suffers injury. In course of
- time a new organization and a new equilibrium can be established.
- But if the origin of the disturbance is of temporary duration, the
- losses from the injury done to organization may outweigh the profit of
- receiving goods without paying for them. Moreover, since the losses
- will be concentrated on the capital and labor employed in particular
- industries, they will provoke an outcry out of proportion to the injury
- inflicted on the community as a whole.
- FOOTNOTE:
- [110] In the year of boom to June 1920, on a total trade of $13,350
- millions, the excess of exports over imports was $2870 millions. In
- the year, partly one of depression, to June 1921, on a total trade of
- $10,150 millions, the excess of exports was $2860 millions.
- CHAPTER VII
- THE REVISION OF THE TREATY AND THE SETTLEMENT OF EUROPE
- The deeper and the fouler the bogs into which Mr. Lloyd George leads
- us, the more credit is his for getting us out. He leads us in to
- satisfy our desires; he leads us out to save our souls. He hands us
- down the primrose path and puts out the bonfire just in time. Who, ever
- before, enjoyed the best of heaven and hell as we do?
- In England, opinion has nearly completed its swing, and the Prime
- Minister is making ready to win a General Election on Forbidding
- Germany to Pay, Employment for Every one, and a Happier Europe for
- All. Why not, indeed? But this Faustus of ours shakes too quickly his
- kaleidoscope of halos and hell–fire, for me to depict the hues as they
- melt into one another. I shall do better to construct an independent
- solution, which is _possible_ in the sense that nothing but a change in
- the popular will is necessary to achieve it, hoping to influence this
- will a little, but leaving it to those, whose business it is, to gage
- the moment at which it will be safe to embroider such patterns on a
- political banner.
- If I look back two years and read again what I wrote then, I see that
- perils which were ahead are now passed safely. The patience of the
- common people of Europe and the stability of its institutions have
- survived the worst shocks they will receive. Two years ago the Treaty,
- which outraged Justice, Mercy, and Wisdom, represented the momentary
- will of the victorious countries. Would the victims be patient? Or
- would they be driven by despair and privation to shake Society’s
- foundations? We have the answer now. They have been patient. Nothing
- very much has happened, except pain and injury to individuals. The
- communities of Europe are settling down to a new equilibrium. We are
- almost ready to turn our minds from the avoidance of calamity to the
- renewal of health.
- There have been other influences besides that patience of the common
- people which often before has helped Europe through worse evils. The
- actions of those in power have been wiser than their words. It is
- only a slight exaggeration to say that no parts of the Peace Treaties
- have been carried out, except those relating to frontiers and to
- disarmament. Many of the misfortunes which I predicted as attendant
- on the execution of the Reparation Chapter have not occurred, because
- no serious attempt has been made to execute it. And, whilst no one
- can predict with what particular sauce the makers of the Treaty will
- eat their words, there can no longer be any question of the actual
- enforcement of this Chapter. And there has been a third factor, not
- quite in accordance with expectations, paradoxical at first sight, but
- natural, nevertheless, and concordant with past experience,—the fact
- that it is in times of growing profits and not in times of growing
- distress that the working classes stir themselves and threaten their
- masters. When times are bad and poverty presses on them they sink back
- again into a weary acquiescence. Great Britain and all Europe have
- learned this in 1921. Was not the French Revolution rather due perhaps
- to the growing wealth of eighteenth–century France—for at that time
- France was the richest country in the world—than to the pressure of
- taxation or the exactions of the old régime? It is the profiteer, not
- privation, that makes man shake his chains.
- In spite, therefore, of trade depression and disordered exchanges,
- Europe, under the surface, is much stabler and much healthier than
- two years ago. The disturbance of minds is less. The organization,
- destroyed by war, has been partly restored; transport, except in
- Eastern Europe, is largely repaired; there has been a good harvest,
- everywhere but in Russia, and raw materials are abundant. Great Britain
- and the United States and their markets overseas have suffered a
- cyclical fluctuation of trade prosperity of a greater amplitude than
- ever before; but there are indications that the worst point is passed.
- Two obstacles remain. The Treaty, though unexecuted, is not revised.
- And that part of organization, which consists in currency regulation,
- public finance, and the foreign exchanges, remains nearly as bad as
- it ever was. In most European countries there is still no proper
- balance between the expenditure of the State and its income, so that
- inflation continues and the international values of their currencies
- are fluctuating and uncertain. The suggestions which follow are mainly
- directed towards these problems.
- * * * * *
- Some contemporary plans for the reconstruction of Europe err in
- being too paternal or too complicated; also, sometimes, in being too
- pessimistic. The patients need neither drugs nor surgery, but healthy
- and natural surroundings in which they can exert their own recuperative
- powers. Therefore a good plan must be in the main _negative_; it must
- consist in getting rid of shackles, in simplifying the situation, in
- canceling futile but injurious entanglements. At present every one is
- faced by obligations which they cannot meet. Until the problem set to
- the Finance Ministers of Europe is a _possible_ one, there can be
- little incentive to energy or to the exercise of skill. But if the
- situation was made such that an insolvent country could have only
- itself to blame, then the highest integrity and the most accomplished
- financial technique would, in each separate country, have its chance. I
- seek by the proposals of this chapter, not to prescribe a solution, but
- to create a situation in which a solution is possible.
- In their main substance, therefore, my suggestions are not novel. The
- now familiar project of the cancelation, in part or in their entirety,
- of the Reparation and Inter–allied Debts, is a large and unavoidable
- feature of them. But those who are not prepared for these measures must
- not pretend to a serious interest in the Reconstruction of Europe.
- In so far as such cancelation or abatement involves concessions by
- Great Britain, an Englishman can write without embarrassment and with
- some knowledge of the tendency of popular opinion in his own country.
- But where concessions by the United States are concerned he is in more
- difficulty. The attitude of a section of the American press furnishes
- an almost irresistible temptation to deal out the sort of humbug (or
- discrete half–truths) which are believed to promote cordiality between
- nations; it is easy and terribly respectable; and what is much worse,
- it may even do good where frankness would do harm. I pursue the
- opposite course, with a doubting and uneasy conscience, yet supported
- (not only in this chapter but throughout my book) by the hope, possibly
- superstitious, that openness does good in the long run, even when it
- makes trouble at first.
- So far, Reparation on a large scale has not been collected from
- Germany. So far, the Allies have not paid interest to the United States
- on what they owe. Our present troubles, when they are not attributable
- to the after–effects of war and the cyclical depression of trade, are
- due, therefore, not to the enforcement of these claims, but to the
- uncertainties of their possible enforcement. It follows, therefore,
- that merely to put off the problem will do us no good. That is what we
- have been doing for two years already. Even to reduce our Reparation
- demands to Germany’s maximum actual capacity and really force her
- to pay them, might make matters worse than they are. To write down
- inter–ally debts by half and then try to collect them, would be an
- aggravation, not a cure, of the existing difficulties. The solution,
- therefore, must not be one which tries to extract the last theoretical
- penny from everybody; its main object must be to set the Finance
- Ministers of _every_ country a problem not incapable of wise solution
- over the next five years.
- I. _The Revision of the Treaty_
- The Reparation Commission have assessed the Treaty claims at 138
- milliard gold marks, of which 132 milliards are for pensions and
- damage and 6 milliards for Belgian debt. They have not stated in what
- proportions the 132 milliards are divided between pensions and damages.
- My own assessment of the Treaty claims (p. 131 above) is 110 milliards,
- of which 74 milliards are for pensions and allowances, 30 milliards for
- damage and 6 milliards for Belgian debt.
- The arguments of Chapter VI make it incumbent on those who are
- convinced by them to abandon as dishonorable the claims to pensions and
- allowances. This reduces the claims to 36 milliards, a sum which it may
- not be in our interest to exact in full, but which is probably within
- Germany’s theoretical capacity to pay.
- Apart from clearing out of the way various clauses which are no longer
- operative or useful, and from terminating the occupation on conditions
- set forth below, I should limit my Revision of the Treaty to this
- simple stroke of the pen. Let the present assessment of 138 milliard
- gold marks be replaced by 36 milliard gold marks.
- We are strictly entitled under the Armistice Terms to these 36
- milliards; and if prudence recommends an abatement below that figure,
- such abatement can properly be made, on terms, by those and those only
- who are entitled to the claims. I estimate with some confidence that
- this sum of 36 milliards is divisible between the Allies about in the
- proportions shown in the table below.
- The payment by Germany of 5 per cent interest and 1 per cent sinking
- fund on this total sum is not, in my judgment, theoretically
- impossible. But it could only be done by stimulating her export
- industries in a manner injurious and irritating to Great Britain, and
- by imposing on her Treasury a financial problem of such difficulty that
- it would tend to unsound finance and to weak, unstable Governments.
- Even though this payment is theoretically possible, I do not think that
- it is practically obtainable over a period of thirty years.
- ────────────────┬───────┬─────────────┬──────
- │Damage.│Belgian Debt.│Total.
- ────────────────┼───────┼─────────────┼──────
- British Empire │ 9 │ 2 │ 11
- France │ 16 │ 2 │ 18
- Belgium │ 3 │ .. │ 3
- Italy │ 1 │ .. │ 1
- United States │ .. │ 2 │ 2
- Others │ 1 │ .. │ 1
- ├───────┼─────────────┼──────
- │ 30 │ 6 │ 36
- ────────────────┴───────┴─────────────┴──────
- I recommend, therefore, that, as a separate arrangement from the
- Revision of the Treaty as above, the British Empire should waive the
- whole of their claims, with the exception of 1 milliard gold marks
- reserved for a special purpose explained below, and should undertake
- to square the claims of Italy and the minor claimants by cancelation
- of debt owing from them; thus leaving Germany to pay 18 milliards to
- France and 3 milliards to Belgium (on the assumption that the United
- States also would forego the trifle due to her). This sum should be
- discharged by an annual payment of 6 per cent of the sum due (being
- 5 per cent interest and 1 per cent sinking fund) over a period of
- thirty years. With the assistance of minor measures to ease the opening
- period, it is reasonable to suppose that this amount could be paid
- without serious injury to any one.
- In so far as it proves convenient to discharge this liability in goods,
- and not in cash, so much the better. But I see no advantage in laying
- stress on this. It would be wiser to leave Germany to find the money as
- best she can, any payment in goods being by mutual agreement, as in the
- Wiesbaden plan.
- It may lead, however, to great anomalies to fix the annual payments
- in terms of _gold_ over so long a period as thirty years. If gold
- prices fall, the burden may become intolerable. If gold prices rise,
- the claimants may be cheated of their expectations. The annual payment
- should be adjusted, therefore, by some impartial authority, with
- reference to an index number of the commodity–value of gold.
- The other Treaty change relates to the Occupation. It would promote
- peaceable relations in Europe if, as a part of the new settlement, the
- Allied troops were withdrawn altogether from German territory, and all
- rights of invasion for whatever purpose waived, except by leave of a
- majority vote of the League of Nations. But in return, the British
- Empire and the United States should guarantee to France and Belgium
- all reasonable assistance, short of warfare, in securing satisfaction
- for their reduced claims; whilst Germany should guarantee the complete
- de–militarization of her territory west of the Rhine.
- II. _The Satisfaction of the Allies_
- _France._—Is it in the interest of France to accept this settlement?
- If it is combined with further concessions from Great Britain and
- the United States by the cancelation of her debts to them, it is
- overwhelmingly in her interest.
- What is her present balance–sheet of claims and liabilities? She
- is entitled to 52 per cent of what Germany pays. On p. 75 I have
- calculated what this will be under the London Settlement, (_a_) on
- the basis of German exports at the rate of 6 milliards, namely 3.56
- milliard gold marks; and (_b_) on the basis of exports at the rate
- of 10 milliards, namely 4.60 milliard gold marks. France’s share,
- therefore, is 1.85 milliards per annum on assumption (_a_), and 2.39
- milliards on assumption (_b_). On the other hand, she owes the United
- States $3634 million and the United Kingdom £557 million. If these sums
- be converted into gold marks at par, and the annual charge on them is
- calculated at 5 per cent for interest and 1 per cent for sinking fund,
- her liability is 1.48 milliards per annum. That is to say, if Germany
- pays in full and if the more favorable assumption (_b_) is adopted
- as to the growth of her exports, the most for which France can hope
- under existing arrangements is a net sum of .91 milliard gold marks
- (£45,500,000 gold) per annum. Whereas under the revised scheme she will
- not only be entitled to a greater sum, namely 1.08 milliard gold marks
- (£54,000,000 gold) per annum; but, inasmuch as she will be accorded a
- priority on Germany’s available resources, and as the total charge is
- within Germany’s capacity, she may reasonably expect to be paid.
- My proposal provides for the complete restoration of the devastated
- provinces at a fair valuation of the actual damage done, and it
- abandons other rival claims which stand in the way of the priority of
- this paramount claim. But apart from this, about which opinions will
- differ, and apart from the increased likelihood which it affords of
- really getting payment, France will actually receive a larger sum than
- if the letter of the existing agreements is adhered to all round.
- _Belgium_ is entitled at present to 8 per cent of the receipts, which
- under the London Settlement would amount to 280 million gold marks per
- annum on assumption (_a_) and 368 million on assumption (_b_). Under
- the new proposal she will receive 180 million gold marks per annum
- and will gain in certainty what she loses in possible receipts. The
- satisfaction of her existing priority should be adjusted by mutual
- agreement between herself and France.
- _Italy_ would gain immensely. She is entitled to 10 per cent of the
- receipts under the London Settlement (together with some claims on
- problematical receipts from Austria and Bulgaria); that is to say, 326
- million gold marks per annum on assumption (_a_) and 460 million on
- assumption (_b_). But these sums are far below the annual charge of her
- obligations towards the United Kingdom and the United States, which,
- converted into gold marks on the same basis as that employed above in
- the case of France, amounts to 1000 million gold marks per annum.
- III. _The Assistance of New States_
- I have reserved above, out of the claims of Great Britain, a sum of
- one milliard gold marks, with the object, not that she should retain
- this sum for herself, but that she should use it to ease the financial
- problems of two states for which she has a certain responsibility,
- namely Austria and Poland.
- _Austria’s_ problems are well known and attract a general sympathy. The
- Viennese were not made for tragedy; the world feels that, and there
- is none so bitter as to wish ill to the city of Mozart. Vienna has
- been the capital of degenerate greatness, but, released from imperial
- temptations, she is now free to fulfil her true rôle of providing for
- a quarter–part of Europe the capital of commerce and the arts. Somehow
- she has laughed and cried her way through the last two years; and
- now, I think, though on the surface her plight is more desperate than
- before, a very little help will be enough. She has no army, and by
- virtue of the depreciation of her money a trifling internal debt. Too
- much help may make of her a lifelong beggar; but a little will raise
- her from despondency and render her financial problem no longer beyond
- solution.
- My proposal, then, is to cancel the debts she owes to foreign
- governments, including empty claims to Reparation, and to give her a
- comparatively small sum out of the milliard gold marks reserved from
- British claims on Germany. Credits placed at her disposal in Berlin,
- equivalent in value to 300 million gold marks, to be available, as
- required, over a period of five years, might be enough.
- For the other new States, the cancelation of debt owing, and, in the
- case of Hungary, of Reparation claims, should be enough, except for
- Poland.
- _Poland_, too, must be given a possible problem, but it is not easy
- to be practical with so impracticable a subject. Her main problem can
- be solved only by time, and the recovery of her neighbors. I deal
- here only with the urgent question of making just possible for her a
- reorganization of currency, and of facilitating a peaceable intercourse
- between herself and Germany. For this purpose I would assign to her the
- balance of the reserved milliard, namely, 700 million gold marks, of
- which the annual interest should be available to her unconditionally,
- but of which the capital should be employed only for a currency
- reorganization, under conditions to be approved by the United States
- and Great Britain.
- In its essentials this scheme is very simple. I think that it satisfies
- my criterion of leaving every Finance Minister in Europe with a
- possible problem. The rest must come gradually, and I will not burden
- the argument of this book by considering along what lines the detailed
- solutions should be sought.
- Who are the losers? Even on paper—far more in reality—every
- continental country gains an advantage. But on paper the United States
- and the United Kingdom are losers. What is each of them giving up?
- Under the London Settlement Great Britain is entitled to 22 per cent
- of the receipts, which is from 780 to 1010 million gold marks per
- annum (£39,000,000 to £50,500,000 gold) according to which assumption
- is adopted as to the volume of German exports. She is owed by various
- European governments (including Russia, see Appendix No. IX.)
- £1,800,000,000, which at 6 per cent for interest and sinking fund is
- £108,000,000 per annum. On paper she would forego these sums, say
- £150,000,000 per annum, altogether. In actual fact, her prospects of
- securing more than a fraction of this amount are remote. Great Britain
- lives by commerce, and most Englishmen now need but little persuading
- that she will gain more in honor, prestige, and wealth by employing
- a prudent generosity to preserve the equilibrium of commerce and
- the well–being of Europe, than by attempting to exact a hateful and
- crushing tribute, whether from her victorious Allies or her defeated
- enemy.
- The United States would forego on paper a capital sum of about 6500
- million dollars, which, at 6 per cent, represents an annual charge
- of $390,000,000 (£78,000,000 gold). But in my opinion the chance of
- her being actually paid any considerable amount of this, if she tries
- to exact it, is decidedly remote.[111] Is there any likelihood of
- the United States joining in such a scheme _soon enough_ (for I feel
- confident she will cancel these debts in the end) to be useful?
- Most Americans, with whom I have discussed this question, express
- themselves as personally favorable to the cancelation of the European
- debts, but add that so great a majority of their countrymen think
- otherwise that such a proposal is at present outside practical
- politics. They think, therefore, that it is premature to discuss it;
- for the present, America must pretend she is going to demand the money
- and Europe must pretend she is going to pay it. Indeed, the position is
- much the same as that of German Reparation in England in the middle
- of 1921. Doubtless my informants are right about this public opinion,
- the mysterious entity which is the same thing perhaps as Rousseau’s
- General Will. Yet, all the same, I do not attach, to what they tell me,
- too much importance. Public opinion held that Hans Andersen’s Emperor
- wore a fine suit; and in the United States especially, public opinion
- changes sometimes, as it were, _en bloc_.
- If, indeed, public opinion were an unalterable thing, it would be a
- waste of time to discuss public affairs. And though it may be the
- chief business of newsmen and politicians to ascertain its momentary
- features, a writer ought to be concerned, rather, with what public
- opinion should be. I record these platitudes because many Americans
- give their advice, as though it were actually immoral to make
- suggestions which public opinion does not now approve. In America,
- I gather, an act of this kind is considered so reckless, that some
- improper motive is at once suspected, and criticism takes the form of
- an inquiry into the culprit’s personal character and antecedents.
- Let us inquire, however, a little more deeply into the sentiments and
- emotions which underlie the American attitude to the European debts.
- They want to be generous to Europe, both out of good feeling and
- because many of them now suspect that any other course would upset
- their own economic equilibrium. But they don’t want to be “done.” They
- do not want it to be said that once again the old cynics in Europe have
- been one too many for them. Times, too, have been bad and taxation
- oppressive; and many parts of America do not feel rich enough at the
- moment to favor a light abandonment of a possible asset. Moreover,
- these arrangements, between nations warring together, they liken much
- more closely than we do to ordinary business transactions between
- individuals. It is, they say, as though a bank having made an unsecured
- advance to a client, in whom they believe, at a difficult time when
- he would have gone under without it, this client were then to cry
- off paying. To permit such a thing would be to do an injury to the
- elementary principles of business honor.
- The average American, I fancy, would like to see the European nations
- approaching him with a pathetic light in their eyes and the cash in
- their hands, saying, “America, we owe to you our liberty and our
- life; here we bring what we can in grateful thanks, money not wrung
- by grievous taxation from the widow and orphan, but saved, the best
- fruits of victory, out of the abolition of armaments, militarism,
- Empire, and internal strife, made possible by the help you freely gave
- us.” And then the average American would reply: “I honor you for your
- integrity. It is what I expected. But I did not enter the war for
- profit or to invest my money well. I have had my reward in the words
- you have just uttered. The loans are forgiven. Return to your homes and
- use the resources I release to uplift the poor and the unfortunate.”
- And it would be an essential part of the little scene that his reply
- should come as a complete and overwhelming surprise.
- Alas for the wickedness of the world! It is not in international
- affairs that we can secure the sentimental satisfactions which we all
- love. For only individuals are good, and all nations are dishonorable,
- cruel, and designing. In deciding whether Italy (for example) must pay
- what she owes, America must consider the consequences of trying to make
- her pay,—so far as self–interest is concerned, in terms of economic
- equilibrium between America and Italy, and, so far as generosity is
- concerned, in terms of Italian peasants and their lives. And whilst the
- various Prime Ministers will telegraph something suitable, drafted by
- their private secretaries, to the effect that America’s action makes
- the moment of writing the most important in the history of the world
- and proves that Americans are the noblest creatures living, America
- must not expect adequate or appropriate thanks.
- Nevertheless, since time presses, we cannot rely on American
- assistance, and we must do without it if necessary. If America
- does not feel ready to participate in a Conference of Revision and
- Reconstruction, Great Britain should be prepared to do her part in the
- cancelation of paper claims, irrespective of similar action by the
- United States.
- The simplicity of my plan may be emphasized by summarizing it. (1)
- Great Britain, and if possible America too, to cancel all the debts
- owing them from the Governments of Europe and to waive their claims to
- any share of German Reparation; (2) Germany to pay 1260 million gold
- marks (£63,000,000 gold) per annum for 30 years, and to hold available
- a lump sum of 1000 million gold marks for assistance to Poland and
- Austria; (3) this annual payment to be assigned in the shares 1080
- million gold marks to France and 180 million to Belgium.
- This would be a just, sensible, and permanent settlement. If France
- were to refuse it, she would indeed be sacrificing the substance to
- the shadow. In spite of superficial appearances to the contrary, it
- is also in the self–interest of Great Britain. Perhaps British public
- opinion, profoundly altered though it now is, may not yet be reconciled
- to obtaining nothing. But this is a case where a wise nation will do
- best by acting in a large way. I have not neglected to consider with
- care the various possible devices by which Great Britain might get, or
- appear to get, something for herself from the settlement. She might
- take, for instance, in satisfaction of her claims some of the C Bonds
- under the London Settlement, which, having a third priority after
- provision for the A and B Bonds, can be given a nominal value but are
- really worth nothing. She might, in lieu of receiving a share of the
- proceeds of the German customs, stipulate that her goods should be
- admitted into Germany free of duty. She might seek a partial control
- over German industries, or obtain the services of German organization
- for the future exploitation of Russia. Plans of this sort attract an
- ingenious mind and are not to be discarded too hastily. Yet I prefer
- the simple plan, and I believe that all these devices are contrary to
- true wisdom.
- There is a disposition in some quarters to insist that any concessions
- to France by Great Britain and the United States, affecting Reparation
- and Inter–Ally Debt, should be conditional on France’s acceptance of a
- more pacific policy towards the rest of the world than that to which
- she herself appears to be inclined. I hope that France will abandon her
- opposition to proposals for reduced military and naval establishments.
- What a handicap her youth will suffer if she maintains conscription
- whilst her neighbors, voluntarily or involuntarily, have abandoned
- it! Does she realize the impossibility of friendship between Great
- Britain and _any_ neighboring Power which embarks on a large program
- of submarines? I hope, too, that France will forget her dangerous
- ambitions in Central Europe and will limit strictly those in the Near
- East; for both are based on rubbishy foundations and will bring her no
- good. That she has anything to fear from Germany in the future which
- we can foresee, except what she may herself provoke, is a delusion.
- When Germany has recovered her strength and pride, as in due time she
- will, many years must pass before she again casts her eyes Westward.
- Germany’s future now lies to the East, and in that direction her hopes
- and ambitions, when they revive, will certainly turn.
- France has an opportunity now of consolidating her national position
- into one of the stablest, safest, richest on the face of the earth;
- self–contained; well– but not over–populated; the heir of a peculiar
- and splendid civilization. Neither whining about devastated districts,
- which are easily repaired, nor boasting of military hegemonies, which
- can quickly ruin her, let her lift up her head as the leader and
- mistress of Europe in the peaceful practices of the mind.
- Nevertheless, these objects are not to be gained by bargaining and
- cannot be imposed from without. Therefore they must not be dragged
- into the Reparation Settlement. This Settlement must be offered France
- on one condition only,—that she accepts it. But if, like Shylock, she
- claims her pound of flesh, then let the Law prevail. Let her have her
- bond, and let us have our bonds too. Let her get what she can from
- Germany and pay what she owes to the United States and England.
- The chief question for dispute is, perhaps, whether an annual payment
- by Germany of £63,000,000 (gold) is enough. I admit that the payment
- of a somewhat larger sum may prove to be within her capacity. But I
- recommend this figure because on the one hand it is sufficient to
- restore the destruction done in France, yet on the other is not so
- crushing that, to make Germany pay it, we need be in a position to
- invade her every spring and autumn. We must fix the payment at an
- amount which Germany herself will recognize as not unjust, and which is
- sufficiently within her maximum capacity to leave her some incentive to
- work and pay it off.
- Suppose that we knew the theoretical maximum of Germany’s capacity
- to produce and sell abroad a surplus of goods, or could hit on some
- sliding scale which would automatically absorb year by year whatever
- surplus there was; should we be wise to demand it? The project of
- extracting at the point of the bayonet—for that is what it would
- mean—a payment so heavy that it would never be paid voluntarily,
- and to go on doing this until all the makers of the Peace Treaty of
- Versailles have been long dead and buried in their local Valhallas, is
- neither good nor sensible.
- My own proposals, moderate though they may seem in comparison with
- others, throw on Germany a very great burden. They procure for France
- an enormous benefit. Frenchmen, having fed to satiety on imaginary
- figures, are nearly ready, I think, to find a surprising flavor and
- piquancy in real ones. Let them consider what a tremendous financial
- strength my scheme would give them. Freed from external debt, they
- would receive in real values each year for thirty years a payment
- equivalent in gold to nearly half the gold reserve now held by the Bank
- of France; and at the end of the set period Germany would have paid
- back ten times what she took after 1870.
- Is it for Englishmen to complain? Are they really losers? One cannot
- cast up a balance–sheet between incommensurables. But peace and amity
- might be won for Europe. And England is only asked (as I fancy she
- knows pretty well, by now, in her bones) to give up something which she
- will never get anyhow. The alternative is that we and the United States
- will be jockeyed out of our claims amidst a general international
- disgust.
- FOOTNOTE:
- [111] This scheme is in no way concerned with the debt of Great Britain
- to the United States, which is excluded from the above figures. The
- question of the right treatment of this debt (which differs from the
- others chiefly because the interest on it is capable of being actually
- collected in cash) raises other issues with which I am not dealing
- here. The above proposals for cancelation relate solely to the debts
- owing by the Governments of Continental Europe to the Governments of
- Great Britain and the United States.
- APPENDIX OF DOCUMENTS
- I. THE SPA AGREEMENT, JULY 1920
- (_A_) _Summary[112] of the Agreement upon Reparations between the
- Allies, signed by the British Empire, France, Italy, Japan, Belgium,
- and Portugal._
- ARTICLE 1 provides that in pursuance of the Treaty of Versailles the
- sums received from Germany for reparations shall be divided in the
- following proportions:
- France 52 per cent.
- British Empire 22 ”
- Italy 10 ”
- Belgium 8 ”
- Japan and Portugal ¾ of 1 per cent each.
- The remaining 6½ per cent is reserved for the Serbo–Croat–Slovene
- State and for Greece, Rumania, and other Powers not signatories of the
- Agreement.
- ARTICLE 2 provides that the aggregate amount received for reparation
- from Austria–Hungary and Bulgaria, together with amounts that may be
- received in respect of the liberation of territories belonging to the
- former Austro–Hungarian Monarchy, shall be divided:
- (_a_) As to half in the proportions mentioned in Article 1.
- (_b_) As to the other half, Italy shall receive 40 per cent, while 60
- per cent is reserved for Greece, Rumania, and the Serbo–Croat–Slovene
- State and other Powers entitled to reparations but not signatories of
- the Agreement.
- ARTICLE 3 provides that the Allied Governments shall adopt measures to
- facilitate if necessary the issue by Germany of loans destined for the
- internal requirements of that country and to the prompt discharge of
- the German debt to the Allies.
- ARTICLE 4 deals in detail with the keeping of accounts by the
- Reparation Commission.
- ARTICLE 5 secures to Belgium her priority of £100,000,000 gold and
- enumerates the securities affected by such priority.[113]
- ARTICLE 6 deals with the valuation of ships surrendered under the
- various Peace Treaties, and provides for the allocation of sums
- received for the hire of such ships. It deals also with questions
- outstanding as to the decisions taken by the Belgian Prize Courts.
- Belgium receives compensation out of the shares of other Allied Powers.
- ARTICLE 7 refers to the Allied cruisers, floating docks, and material
- handed over under the Protocol of January 10, 1920, as compensation for
- the German warships which were sunk.
- ARTICLE 8 declares that the same Protocol shall apply to the proceeds
- of the sale of ships and war material surrendered under the naval
- clauses of the Treaty, virtually including the proceeds of naval war
- material sold by the Reparation Commission.
- ARTICLE 9 gives Italy an absolutely prior claim to certain specified
- sums as a set–off to amounts due to her by Austria–Hungary and Bulgaria.
- ARTICLE 10 reserves the rights of Poland and declares that this
- Agreement shall not apply to her.
- ARTICLE 11 maintains the rights of countries who lent money to Belgium
- before November 11, 1918, and makes provision for repayment immediately
- after satisfaction of the Belgian claim to priority in respect of
- £100,000,000.
- ARTICLE 12 maintains the rights of the Allied Powers to the repayment
- of credits granted to ex–enemy Powers for the purposes of relief.
- ARTICLE 13 reserves the question of fixing the cost of the armies of
- occupation in Germany on a uniform basis for discussion with the United
- States of America.
- (_B_) _The Allied Note to Germany on the Subject of Coal Deliveries_
- 1. The German Government undertakes to place at the disposal of the
- Allies, from August 1, 1920, for the ensuing six months, 2,000,000 tons
- of coal per month, this figure having been approved by the Reparation
- Commission.
- 2. The Allied Governments will credit the Reparation accounts with
- the value of this coal, as far as it is delivered by rail or inland
- navigation, and it will be valued at the German internal price in
- accordance with Paragraph 6 (A), Annex V., Part VIII., of the Treaty of
- Versailles. In addition, in consideration of the admission of the right
- of the Allies to have coal of specified kind and quality delivered to
- them, a premium of five gold marks, payable in cash by the party taking
- delivery, shall be applied to the acquisition of foodstuffs for the
- German miners.
- 3. During the period of the coal deliveries provided for above, the
- stipulations of Paragraphs 2, 3, and 4 of the draft Control Protocol of
- July 11, 1920, shall be put in force at once in the modified form of
- the Annex hereto. (See below.)
- 4. An agreement shall be made forthwith between the Allies for
- distribution of the Upper Silesian coal output by a Commission on which
- Germany will be represented. This agreement shall be submitted for the
- approval of the Reparation Commission.
- 5. The Commission, on which the Germans shall be represented, shall
- meet forthwith at Essen. Its purpose shall be to seek means by which
- the conditions of life among the miners with regard to food and
- clothing can be improved, with a view to the better working of the
- mines.
- 6. The Allied Governments declare their readiness to make advances
- to Germany equal in amount to the difference between the price paid
- under Paragraph 2 above, and the export price of German coal, f.o.b.
- in German ports, or the English export price, f.o.b. in English ports,
- whichever may be the lowest, as laid down in Paragraph VI. (B) of
- Annex V., Part VIII., of the Treaty of Versailles. These advances
- shall be made in accordance with Articles 235 and 251 of the Treaty of
- Versailles. They shall enjoy an absolute priority over all other Allied
- claims on Germany. The advances shall be made at the end of each month,
- in accordance with the number of tons delivered and the average f.o.b.
- price of coal during the period. Advances on account shall be made by
- the Allies at the end of the first month, without waiting for exact
- figures.
- 7. If by November 15, 1920, it is ascertained that the total deliveries
- for August, September, and October 1920 have not reached 6,000,000
- tons, the Allies will proceed to the occupation of a further portion of
- German territory, either the region of the Ruhr or some other.
- _Annex_
- 1. A permanent delegation of the Reparation Commission will be set up
- at Berlin, whose mission will be to satisfy itself by the following
- means that the deliveries of coal to the Allies provided for under the
- Agreement of July 15, 1920, shall be carried out: The programmes for
- the general distribution of output, with details of origin and kind,
- on the one hand, and the orders given to ensure deliveries to the
- Allied Powers on the other hand, shall be drawn up by the responsible
- German authorities and submitted by them for the approval of the said
- delegation a reasonable time before their despatch to the executive
- bodies responsible for their execution.
- 2. No modification in the said programme which may involve a reduction
- in the amount of the deliveries to the Allies shall be put into effect
- without prior approval of the Delegation of the Reparation Commission
- in Berlin.
- 3. The Reparation Commission, to which the German Government must
- periodically report the execution by the competent bodies of the orders
- for deliveries to the Allies, will notify to the interested Powers any
- infraction of the principles adopted herein.
- II. THE PARIS DECISIONS,[114] JANUARY 29, 1921
- 1. In satisfaction of the obligations laid on her by Articles 231 and
- 232 of the Treaty of Versailles, Germany shall pay, apart from the
- restitutions which she must effect in conformity with Article 238 and
- all obligations under the Treaty:
- (1) Fixed annuities, payable in equal instalments at the end of each
- six months, as follows:
- milliard gold marks
- (_a_) Two annuities of 2 (May 1, 1921–May 1, 1923)
- (_b_) Three ” 3 (May 1, 1923–May 1, 1926)
- (_c_) Three ” 4 (May 1, 1926–May 1, 1929)
- (_d_) Three ” 5 (May 1, 1929–May 1, 1932)
- (_e_) Thirty–one ” 6 (May 1, 1932–May 1, 1963)
- (2) Forty–two annuities, reckoning from May 1, 1921, equivalent to 12
- per cent of the value of Germany’s exports, levied on the receipts
- from them and payable in gold two months after the conclusion of each
- six–monthly period.
- To ensure that (2) above shall be completely carried out, Germany will
- accord to the Reparation Commission every facility for verifying the
- amount of the exports and for establishing the necessary supervision.
- 2. The German Government shall deliver forthwith to the Reparation
- Commission Bearer Bonds payable at the due dates laid down in Article
- 1 (1) of the present scheme, and of an amount equal to each of the
- six–monthly instalments payable thereunder. Instructions will be given
- with the object of facilitating, on the part of such Powers as may
- require it, the mobilisation of the portion accruing to them under the
- Agreements which they have established amongst themselves.
- 3. Germany shall be entitled at any time to anticipate the fixed
- portion of her obligation.
- Payments made by her in anticipation shall be applied in reduction of
- the fixed annuities prescribed in Article 1 (1), discounted at a rate
- of 8 per cent up to May 1, 1923, 6 per cent from May 1, 1923, to May 1,
- 1925, and 5 per cent after May 1, 1925.
- 4. Germany shall not embark on any credit operation abroad, directly
- or indirectly, without the approval of the Reparation Commission.
- This restriction applies to the Government of the German Empire, the
- Government of the German States, German provincial and municipal
- authorities, and also to companies and enterprises controlled by these
- Governments and authorities.
- 5. In pursuance of Article 248 of the Treaty of Versailles all the
- assets and revenues of the German Empire and its constituent States
- are held in guarantee of the complete execution by Germany of the
- provisions of this scheme.
- The receipts of the German Customs, by land and sea, in particular the
- receipts of all import and export duties and all supplementary taxes,
- constitute a special pledge for the execution of the present Agreement.
- No modification shall be introduced, liable to diminish the yield of
- the Customs, without the Reparation Commission approving the Customs
- Legislation and Regulations of Germany.
- The whole of the receipts of the German Customs shall be credited to
- the account of the German Government, by a Receiver–General of the
- German Customs, nominated by the German Government with the assent of
- the Reparation Commission.
- In the event of Germany failing to meet one of the payments laid down
- in the present scheme:
- (1) The whole or part of the receipts of the German Customs shall be
- taken over from the Receiver–General of the German Customs by the
- Reparation Commission and applied by it to the obligations in which
- Germany has defaulted. In this event the Reparation Commissions shall,
- if it deems necessary, itself assume the administration and collection
- of the Customs receipts.
- (2) The Reparation Commission shall be entitled, in addition, to
- require the German Government to impose such higher tariffs or to
- take such other measures to increase its resources as it may deem
- indispensable.
- (3) If this injunction is without effect, the Commission shall be
- entitled to declare the German Government in default and to notify this
- state of affairs to the Governments of the Allied and Associated Powers
- who shall take such measures as they think justified.
- (Signed) HENRI JASPAR.
- D. LLOYD GEORGE.
- ARISTIDE BRIAND.
- C. SFORZA.
- K. ISHII.
- PARIS, _January 29, 1921_.
- III. CLAIMS SUBMITTED TO THE REPARATION COMMISSION BY THE VARIOUS
- ALLIED NATIONS, AS PUBLISHED BY THE COMMISSION,[115] FEBRUARY 23, 1921
- FRANCE
- I.—_Damage to Property (Reconstitution Values)_
- Frs. (Paper)
- Industrial damages 38,882,521,479
- Damage to buildings (_propriété bâtie_) 36,892,500,000
- Damage to furniture and fittings (_dommages
- mobiliers_) 25,119,500,000
- Damage to land (_propriété non bâtie_) 21,671,546,225
- Damage to State property 1,958,217,193
- Damage to public works 2,583,299,425
- Other damages 2,359,865,000
- Shipping losses 5,009,618,722
- Damages suffered in Algeria and colonies 10,710,000
- Do. abroad 2,094,825,000
- Interest at 5 per cent on the principal
- (33,000,000,000 francs, in round figures,
- between November 11, 1918, and May 1, 1921,
- or 30 months), say, in round figures 4,125,000,000
- II.—_Injuries to Persons_
- Frs. (Paper)
- Military pensions 60,045,696,000
- Allowances to families of mobilised men 12,936,956,824
- Pensions accorded to civilian victims of
- the war and their dependants 514,465,000
- Ill–treatment inflicted on civilians and
- prisoners of war 1,869,230,000
- Assistance given to prisoners of war 976,906,000
- Insufficiency of salaries and wages 223,123,313
- Exactions by Germany to the detriment
- of the civilian population 1,267,615,939
- ───────────────
- Total of the French claims 218,541,596,120
- ═══════════════
- GREAT BRITAIN
- £ Frs.
- Damage to property 7,936,456
- Shipping losses 763,000,000
- Losses abroad 24,940,559
- Damage to river and canal
- shipping 4,000,000
- Military pensions 1,706,800,000
- Allowances to families of
- mobilised men 7,597,832,086
- Pensions for civilian victims 35,915,579
- Ill–treatment inflicted on
- civilians and prisoners 95,746
- Assistance to prisoners of war 12,663
- Insufficiency of salaries and
- wages 6,372
- ────────────── ──────────────────
- £2,542,070,375 Frs. 7,597,832,086
- ══════════════ ══════════════════
- ITALY
- Damage to property Lire 20,933,547,500
- Shipping losses £128,000,000
- Military pensions Francs 31,041,000,000
- Allowances to families of mobilised men Francs 6,885,130,395
- Civilian victims of the war and prisoners Lire 12,153,289,000
- ─────────────────────
- Total Lire 33,086,836,000
- ” Francs 37,926,130,395
- ” £128,000,000
- ═════════════════════
- BELGIUM
- Damage to property (present value) Belgian Frcs. 29,773,939,099
- Shipping losses (present value) Belgian Frcs. 180,708,250
- Military pensions French Frcs. 1,637,285,512
- Allowances to families of mobilised
- men French Frcs. 737,930,484
- Civilian victims and prisoners of war Belgian Frcs. 4,295,998,454
- ──────────────
- Total Belgian Frcs. 34,254,645,893
- ” French Frcs. 2,375,215,996
- ══════════════
- The other claims may be summarised as follows:
- Japan 297,593,000 yen (shipping losses).
- ” 454,063,000 yen (allowances to families of mobilised
- ─────────── men).
- 832,774,000 yen.
- Jugo–Slavia 8,496,091,000 dinars (damage to property).
- ” 19,219,700,112 francs (injuries to persons).
- Rumania 9,734,015,287 gold francs (property losses).
- ” 9,296,663,076 gold francs (military pensions).
- ” 11,652,009,978 gold francs (civilians and prisoners of
- war).
- ──────────────
- 31,099,400,188 gold francs.
- Portugal 1,944,261 contos (1,574,907 contos for property loss).
- Greece 4,992,788,739 gold francs (1,883,181,542 francs for
- property loss).
- Brazil £1,216,714 (shipping £1,189,144), plus 598,405 francs.
- Czecho–Slovakia 6,944,228,296 francs and 5,614,947,990 kroner
- (war–losses).
- 618,204,007 francs and 1,448,169,845 kroner (Bolshevist
- invasion).
- ───────────── ─────────────
- 7,612,432,103 francs and 7,063,117,135 kroner.
- Siam 9,179,298 marks, gold, plus 1,169,821 francs.
- Bolivia £16,000.
- Peru £56,236, plus 107,389 francs.
- Haiti $80,000, plus 532,593 francs.
- Cuba $801,135.
- Liberia $3,977,135.
- Poland 21,913,269,740 francs gold, plus 500,000,000 marks gold.
- European }
- Danube } 1,834,800 francs gold, 15,048 francs French, and
- Commission } 488,051 lei.
- IV. THE FIRST ULTIMATUM OF LONDON, MARCH 3, 1921
- The following declaration was delivered to Dr. Simons by Mr. Lloyd
- George, speaking on behalf of the British and Allied Governments, by
- word of mouth:
- “The Allies have been conferring upon the whole position and I am now
- authorised to make this declaration on their behalf:
- “The Treaty of Versailles was signed less than two years ago. The
- German Government have already defaulted in respect of some of its most
- important provisions: the delivery for trial of the criminals, who have
- offended against the laws of war, disarmament, the payment in cash or
- in kind of 20,000,000,000 of gold marks (£1,000,000,000). These are
- some of the provisions. The Allies have displayed no harsh insistence
- upon the letter of their bond. They have extended time, they have even
- modified the character of their demands; but each time the German
- Government failed them.
- “In spite of the Treaty and of the honourable undertaking given at Spa,
- the criminals have not yet been tried, let alone punished, although the
- evidence has been in the hands of the German Government for months.
- Military organisations, some of them open, some clandestine, have been
- allowed to spring up all over the country, equipped with arms that
- ought to have been surrendered. If the German Government had shown in
- respect of reparations a sincere desire to help the Allies to repair
- the terrible losses inflicted upon them by the act of aggression of
- which the German Imperialist Government was guilty, we should still
- have been ready as before to make all allowances for the legitimate
- difficulties of Germany. But the proposals put forward have reluctantly
- convinced the Allies either that the German Government does not intend
- to carry out its Treaty obligations, or that it has not the strength to
- insist, in the face of selfish and short–sighted opposition, upon the
- necessary sacrifices being made.
- “If that is due to the fact that German opinion will not permit it,
- that makes the situation still more serious, and renders it all the
- more necessary that the Allies should bring the leaders of public
- opinion once more face to face with facts. The first essential fact for
- them to realise is this—that the Allies, whilst prepared to listen to
- every reasonable plea arising out of Germany’s difficulties, cannot
- allow any further paltering with the Treaty.
- _The Ultimatum_
- “We have therefore decided—having regard to the infractions already
- committed, to the determination indicated in these proposals that
- Germany means still further to defy and explain away the Treaty, and
- to the challenge issued not merely in these proposals but in official
- statements made in Germany by the German Government—that we must
- act upon the assumption that the German Government are not merely in
- default, but deliberately in default; and unless we hear by Monday that
- Germany is either prepared to accept the Paris decisions or to submit
- proposals which will in other ways be an equally satisfactory discharge
- of her obligations under the Treaty of Versailles (subject to the
- concessions made in the Paris proposals), we shall, as from that date,
- take the following course under the Treaty of Versailles.
- “The Allies are agreed:
- (1) To occupy the towns of Duisburg, Ruhrort, and Düsseldorf, on the
- right bank of the Rhine.
- (2) To obtain powers from their respective Parliaments requiring their
- nationals to pay a certain proportion of all payments due to Germany
- on German goods to their several Governments, such proportion to be
- retained on account of reparations. (This is in respect of goods
- purchased either in this country or in any other Allied country from
- Germany.)
- (3) (_a_) The amount of the duties collected by the German Customs
- houses on the external frontiers of the occupied territories to be
- paid to the Reparation Commission.
- (_b_) These duties to continue to be levied in accordance with the
- German tariff.
- (_c_) A line of Customs houses to be temporarily established on the
- Rhine and at the boundary of the _têtes des ponts_ occupied by the
- Allied troops; the tariff to be levied on this line, both on the
- entry and export of goods, to be determined by the Allied High
- Commission of the Rhine territory in conformity with the instructions
- of the Allied Governments”.
- V. THE GERMAN COUNTER–PROPOSAL, AS TRANSMITTED TO THE UNITED STATES
- GOVERNMENT, APRIL 24, 1921
- The United States Government have, by their Note of April 22, opened
- the possibility, in a way which is thankfully acknowledged, of solving
- the reparations problem once more by negotiations ere a solution is
- effected by coercive measures. The German Government appreciates this
- step in its full importance. They have in the following proposals
- endeavoured to offer that which according to their convictions
- represents the utmost limit which Germany’s economic resources can
- bear, even with the most favourable developments:
- 1. Germany expresses her readiness to acknowledge for reparation
- purposes a total liability of 50 milliard gold marks (present value).
- Germany is also prepared to pay the equivalent of this sum in
- annuities, adapted to her economic capacity up to an aggregate of 200
- milliard gold marks. Germany proposes to mobilise her liability in the
- following way:
- 2. Germany to raise at once an international loan, of which amount,
- rate of interest, and amortisation quota are to be agreed on. Germany
- will participate in this loan, and its terms, in order to secure the
- greatest possible success, will contain special concessions, and
- generally be made as favourable as possible. Proceeds of this loan to
- be placed at the disposal of the Allies.
- 3. On the amount of her liability not covered by the international
- loan Germany is prepared to pay interest and amortisation quota in
- accordance with her economic capacity. In present circumstances she
- considers the rate of 4 per cent the highest possible.
- 4. Germany is prepared to let the Powers concerned have the benefit
- of improvements in her economic and financial situation. For this
- purpose the amortisation quota should be made variable. In case an
- improvement should take place, the quota would rise, whilst it would
- correspondingly fall if developments should be in the other direction.
- To regulate such variations an index scheme would have to be prepared.
- 5. To accelerate the redemption of the balance, Germany is ready to
- assist with all her resources in the reconstruction of the devastated
- territories. She considers reconstruction the most pressing part of
- reparation, because it is the most effective way to combat the hatred
- and misery caused by the war. She is prepared to undertake, herself,
- the rebuilding of townships, villages, and hamlets, or to assist in
- the reconstruction with labour, material, and her other resources, in
- any way the Allies may desire. The cost of such labour and material
- she would pay herself. (Full details about this matter have been
- communicated to the Reparation Commission.)
- 6. Apart from any reconstruction work Germany is prepared to supply
- for the same purpose, to States concerned, any other materials, and
- to render them any other services as far as possible on a purely
- commercial basis.
- 7. To prove the sincerity of her intention to make reparation at once,
- and in an unmistakable way, Germany is prepared to place immediately at
- the disposal of the Reparation Commission the amount of one milliard
- gold marks in the following manner: First, 150,000,000 gold marks in
- gold, silver, and foreign bills; secondly, 850,000,000 gold marks in
- Treasury bills, to be redeemed within a period not exceeding three
- months by foreign bills and other foreign values.
- 8. Germany is further prepared, if the United States and the Allies
- should so desire, to assume part of the indebtedness of the Allies to
- the United States as far as her economic capacity will allow her.
- 9. In respect of the method by which the German expenditures for
- reparation purposes should be credited against her total liability,
- Germany proposes that prices and values should be fixed by a commission
- of experts.
- 10. Germany is prepared to secure subscribers for the loan in every
- possible way by assigning to them public properties or public income
- in a way to be arranged for.
- 11. By the acceptance of these proposals all other German liabilities
- on reparation account are cancelled, and German private property abroad
- released.
- 12. Germany considers that her proposals can only be realised if the
- system of sanctions is done away with at once; if the present basis of
- German production is not further diminished; and if the German nation
- is again admitted to the world’s commerce and freed of all unproductive
- expenditure.
- These proposals testify to the German firm will to make good damage
- caused by the war up to the limit of her economic capacity. The amounts
- offered, as well as mode of payment, depend on this capacity. As far as
- differences of opinion as to this capacity exist, the German Government
- recommend that they be examined by a commission of recognised experts
- acceptable to all the interested Governments. She declares herself
- ready in advance to accept as binding any decision come to by it.
- Should the United States Government consider negotiations could be
- facilitated by giving the proposals another form, the German Government
- would be thankful if their attention were drawn to points in which the
- United States Government consider an alteration desirable. The German
- Government would also readily receive any other proposals the United
- States Government might feel inclined to make.
- The German Government is too firmly convinced that the peace and
- welfare of the world depend on a prompt, just, and fair solution of
- the reparation problem not to do everything in their power to put the
- United States in a position which enables them to bring the matter to
- the attention of the Allied Governments.—_Berlin, April 24, 1921._
- VI. THE ASSESSMENT ANNOUNCED BY THE REPARATION COMMISSION, APRIL 30,
- 1921
- The Reparation Commission, in discharge of the provisions of Article
- 233 of the Treaty of Versailles, has reached a unanimous decision to
- fix at 132 milliard gold marks the total of the damages for which
- reparation is due by Germany under Article 232 (2) and Part VIII.,
- Annex I. of the said Treaty.
- In fixing this figure the Commission have made the necessary deductions
- from the total of damages to cover restitutions effected or to be
- effected in discharge of Article 238, so that no credit will be due to
- Germany from the fact of these restitutions.
- The Commission have not included in the above figure the sum
- corresponding to the obligation, which falls on Germany as an addition
- in virtue of Article 232 (3), “to make reimbursement of all sums which
- Belgium has borrowed from the Allied and Associated Governments up to
- November 11, 1918, together with interest at the rate of 5 per cent per
- annum on such sums.”
- VII. THE SECOND ULTIMATUM OF LONDON, MAY 5, 1921
- The Allied Powers, taking note of the fact that, in spite of the
- successive concessions made by the Allies since the signature of the
- Treaty of Versailles, and in spite of the warnings and sanctions agreed
- upon at Spa and at Paris, as well as of the sanctions announced in
- London and since applied, the German Government is still in default
- in the fulfilment of the obligations incumbent upon it under the
- terms of the Treaty of Versailles as regards (1) disarmament; (2) the
- payment due on May 1, 1921, under Article 235 of the Treaty, which
- the Reparation Commission has already called upon it to make at this
- date; (3) the trial of the war criminals as further provided for by
- the Allied Notes of February 13 and May 7, 1920; and (4) certain other
- important respects, notably those which arise under Articles 264 to
- 267, 269, 273, 321, 322, and 327 of the Treaty, decide:—
- (_a_) To proceed forthwith with such preliminary measures as may be
- required for the occupation of the Ruhr Valley by the Allied Forces on
- the Rhine in the contingency provided for in Paragraph (_d_) of this
- Note.
- (_b_) In accordance with Article 233 of the Treaty to invite the
- Reparation Commission to prescribe to the German Government without
- delay the time and manner for securing and discharging the entire
- obligation incumbent upon that Government, and to announce their
- decision on this point to the German Government at latest on May 6.
- (_c_) To call upon the German Government categorically to declare
- within a period of six days from the receipt of the above decision its
- resolve (1) to carry out without reserve or condition their obligations
- as defined by the Reparation Commission; (2) to accept without reserve
- or condition the guarantees in respect of those obligations prescribed
- by the Reparation Commission; (3) to carry out without reserve or delay
- the measures of military, naval, and aerial disarmament notified to the
- German Government by the Allied Powers in their Note of January 29,
- 1921, those overdue being completed at once, and the remainder by the
- prescribed dates; (4) to carry out without reserve or delay the trial
- of the war criminals and the other unfulfilled portions of the Treaty
- referred to in the first paragraph of this Note.
- (_d_) Failing fulfilment by the German Government of the above
- conditions by May 12, to proceed to the occupation of the Valley of
- the Ruhr and to take all other military and naval measures that may be
- required. Such occupation will continue so long as Germany fails to
- comply with the conditions summarised in Paragraph (_c_).
- (Signed) HENRI JASPAR.
- A. BRIAND.
- D. LLOYD GEORGE.
- C. SFORZA.
- HAYASHI.
- _Schedule of Payments Prescribing the Time and Manner for Securing
- and Discharging the Entire Obligation of Germany for Reparation under
- Articles 231, 232, and 233 of the Treaty of Versailles._
- The Reparation Commission has, in accordance with Article 233 of the
- Treaty of Versailles, fixed the time and manner for securing and
- discharging the entire obligation of Germany for Reparation under
- Articles 231, 232, and 233 of the Treaty as follows:—
- This determination is without prejudice to the duty of Germany to make
- restitution under Article 238, or to other obligations under the Treaty.
- 1. Germany will perform in the manner laid down in this Schedule her
- obligations to pay the total fixed in accordance with Articles 231,
- 232, and 233 of the Treaty of Versailles by the Commission—viz.
- 132 milliards of gold marks (£6,600,000,000) less (_a_) the amount
- already paid on account of Reparation; (_b_) sums which may from time
- to time be credited to Germany in respect of State properties in
- ceded territory, etc.; and (_c_) any sums received from other enemy
- or ex–enemy Powers in respect of which the Commission may decide that
- credits should be given to Germany, _plus_ the amount of the Belgian
- debt to the Allies, the amounts of these deductions and additions to be
- determined later by the Commission.
- 2. Germany shall create and deliver to the Commission in substitution
- for bonds already delivered or deliverable under Paragraph 12 (_c_)
- of Annex 2 of Part VIII. (Reparation) of the Treaty of Versailles the
- bonds hereinafter described.
- (_A_) Bonds for an amount of 12 milliard gold marks (£600,000,000).
- These bonds shall be created and delivered at latest on July 1, 1921.
- There shall be an annual payment from funds to be provided by Germany
- as prescribed in this agreement, in each year from May 1, 1921, equal
- in amount to 6 per cent of the nominal value of the issued bonds, out
- of which there shall be paid interest at 5 per cent per annum, payable
- half–yearly on the bonds outstanding at any time, and the balance to
- sinking fund for the redemption of the bonds by annual drawings at par.
- These bonds are hereinafter referred to as bonds of Series (_A_).
- (_B_) Bonds for a further amount of 38 milliard gold marks
- (£1,900,000,000). These bonds shall be created and delivered at the
- latest on November 1, 1921. There shall be an annual payment from funds
- to be provided by Germany as prescribed in this agreement in each year
- from November 1, 1921, equal in amount to 6 per cent of the nominal
- value of the issued bonds, out of which there shall be paid interest
- at 5 per cent per annum, payable half–yearly on the bonds outstanding
- at any time and the balance to sinking fund for the redemption of the
- bonds by annual drawings at par. These bonds are hereinafter referred
- to as bonds of Series (_B_).
- (_C_) Bonds for 82 milliards of gold marks (£4,100,000,000), subject
- to such subsequent adjustment by creation or cancellation of bonds as
- may be required under Paragraph (1). These bonds shall be created and
- delivered to the Reparation Commission, without coupons attached, at
- latest on November 1, 1921; they shall be issued by the Commission as
- and when it is satisfied that the payments which Germany undertakes to
- make in pursuance of this agreement are sufficient to provide for the
- payment of interest and sinking fund on such bonds. There shall be an
- annual payment from funds to be provided by Germany as prescribed in
- this agreement in each year from the date of issue by the Reparation
- Commission equal in amount to 6 per cent of the nominal value of the
- issued bonds, out of which shall be paid interest at 5 per cent per
- annum, payable half–yearly on the bonds outstanding at any time, and
- the balance to sinking fund for the redemption of the bonds by annual
- drawings at par. The German Government shall supply to the Commission
- coupons for such bonds as and when issued by the Commission. These
- bonds are hereinafter referred to as bonds of Series (_C_).
- 3. The bonds provided for in Article 2 shall be signed German
- Government bearer bonds, in such form and in such denominations as the
- Reparation Commission shall prescribe for the purpose of making them
- marketable, and shall be free of all German taxes and charges of every
- description present or future.
- Subject to the provisions of Articles 248 and 251 of the Treaty of
- Versailles these bonds shall be secured on the whole of the assets and
- revenues of the German Empire and the German States, and in particular
- on the specific assets and revenues specified in Article 7 of the
- agreement. The service of the bonds of Series (_A_), (_B_), and (_C_)
- shall be a first, second, and third charge respectively on the said
- assets and revenues and shall be met by the payments to be made by
- Germany under this Schedule.
- 4. Germany shall pay in each year until the redemption of the bonds
- provided for in Article 2 by means of the sinking funds attached
- thereto—
- (1) A sum of two milliard gold marks (£100,000,000).
- (2) (_a_) A sum equivalent to 25 per cent of the value of her exports
- in each period of 12 months starting from May 1, 1921, as determined
- by the Commission; or
- (_b_) Alternatively an equivalent amount as fixed in accordance with
- any other index proposed by Germany and accepted by the Commission.
- (3) A further sum equivalent to 1 per cent of the value of her exports
- as above defined, or alternatively an equivalent amount fixed as
- provided in (_b_) above.
- Provided always that when Germany shall have discharged all her
- obligations under this Schedule, other than her liability in respect
- of outstanding bonds, the amount to be paid in each year under this
- paragraph shall be reduced to the amount required in that year to meet
- the interest and sinking fund on the bonds then outstanding.
- Subject to the provisions of Article 5, the payments to be made in
- respect of Paragraph (1) above shall be made quarterly before the end
- of each quarter, _i.e._ before January 15, April 15, July 15, and
- October 15 each year, and the payments in respect of Paragraphs (2)
- and (3) above shall be made quarterly, November 15, February 15, May
- 15, August 15, and calculated on the basis of the exports in the last
- quarter but one preceding that quarter, the first payment to be made
- November 15, 1921.
- 5. Germany will pay within 25 days from this notification one milliard
- gold marks (£50,000,000) in gold or approved foreign bills or in drafts
- at three months on the German Treasury, endorsed by approved German
- banks and payable in London, Paris, New York, or any other place
- designated by the Reparation Commission. These payments will be treated
- as the first two quarterly instalments of the payments provided for in
- compliance with Article 4 (1).
- 6. The Commission will within 25 days from this notification, in
- accordance with Paragraph 12 (_d_), Annex II. of the Treaty as amended,
- establish the special Sub–Commission, to be called the Committee of
- Guarantees. The Committee of Guarantees will consist of representatives
- of the Allied Powers now represented on the Reparation Commission,
- including a representative of the United States of America, in the
- event of that Government desiring to make the appointment.
- The Committee shall co–opt not more than three representatives of
- nationals of other Powers whenever it shall appear to the Commission
- that a sufficient portion of the bonds to be issued under this
- agreement is held by nationals of such Powers to justify their
- representation on the Committee of Guarantees.
- 7. The Committee of Guarantees is charged with the duty of securing
- the application of Articles 241 and 248 of the Treaty of Versailles.
- It shall supervise the application to the service of the bonds provided
- for in Article 2 of the funds assigned as security for the payments to
- be made by Germany under Paragraph 4. The funds to be so assigned shall
- be—
- (_a_) The proceeds of all German maritime and land customs and duties,
- and in particular the proceeds of all import and export duties.
- (_b_) The proceeds of the levy of 25 per cent on the value of all
- exports from Germany, except those exports upon which a levy of not
- less than 25 per cent is applied under the legislation referred to in
- Article 9.
- (_c_) The proceeds of such direct or indirect taxes or any other
- funds as may be proposed by the German Government and accepted by the
- Committee of Guarantees in addition to or in substitution for the funds
- specified in (_a_) or (_b_) above.
- The assigned funds shall be paid to accounts to be opened in the name
- of the Committee and supervised by it, in gold or in foreign currency
- approved by the Committee. The equivalent of the 25 per cent levy
- referred to in Paragraph (_b_) shall be paid in German currency by the
- German Government to the exporter.
- The German Government shall notify to the Committee of Guarantees any
- proposed action which may tend to diminish the proceeds of any of the
- assigned funds, and shall, if the Committee demand it, substitute some
- other approved funds.
- The Committee of Guarantees shall be charged further with the duty
- of conducting on behalf of the Commission the examination provided
- for in Paragraph 12 (_b_) of Annex 2 to Part VIII. of the Treaty of
- Versailles, and of verifying on behalf of the said Commission, and if
- necessary of correcting, the amount declared by the German Government
- as the value of German exports for the purpose of the calculation of
- the sum payable in each year under Article 4 (2) and the amounts of
- the funds assigned under this Article to the service of the bonds.
- The Committee shall be entitled to take such measures as it may deem
- necessary for the proper discharge of its duties.
- The Committee of Guarantees is not authorised to interfere in German
- administration.
- 8. Germany shall on demand, subject to the prior approval of the
- Commission, provide such material and labour as any of the Allied
- Powers may require towards the restoration of the devastated areas
- of that Power, or to enable any Allied Power to proceed with the
- restoration or development of its industrial or economic life. The
- value of such material and labour shall be determined by a valuer
- appointed by Germany and a valuer appointed by the Power concerned,
- and, in default of agreement, by a referee nominated by the Commission.
- This provision as to valuation does not apply to deliveries under
- Annexes III., IV., V., and VI. to Part VIII. of the Treaty.
- 9. Germany shall take every necessary measure of legislative and
- administrative action to facilitate the operation of the German
- Reparation (Recovery) Act, 1921, in force in the United Kingdom, and
- of any similar legislation enacted by any Allied Power, so long as
- such legislation remains in force. Payments effected by the operation
- of such legislation shall be credited to Germany on account of the
- payment to be made by her under Article 4 (2). The equivalent in German
- currency shall be paid by the German Government to the exporter.
- 10. Payment for all services rendered, all deliveries in kind, and all
- receipts under Article 9 shall be made to the Reparation Commission by
- the Allied Power receiving the same in cash or current coupons within
- one month of the receipt thereof, and shall be credited to Germany on
- account of the payments to be made by her under Article 4.
- 11. The sum payable under Article 4 (3) and the surplus receipts by the
- Commission under Article 4 (1) and (2) in each year, not required for
- the payment of interest and sinking fund on bonds outstanding in that
- year, shall be accumulated and applied so far as they will extend, at
- such times as the Commission may think fit, by the Commission in paying
- simple interest not exceeding 2½ per cent per annum from May 1,
- 1921, to May 1, 1926, and thereafter at a rate not exceeding 5 per cent
- on the balance of the debt not covered by the bonds then issued. No
- interest thereon shall be payable otherwise.
- 12. The present Schedule does not modify the provisions securing the
- execution of the Treaty of Versailles, which are applicable to the
- stipulations of the present Schedule.
- VIII. THE WIESBADEN AGREEMENT, OCTOBER 6, 1921
- This Agreement, signed by M. Loucheur and Herr Rathenau at Wiesbaden
- on October 6, 1921, is a lengthy document, consisting of a Protocol,
- Memorandum, and Annex. The effective clauses are to be found mainly
- in the Annex. The full text has been published in a British White
- Paper [Cmd. 1547]. This White Paper also contains (1) an explanatory
- Memorandum, (2) the Decision of the Reparation Commission, and (3) a
- Report from Sir John Bradbury to the British Treasury. Extracts from
- these three documents are given below.
- 1. _Explanatory Memorandum_
- In order to understand the arrangements proposed by the Wiesbaden
- Agreement, it is necessary to bear in mind certain provisions of the
- Treaty of Versailles, the application of which is affected by it.
- The Treaty itself provides in the Reparation Chapter, Part VIII.,
- and in some of its Annexes, for the partial liquidation of Germany’s
- reparation indebtedness by deliveries in kind. The important passages
- in this connection are Paragraph 19 of Annex II. and Annex IV.,
- which together make extensive provision for the delivery, through
- the Reparation Commission, to the Allied and Associated Powers of
- machinery, equipment, tools, reconstruction material, and, in general,
- all such material and labour as is necessary to enable any Allied Power
- to proceed with the restoration or development of its industrial or
- economic life.
- Germany’s obligation being stated in terms of gold and not in terms
- of commodities, provision has necessarily been made in all cases
- for crediting Germany, from time to time, with the fair value, as
- assessed by the Reparation Commission, of such deliveries. Moreover,
- since the proportions received by the respective Powers in kind need
- not necessarily correspond exactly with their respective shares
- in Germany’s reparation payments, as determined by Inter–Allied
- agreement, provision is further necessarily made in the Treaty
- to render each Power accountable not only to Germany, but to the
- Reparation Commission, for the value of these deliveries. Thus, on
- the one hand, the Treaty stipulates as between the Allies and Germany
- that the value of services under the Annexes shall be credited towards
- the liquidation of Germany’s general obligation, and the Schedule
- of Payments assigns the value of Annex deliveries to the service of
- the bonds handed over by Germany as security for her debt. On the
- other hand, the Treaty provides that for the purpose of equitable
- distribution as between the Allies, the value of Annex deliveries
- shall be reckoned in the same manner as cash payments effected in the
- year, and the Schedule of Payments stipulates that the value of the
- deliveries received by each Power shall, within one month of the date
- of delivery, be paid over to the Reparation Commission, either in cash
- or in current coupons.
- Further, the Treaty imposes upon the Reparation Commission not only the
- duty of fixing prices, but also of determining the capacity of Germany
- to deliver goods demanded by any of the Allies, and, by implication,
- of deciding between the competing demands which are made upon that
- capacity by the Allies themselves.
- The Wiesbaden Agreement provides for the delivery by a German
- company[116] to French “sinistrés” of “all plant and materials
- compatible with the productive capacity of Germany, her supply of
- raw materials and her domestic requirements,” that is to say, of the
- articles and materials which can be demanded under Annex IV. and
- Paragraph 19 of Annex II., which are, by the terms of the Agreement,
- in so far as France is concerned, virtually suspended, the obligations
- of Germany to deliver to France under the other Annexes remaining
- unaffected.
- Any question as to the capacity of Germany to satisfy the requirement
- of France, and all questions of price, are to be settled by a
- Commission of three members, one French and one German, and a third
- selected by common agreement or nominated by the Swiss President.
- The aggregate value of the deliveries to be made under the Agreement,
- and of the deliveries to be made under Annexes III., V. and VI.
- (hereafter, for the sake of brevity, called the “Annex deliveries”) in
- the period expiring on the 1st May 1926, is fixed at a maximum of 7
- milliard gold marks.
- In regard to the Annex deliveries the Agreement in no way modifies
- the Treaty provisions under which Germany is credited and France
- debited forthwith with the value, but special provisions, which are
- financially the essential part of the Agreement, are made for bringing
- to reparation account the value of the Agreement deliveries. These
- special provisions are designed to secure that Germany shall only be
- credited on reparation account at the time of delivery with a certain
- proportion of them, and that deliveries not thus accounted for, which
- may be called “excess deliveries,” shall be liquidated over a period
- of years beginning at the earliest on 1st May 1926. The provisions
- themselves are somewhat intricate, comprising, as they do, a series of
- interacting limitations, and they require some elucidation.
- (1) In no case is credit to be given to Germany in any one year for
- Annex and Agreement deliveries together to an amount exceeding one
- milliard gold marks.
- (2) In no case is credit to be given to Germany in any one year for
- more than 45 per cent of the value of the Agreement deliveries or for
- more than 35 per cent if the value of the Agreement deliveries exceeds
- one milliard gold marks.
- The effect of the above is to prescribe that 55 per cent (or, if the
- Agreement operates successfully, 65 per cent) of the value of the
- Agreement deliveries _as a minimum_ will be the object of deferred
- payment by instalments. If the Agreement deliveries reached really high
- figures, the operation of the milliard limitation would make the carry
- forward much more than 65 per cent.
- The excess deliveries are to be liquidated with interest at 5 per cent
- per annum in 10 equal annual instalments as from 1st May 1926, subject
- to certain conditions:—
- (1) France shall in no case be debited in one year for Agreement
- deliveries with an amount which, when added to the value of her Annex
- deliveries in that year, would make her responsible for more than her
- share (52 per cent) of the total reparation payments made by Germany in
- that year.
- (2) Agreement deliveries continue after 1st May 1926, with the same
- provisions for deferred payment. If in any year between May 1926 and
- May 1936 the amount (not exceeding 35 or 45 per cent) of the value of
- that year’s Agreement deliveries to be credited to Germany, together
- with the annual instalment to repay the debt incurred in respect of the
- period ending 1st May 1926, exceeds one milliard, the excess is to be
- carried forward from year to year until a year is reached in which no
- such excess is created by the payment. But in no case shall the amount
- credited, even if it is less than one milliard gold marks, exceed the
- limit laid down by the preceding condition.
- (3) Any balance with which Germany has not been credited on 1st May
- 1936 is to be credited to her with compound interest at 5 per cent in
- four half–yearly payments on 30th June and 31st December 1936 and 30th
- June and 31st December 1937. But, again, these half–yearly payments
- shall not be made if the effect of making them would be to exceed the
- limit laid down in Condition 1 above.
- (4) Agreement deliveries continue indefinitely after 1st May 1936, with
- power, however, to Germany to arrest them whenever the execution of
- them would result in France owing more than 52 per cent of Germany’s
- annual reparation payment in respect of Annex deliveries, deferred
- payments already matured, and the 35 or 45 per cent of current
- deliveries.
- From the above it is to be noted that, while there is a limitation for
- the first five years of the amount of Agreement deliveries which can be
- demanded, there is—
- (1) No point at which the right of France to demand these special
- deliveries automatically terminates.
- (2) No final limitation upon the value of the deliveries which can be
- demanded by France during the lifetime of the Agreement.
- (3) No definitely prescribed period within which France’s debt to
- Germany and to the other partners in reparation shall be liquidated.
- * * * * *
- It remains necessary to draw attention to one subsidiary point of a
- financial character under the Schedule of Payments. Part of Germany’s
- annual reparation liability consists of the payment of 26 per cent of
- the value of German exports in each period of twelve months, and part
- of the security for the payment consists of the proceeds of a levy of
- 25 per cent on the value of all German exports. The French Government
- has undertaken to support a request, to be submitted by the German
- Government to the Reparation Commission, for the inclusion in the
- exports which form the basis of these calculations of that part only of
- the value of the deliveries made under the Agreement which is credited
- to Germany and debited to France during any particular year.
- If it can be assumed that any part of the special deliveries to be made
- under the Agreement would, in the absence of the Agreement, have been
- diverted to Germany’s ordinary external trade, then the concession
- desired will have the effect of diminishing the annual payments made by
- Germany for the benefit of the Allies as a whole.
- 2. _Decision of the Reparation Commission on October 20, 1921, after
- considering the Franco–German Agreement of October 6, 1921_
- The French Government, having submitted to the Reparation Commission
- in accordance with Paragraph 3 of the Memorandum thereto attached
- the Agreement between the representatives of the French and German
- Governments signed at Wiesbaden on the 6th instant, the Commission has
- come to the following decision:—
- (1) It entirely approves the general principles underlying the
- Agreement whereby special arrangements are proposed for enabling
- Germany to liquidate the largest possible proportion of her reparation
- obligations in the form of goods and services, more especially with a
- view to the speedier restoration of the Devastated Regions.
- (2) At the same time, it considers that the Agreement involves
- certain departures from the provisions of Part VIII. of the Treaty of
- Versailles, notably Article 237, Paragraphs 12 and 19 of Annex II. and
- Paragraph 5 of Annex IV.
- (3) As the Commission has no power to authorise such departures, it
- decides to refer the question to the Governments represented on the
- Commission, with a copy of the Memorandum and its Annex, recommending a
- favourable examination of them.
- (4) The Commission recommends that reasonable facilities for deferred
- payment in respect of the exceptional volume which, if the arrangements
- are successful, the deliveries in kind to France are likely to assume
- during the next few years, should be accorded to France, subject to
- any safeguards which the Allied Governments may regard as necessary to
- protect their respective interests.
- 3. _Concluding Recommendations of Sir John Bradbury’s Report to the
- British Government (October 26, 1921)_
- The safeguards which are envisaged as necessary by my Italian and
- Belgian colleagues on the Reparation Commission and myself, and for
- which we presume that our respective Governments will desire to
- stipulate are—
- (1) That a limit of time should be laid down after the expiration of
- which no new deferment of debit should be permitted and the liquidation
- of the existing deferred debits should commence to be made by regular
- annual instalments.
- The precise length of this period should be determined upon an estimate
- of the time necessary to carry out the main work of reconstruction,
- regard being had to the time required by Germany to effect the
- necessary supplies. In view of the delays which are inevitable in
- regard to operations of the magnitude of those contemplated, the
- prescribed period might be reasonably somewhat longer than the four and
- a half years’ initial period under the agreement, but it should not
- exceed seven years.
- (2) That in no circumstances should the aggregate amount for which
- debit against France for the time being stands deferred be allowed to
- exceed a prescribed amount, say, 4 milliard gold marks.
- (3) That a provision should be inserted for the payment by France to
- the general reparation account from time to time (within the limits
- of the deferred debits for the time being outstanding) of any amounts
- which may be necessary to secure that the other Allies shall receive
- their proper proportions of the amounts due from Germany under the
- Schedule of Payments.
- Subject to the introduction of these safeguards, to which it would
- not appear that legitimate exception could be taken, the arrangements
- contemplated by the agreement may be expected to accelerate the
- solution of the Reparation problem on practical lines in a manner
- advantageous to France without prejudicing the interests of other
- Powers, and it is upon this ground that the Reparation Commission has
- unanimously recommended them for favourable examination by the Allied
- Governments.
- If the Allied Governments approve the general scheme, subject to
- whatever safeguards they may decide to be necessary, there will
- remain certain subsidiary points for the Reparation Commission to
- consider—amongst other:—
- (1) The proposed omission of the excess deliveries from the index
- figure determining the annual liability under the Schedule of Payments,
- until such time as these deliveries are finally brought to account for
- reparation purposes.
- (2) The special arrangements for substitution in respect of articles
- of which France is entitled to restitution by identity, involving in
- certain cases money payments; and
- (3) The special arrangements in regard to the delivery of coal and the
- prices to be credited and debited, which in several particulars affect
- the interest of other Powers.
- IX. TABLES OF INTER–GOVERNMENTAL INDEBTEDNESS
- (_A_) _Advances by the United States Government to other Governments
- (as in July 1921)_
- ───────────────┬─────────────────┬───────────────┬──────────────┐
- │ Credits granted │ │ │
- │ under Liberty │ Surplus War │ Food Relief. │
- │ Loan Acts.[117] │Materials Sale.│ │
- │ │ │ │
- ───────────────┼─────────────────┼───────────────┼──────────────┤
- Armenia │ │ │ $8,028,412.15│
- Austria │ │ │ │
- Belgium │ $347,691,566.23│ $27,588,581.14│ │
- Cuba │ 9,025,500.00│ │ │
- Czecho–Slovakia│ 61,256,206.74│ 20,621,994.54│ 6,428,089.19│
- Esthonia │ │ 12,213,377.88│ 1,785,767.72│
- Finland │ │ │ 8,281,926.17│
- France │ 2,950,762,938.19│ 400,000,000.00│ │
- Great Britain │ 4,166,318,358.44│ │ │
- Greece │ 15,000,000.00│ │ │
- Hungary │ │ │ │
- Italy │ 1,648,034,050.90│ │ │
- Latvia │ │ 2,521,869.32│ 2,610,417.82│
- Liberia │ 26,000.00│ │ │
- Lithuania │ │ 4,159,491.96│ 822,136.07│
- Poland │ │ 59,636,320.25│ 51,671,749.36│
- Rumania │ 23,205,819.52│ 12,922,675.42│ │
- Russia │ 187,729,750.00│ 406,082.30│ 4,465,465.07│
- Serbia │ 26,175,139.22│ 24,978,020.99│ │
- ├─────────────────┼───────────────┼──────────────┤
- Totals │$9,435,225,329.24│$565,048,413.80│$84,093,963.55│
- ───────────────┴─────────────────┴───────────────┴──────────────┘
- ───────────────┬──────────────┬─────────────┬──────────────────
- │ │ Interest │
- │ Grain │ accrued and │ Total[118]
- │ Corporation │unpaid up to │ Obligations.
- │ │ July 1921. │
- ───────────────┼──────────────┼─────────────┼──────────────────
- Armenia │ $3,931,505.34│ │ $11,959,917.49
- Austria │ 24,055,708.92│ │ 24,055,708.92
- Belgium │ │ $34,000,000 │ 409,280,147.37
- Cuba │ │ │ 9,025,500.00
- Czecho–Slovakia│ 2,873,238.25│ 6,000,000 │ 97,179,528.72
- Esthonia │ │ │ 13,999,145.60
- Finland │ │ │ 8,281,926.17
- France │ │ 284,000,000 │ 3,634,762,938.19
- Great Britain │ │ 407,000,000 │ 4,573,318,358.44
- Greece │ │ │ 15,000,000.00
- Hungary │ 1,685,835.61│ │ 1,685,835.61
- Italy │ │ 161,000,000 │ 1,809,034,050.90
- Latvia │ │ │ 5,132,287.14
- Liberia │ │ │ 26,000.00
- Lithuania │ │ │ 4,981,628.03
- Poland │ 24,353,590.97│ │ 135,661,660.58
- Rumania │ │ 2,500,000 │ 38,628,494.94
- Russia │ │ 19,000,000 │ 211,601,297.37
- Serbia │ │ 3,500,000 │ 54,653,160.21
- ├──────────────┼─────────────┼──────────────────
- Totals │$56,899,879.09│$943,500,000 │$11,084,767,585.68
- ───────────────┴──────────────┴─────────────┴──────────────────
- (_B_) _Advances by the British Government to Other Governments (as on
- March 31, 1921)_
- _Allied Governments[119]_—
- France £557,039,507 6 8
- Russia 561,402,234 18 5
- Italy 476,850,000 0 0
- Belgium 103,421,192 8 9
- Serbia 22,247,376 12 5
- Montenegro 204,755 19 9
- Rumania 21,393,662 2 8
- Portugal 18,575,000 0 0
- Greece 22,577,978 9 7
- Belgian Congo 3,550,300 0 0
- ───────────────────────£1,787,262,007 18 3
- Loans for Relief—
- Austria £8,605,134 9 9
- Rumania 1,294,726 0 8
- Serb–Croat–Slovene
- Kingdom 1,839,167 3 7
- Poland 4,137,040 10 1
- Czecho–Slovakia 417,392 3 3
- Esthonia 241,681 14 2
- Lithuania 16,811 12 4
- Latvia 20,169 1 10
- Hungary 79,997 15 10
- Armenia 77,613 17 2
- Inter–Allied Commission
- on the Danube 6,868 17 6
- ─────────────────── 16,736,603 6 2
- Other Loans (Stores, etc.)—
- Czecho–Slovakia £2,000,000 0 0
- Armenia 829,634 9 3
- ──────────────────── 2,829,634 9 3
- ────────────────────
- Total £1,806,828,245 13 8
- ────────────────────
- FOOTNOTES:
- [112] The following is the official summary issued at the time. The
- complete text of the Agreement has not been published.
- [113] Of which the most tangible were 400,000,000 Danish kroner payable
- in respect of Sleswig, certain sums were from Luxemburg for coal,
- any balance available in respect of German ships seized as prizes in
- Brazilian ports, and any balance available towards reparation out of
- German assets in the United States.
- [114] So far as I am aware, no complete official text of these
- decisions has been published in English. The above is translated from
- the French text.
- [115] The Commission published at the same time a warning that it had
- not adopted these claims, but was about to examine them.
- [116] The arrangement under which a German private company is to be
- created to deal directly with the orders without the intervention of
- the French and German Governments is intended to obviate the delays
- which experience has shown to be inseparable from the employment of the
- present machinery. It does not appear to have any important bearing on
- the general financial situation, since the deliveries will clearly have
- to be financed by the German Government and will ultimately be paid for
- by means of a reparation credit in account with the German Government.
- [117] This is a net figure and allows for repayments made up to
- July 1921, of which the chief items are $78,000,000 by France, and
- $111,000,000 by Great Britain.
- [118] The totals at the foot of these two columns include miscellaneous
- items for interest not entered in the particulars given in the columns
- themselves. A further sum of about $250,000,000 will have accrued for
- interest by February 1922.
- [119] These accounts include interest, except in the case of Belgium
- and Serbia, from whom interest has not been charged, and in the case of
- Russia, where no interest has been entered up since January 1918.
- INDEX
- Allied debts, 170 f., 183, 193 f., 238
- Armistice negotiations, 145, 148 f.
- Army of Occupation, expenses of, 84_n._, 133 f., 140, 191
- Austria, 130, 190, 191
- Balfour, A. J., 148_n._
- Baruch, 72_n._, 106_n._, 153, 155, 156, 159, 160_n._
- Belgian priority, 135–6, 139–40, 190, 204
- Reparation claims, 123–4, 197
- Boulogne Conference, 19
- Boyden, 112, 130
- Bradbury, Sir John, 93, 95, 128_n._, 129, 216
- Brenier, 109, 110, 118_n._
- Briand, 24, 25, 27, 41, 69, 114
- British Reparation Claims, 124, 211
- Brockdorff–Rantzau, 29
- Brussels Conference (Experts), 22–3
- Brussels Conference (League of Nations), 86
- Brussels Conference (Premiers), 19
- Bulgaria, 130, 190
- Clemenceau, 84_n._, 108, 149, 150
- Coal, 44 f., 75, 98
- Cunliffe, Lord, 72, 156
- Curzon, Lord, 57_n._
- D’Ahernon, Lord, 31
- Decisions of London, 95
- Disarmament of Germany, 16–19
- Dominion Prime Ministers’ Conference, 139
- Doumer, 111, 141
- Dubois, 110, 115_n._, 128_n._
- Dulles, John Foster, 156–7
- East Prussia (plebiscite), 11
- _Economic Consequences of the Peace_, 5, 39, 45, 51, 55_n._, 71, 72,
- 74_n._, 107, 108, 114, 119, 124, 126_n._, 127_n._, 144, 146_n._,
- 166, 173
- Elsas, Dr. Moritz, 88–9, 92_n._
- Exports, German, 79 f., 99, 165 f.
- Financial Agreement of Paris (Aug. 1921), 135, 141 f.
- Foch, Marshal, 31, 33, 57, 148_n._
- Forgeot, 70_n._
- Fournier–Sarlovèze, 116_n._
- Frankfurt, Occupation of, 15, 57
- French Reparation Claim, 107 f., 117 f., 210
- George, Lloyd, 1, 17, 18, 21, 27, 30, 33, 41, 84_n._, 121, 138_n._, 139,
- 150, 155, 179, 198
- German Budget, 81 f.
- German Counter–proposal (March 1921), 28–30
- German Counter–proposal (April 1921), 36 f., 215 f.
- German individual income, 86 f.
- German property in United States, 77, 143
- Gladstone, 6
- Guarantees, Committee of, 68 f., 225 f.
- Haig, Sir Douglas, 148_n_.
- Harding, President, 171
- Heichen, Dr. Arthur, 87
- Helfferich, 88, 90
- _History of the Peace Conference of Paris_, 147_n._, 152_n._, 160_n._
- House, Col., 148_n._
- Hughes, W. M., 156
- Hungary, 192
- Hymans, 150
- Hythe Conference, 18
- Invasion of Germany, 31, 32, 36
- Italian Reparation Claims, 127, 211
- Italy, 190
- Kaiser, trial of, 14
- Kapp, “Putsch,” 15
- Klotz, 24, 72, 109, 111, 147, 151 f.
- Lamont, J. W., 106_n._, 161, 162_n._
- Lansburgh, Dr. Albert, 87
- Law, Bonar, 150
- League of Nations, 12, 61, 188
- Leipzig trials, 15
- Lévy, Raphaël–Georges, 118_n._
- Leygues, 21, 24
- Lignite, 55
- London Conference I., 28, 34
- London Conference II., 40
- London Settlement, 64 f., 72, 73, 81, 84_n._, 130, 188 f., 221
- London Ultimatum I., 30, 35, 213
- London Ultimatum II., 16, 19, 31_n._, 42, 44, 57, 219 f.
- Loucheur, 31, 92, 95, 109, 110, 112_n._, 117, 120
- Loucheur–Rathenau Agreement; _vide_ Wiesbaden Agreement
- Mark Exchange, 81, 100 f.
- Mercantile Marine of Germany, 16, 137
- “Mermeix,” 148_n._, 149_n._
- Millerand, 18, 20
- Newspaper opinion, 7
- Nitti, 18
- Occupation, Army of, 84_n._, 133, 140
- Occupation of Germany, 188, 214, 219
- Occupation of Germany, legality of, 32, 41, 57 f.
- Orlando, 150
- Paris decisions, 18, 26, 32, 34, 39, 40, 57, 207
- Payment in kind, 97 f., 168
- Pensions, 125, 146 f., 185
- Poincaré, 24, 108, 128, 129
- Poland, 192 f.
- Poland’s coal, 52
- Private opinion, 7, 8
- Rathenau, 92, 95
- Reparation Claims, 126 f., 210 f.
- Reparation and International Trade, 163 f.
- Reparation Bill, 39, 106 f., 185
- Reparation Bonds, 58 f., 101, 207, 221
- Reparation Commission, 21, 32, 35, 45, 47, 59, 61, 66_n._, 67, 68, 73,
- 93, 106, 110, 118, 126, 156, 221 f., 235
- Reparation Commission, Assessment of, 27, 127 f., 219
- Reparation, Estimates of, 39, 72
- Reparation Receipts, division of, 138 f., 203
- Restitution, 16, 149, 150
- Revision of Treaty, 185 f.
- Ruhr, Occupation of, 36, 41, 58, 204
- Ruhr riots, 15
- San Remo Conference, 15, 18
- Sanctions, 32, 36, 57_n._
- Schlesvig (plebiscite), 11
- Simons, 28, 29, 32, 38_n._, 213
- Smuts, General, 160
- Sonino, 150
- Spa Coal Agreement, 45 f., 102, 133, 136, 205
- Spa Conference, 18, 19, 45, 138, 203
- Sumner, Lord, 156
- Tardieu, 24, 27, 60, 72, 106_n._, 107_n._, 108_n._, 114_n._, 117,
- 120_n._, 121_n._, 138, 147, 148_n._, 149_n._, 150_n._, 151, 153
- _The Times_, 18, 20, 22, 27, 32, 55_n._, 100, 110, 117_n._
- United States, 36, 38, 78_n._, 143
- United States and Inter–Allied Debts, 170, 183, 194 f., 238
- United States, Treaty rights of, towards Germany, 77, 78, 130, 140, 142
- Upper Silesia, 11, 30, 32, 39, 52, 54
- Westphalian riots, 15
- Wierzlicki, 53
- Wiesbaden Agreement, 76, 92 f., 187, 211 f.
- Wilson, President, 146 f., 151 f., 157, 160, 161–162
- Young, Allyn, 5_n._
- BY THE SAME AUTHOR
- THE ECONOMIC CONSEQUENCES OF THE PEACE
- _First published in London, December, 1919, and in New York, January,
- 1920. Afterwards reprinted in French, German, Italian, Spanish, Dutch,
- Flemish, Danish, Swedish, Rumanian, Russian, and Chinese, these
- editions, of which the chief are mentioned below, amounting in all to
- 140,000 copies._
- 1. THE ECONOMIC CONSEQUENCES OF THE PEACE.
- London: Macmillan and Co., 1919.
- 2. THE ECONOMIC CONSEQUENCES OF THE PEACE.
- London: Labour Research Department, 1920.
- [Out of print.]
- 3. THE ECONOMIC CONSEQUENCES OF THE PEACE.
- New York: Harcourt, Brace and Co. 1920. $2.50.
- 4. LES CONSÉQUENCES ÉCONOMIQUES DE LA PAIX. Traduit de l’Anglais par
- PAUL FRANCK.
- Paris: Editions de la Nouvelle Revue Française. 1920.
- 5. DIE WIRTHSCHAFTLICHEN FOLGEN DES FRIEDENSVERTRAGENS. Übersetzt von
- M. J. BONN und C. BRINKMANN.
- München: Duncker und Humblot. 1920.
- 6. DE ECONOMISCHE GEVOLGEN VAN DEN VREDE. Met een Inleiding van Mr. G.
- VISSERIG.
- Amsterdam: Uitgevers–Maatschappij Elsevier. 1920.
- 7. LE CONSEGUENZE ECONOMICHE DELLA PACE. Traduzione di VINCENZO TASCO.
- Prefazione di VINCENZO GIUFFRIDA.
- Milano: Fratelli Treves. 1920.
- 8. FREDENS EKONOMISKA FOLJDER. Översättning av EVERT BERGGRÉN.
- Stockholm: Albert Bonnier. 1920.
- 9. LAS CONSECUENCIAS ECONÓMICAS DE LA PAZ. Traducción por JUAN UÑA.
- Madrid: Calpe. 1920.
- 10. DE ECONOMISCHE GEVOLGEN VAN DEN VREDE. Vlaamsche Uitgave vertaing
- van G. W.
- Brussel: Uitgeverij _Ons Vaderland_. 1920.
- 11. URTMARILE ECONOMICE A LE PĂCH.
- Bucaresti: Editura _Viata Romineasca_. 1920.
- 12. EKONOMITJESKIJA POSLEDSTVIJA MIRA.
- Stockholm: W. Tullbergs Boktryckeri. 1921.
- PRESS NOTICES
- _British_
- _THE NATION_, Dec. 13, 1919.—“This is the first heavy shot that has
- been fired in the war which the intellectuals opened on the statesmen
- the moment they realized what a piece of work the Treaty was.”
- _WESTMINSTER GAZETTE_, Dec. 20, 1919.—“Mr. Keynes has produced a
- smashing and unanswerable indictment of the economic settlement.... It
- is too much to hope that the arbiters of our destinies will read it and
- perhaps learn wisdom, but it should do much good in informing a wide
- section of that public which will in its turn become the arbiters of
- theirs.”
- _SUNDAY CHRONICLE_, Dec. 21, 1919.—“No criticism of the Peace which
- omits, as Mr. Keynes seems to me by implication to omit, the aspect of
- it not as a treaty, but as a sentence, has any right to be heard by the
- European Allied peoples.”
- _THE SPECTATOR_, Dec. 20, 1919.—“The world is not governed by
- economical forces alone, and we do not blame the statesmen at Paris for
- declining to be guided by Mr. Keynes if he gave them such political
- advice as he sets forth in his book.”
- _THE TIMES_, Jan. 5, 1920.—“Mr. Keynes has written an extremely
- ‘clever’ book on the Peace Conference and its economic consequences....
- As a whole, his cry against the Peace seems to us the cry of an
- academic mind, accustomed to deal with the abstractions of that
- largely metaphysical exercise known as ‘political economy,’ in revolt
- against the facts and forces of actual political existence....
- Indeed, one of the most striking features of Mr. Keynes’s book is the
- political inexperience, not to say ingenuousness, which it reveals....
- He believes it would have been wise and just to demand from Germany
- payment of £2,000,000,000 ‘in final settlement of all claims without
- further examination of particulars.’”
- _THE ATHENÆUM_, Jan. 23, 1920.—“This book is a perfectly well–equipped
- arsenal of facts and arguments, to which every one will resort for
- years to come who wishes to strike a blow against the forces of
- prejudice, delusion, and stupidity. It is not easy to make large
- numbers of men reasonable by a book, yet there are no limits to which,
- without undue extravagance, we may not hope that the influence of
- this book may not extend. Never was the case for reasonableness more
- powerfully put. It is enforced with extraordinary art. What might
- easily have been a difficult treatise, semi–official or academic,
- proves to be as fascinating as a good novel.”
- _FORTNIGHTLY REVIEW_, March 1, 1920.—“Mr. Keynes’s book has now been
- published three months, and no sort of official reply to it has been
- issued. Nothing but the angry cries of bureaucrats have been heard. No
- such crushing indictment of a great act of international policy, no
- such revelation of the futility of diplomats has even been made.”
- _TIMES LITERARY SUPPLEMENT_, April 29, 1920.—“Mr. Keynes ... has
- violently attacked the whole work of those who made the Treaty in a
- book which exhibits every kind of ability except the political kind....
- Mr. Keynes knows everything except the elements of politics, which
- is the science of discovering, and the art of accomplishing, the
- practicable in public affairs.”
- _TIMES_ (“Annual Financial and Commercial Review”), Jan. 28,
- 1921.—“The almost unhealthy greed with which Mr. Keynes’s book on _The
- Economic Consequences of the Peace_ was devoured in a dozen countries
- was but a symptom of the new desire to appreciate, and, if possible, to
- cope with, the economic consequences not only of the peace but of the
- war.”
- _LIVERPOOL COURIER_, Feb. 2, 1921.—“In the eyes of the world—at
- least, of the world that is not pro–German—the reparation costs are
- wholly inadequate. It is true that in the eyes of Mr. J. M. Keynes
- it is wicked to charge Germany with the cost of war pensions, but we
- imagine that the average man with a simple sense of simple justice does
- not agree with Mr. Keynes.”
- “REALIST” in the _ENGLISH REVIEW_, March 1921.—“The operation of
- indemnity–payment must be followed through to its remorseless end....
- The cry ‘Germany must pay’ has still a good healthy sound about it.”
- _ENGLISH REVIEW_, June 1921.—“What Mr. Maynard Keynes predicted in his
- remarkable book is coming only too true. All over Europe the nations
- are standing to arms, thinking boundaries, while trade languishes,
- production stagnates, and credit lapses into the relativities.”
- _American_
- JOSEPH P. COTTON in the _EVENING POST_, New York, Jan. 30, 1920.—“Mr.
- Keynes’s book is the first good book on peace and the reconstruction
- of Europe. The writing is simple and sincere and true ... a great book
- with a real message.”
- PAUL D. CRAVATH in the _SUN AND NEW YORK HERALD_, Feb. 2, 1920.—“No
- English novel during or since the war has had such a success as this
- book. It should be read by every thoughtful American. It is the first
- serious discussion of the Peace Treaty by a man who knows the facts and
- is capable of discussing them with intelligence and authority.”
- HAROLD J. LASKI in the _NATION_, New York, Feb. 7, 1920.—“This is
- a very great book. If any answer can be made to the overwhelming
- indictment of the Treaty that it contains, that answer has yet to
- be published. Mr. Keynes writes with a fullness of knowledge, an
- incisiveness of judgment, and a penetration into the ultimate causes
- of economic events that perhaps only half–a–dozen living economists
- might hope to rival. Nor is the manner of his book less remarkable than
- its substance. The style is like finely–hammered steel. It is full of
- unforgettable phrases and of vivid portraits etched in the biting acid
- of a passionate moral indignation.”
- F. W. TAUSSIG, Harvard University, in the _QUARTERLY JOURNAL OF
- ECONOMICS_, Feb. 1920.—“Mr. Keynes needs no introduction to
- economists. The high quality of his work is known. This book shows the
- sure touch, the wide interests, the independent judgment, which we
- expect. It shows, also, fine spirit and literary skill.... Coming to
- the economic provisions of the Treaty, I find myself in general accord
- with what Mr. Keynes says. He makes out an estimate of what Germany can
- do in the way of reparation.... The maximum cannot, in his judgment,
- exceed ten billions of dollars. Some such figure, it is not improper
- to say, was reached independently by Professor A. A. Young in his
- estimates for the American financial advisers.”
- _FINANCIAL WORLD_, New York City, Feb. 16, 1920.—“There is a thousand
- dollars of information in it for the average business man.”
- FRANK A. VANDERLIP in _CHICAGO NEWS_, March 3, 1920.—“I regard it
- as the most important volume published since the Armistice. It is
- certain to have a profound effect on world thought. It is a deep
- analysis of the economic structure of Europe at the outbreak of the
- war, a brilliant characterisation of the Peace Conference, a revealing
- analysis of the shortcomings of the Treaty, a dissection of the
- reparation claims, done with the scientific spirit and steadiness of
- hand of a great surgeon, a vision of Europe after the Treaty, which is
- the most illuminating picture that has yet been made of the immediate
- situation on the Continent, and, finally, constructive remedial
- proposals. Every chapter bears the imprint of a master hand, of a mind
- trained to translate economic data, and of absolutely unfaltering
- courage to tell the truth.”
- ALVIN JOHNSON in the _NEW REPUBLIC_, April 14, 1920.—“There has been
- no failure anywhere to recognise that Keynes’s _Economic Consequences
- of the Peace_ requires an ‘answer.’ Too many complacencies have been
- assailed by it.... What progress are his critics making in their
- attack on it?... There is surprisingly little effort made by American
- reviewers to refute the charge that the Treaty is in many respects
- in direct violation of the preliminary engagements, nor is anywhere
- a serious attempt made to show that those engagements were not
- morally binding.... The critics have not seriously shaken Keynes’s
- characterization of the Treaty. They have not been able to get far away
- from agreement with him as to what the Treaty should have been. They
- admit the desirability of revision.”
- _DETROIT FREE PRESS_, Nov. 21, 1921.—“Only once have I seen Viviani
- go into action gradually. It was after his last trip to the United
- States. He was talking in a subdued conversational tone when suddenly
- he thought of John Maynard Keynes’s book, _The Economic Consequences
- of the Peace_. His face, hitherto motionless, twitched a little. His
- words accelerated slowly. The current of his emotion spread curiously
- through the muscles of his whole body, until the figure which had been
- relaxed from head to foot became tense in every fibre. In a moment he
- was denouncing, with the sonorous blast of his anger, the book which
- he said he had encountered in every country in the New World, as ‘a
- monument of iniquity,’ a monster which confronted him everywhere in
- South or North America, and which for some (to him) incredible reason
- everyone seemed to believe as the gospel truth about the pact of
- Versailles.”
- TRANSCRIBER’S NOTE
- -Plain print and punctuation errors fixed.
- -Table at page 238 has been splitted into two tables, because of its large
- dimension.
- End of Project Gutenberg's A Revision of the Treaty, by John Maynard Keynes
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